Earnings Call Transcript - DHR Q1 2020

Operator, Operator

My name is Chrystal, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation's First Quarter 2020 Earnings 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. Matt Gugino, Vice President of Investor Relations. Mr. Gugino, please go ahead.

Matt Gugino, Vice President of Investor Relations

Thanks, Chrystal. Good morning, everyone, and thanks for joining us on the call. With us today are Tom Joyce, 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, our first quarter 2020 Form 10-Q 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 will remain archived until our next quarterly call. A replay of this call will also be available until May 21, 2020. 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 first 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 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. As a result of the size of the Cytiva acquisition and its impact on Danaher's overall core revenue growth profile starting with the second quarter of 2020, we intend to present core revenue growth on a basis that includes Cytiva as if the business had been owned for the current period and the comparable prior year period. With that, I'd like to turn the call over to Tom.

Tom Joyce, CEO

Thanks, Matt, and good morning, everyone. I'd like to start off today by recognizing our associates around the world for their dedication and invaluable contributions during this unprecedented time. Their response to the COVID-19 pandemic has been humbling and inspiring. They're working tirelessly to ensure our facilities are up and running so that we can continue to provide customers with the tools necessary to carry out their essential work. Our suppliers have also been incredibly supportive as this crisis has unfolded. Every one of our associates, customers, and business partners is making a difference today, and I'm incredibly grateful for their collective efforts. Given how top of mind the impact of the virus is, we felt we would structure the call a little differently this quarter. Before we run through our first quarter results, I will highlight a number of our innovative solutions that are part of the direct response helping to fight COVID-19. I'll provide a recap of the trends we saw across our end markets through the month of April, and I'll wrap up with a few words on our announcement about the upcoming CEO transition. At Danaher, we are incredibly fortunate to navigate these turbulent times from a position of strength, with a resilient portfolio of businesses and an extremely talented team and the Danaher Business System as our driving force. These recent events have certainly presented a number of unforeseen challenges across our businesses, but they've also created opportunities for us to support our customers and the global community in the unprecedented fight against COVID-19. We're proud to support the frontline healthcare providers with much-needed diagnostic testing capabilities today and to support the pursuit of new treatments and vaccines for the future. As we collectively strive to contain this novel virus, diagnostic testing provides essential information to help us better understand and ultimately curb the spread of COVID-19. IDT was an early leader in this effort, as their primer and probe kits provide a key detection component in COVID-19 diagnostic tests. To date, IDT has shipped kits to enable more than 30 million diagnostic tests for the virus. In March, Cepheid launched the first rapid molecular test related to COVID-19 that provides highly accurate results within 45 minutes. With a leading global installed base of more than 23,000 molecular diagnostic instruments, including 5,000 in the US, Cepheid's tests are being deployed on the front lines to test patients and protect healthcare workers. Since Cepheid's tests became available, the team has shipped approximately two million test cartridges. And going forward, we now expect to be able to ship approximately six million tests per quarter, greatly exceeding our initial expectations. Recently published independent studies indicate that Cepheid's test performance is best-in-class versus other point-of-care platforms on the market today, providing superior virus detection with one of the fastest times to results. The market-leading caliber of Cepheid's test, combined with their significant production ramp-up, is a testament to this innovative team's commitment to tackle this global health crisis head-on. At Beckman Coulter Diagnostics, the team announced that it is developing assays to identify antibodies to the virus. We expect these antibody assays will play a critical role in understanding immunity, and in turn, improving the world's ability to manage COVID-19 going forward. Beckman will be launching one of these assays shortly, a high-sensitivity automated IgG serology test. The team plans to ramp production capability to more than two million tests in May and over 30 million tests per month by the end of June. This assay will be able to run on Beckman's global installed base of more than 16,000 immunoassay analyzers. As we look ahead toward potential new therapeutics and vaccines for COVID-19, Pall and Cytiva are supporting biotech researchers and manufacturers around the world, who are working tirelessly to find a cure. Pall's Filtration Solutions are designed into the bioproduction process of multiple leading vaccine candidates. Cytiva is supporting numerous vaccine programs in development, providing specific prototype affinity resins and helping them prepare to scale up production volumes. These are just a few examples of how we're helping to accelerate our customers' important pursuit of COVID-19 testing, treatment, prevention, and ultimately a cure. Speaking of Cytiva, I want to take this opportunity to officially welcome the team to Danaher. We're thrilled to have them on board. With the addition of Cytiva, we've doubled our annual revenue in the highly attractive biopharmaceutical end-market to more than $5 billion, which represents approximately 50% of our Life Science platform's annual revenue. With a more comprehensive offering across the entire bioproduction workflow, we're better able to support our customers who are working to deliver more life-saving drugs faster and at a lower cost, an important endeavor that's certainly accentuated by today's global health crisis. Cytiva is off to a great start here in 2020 and achieved approximately 10% revenue growth in its first quarter. Given the significance of the acquisition to our operating results, we will include Cytiva's performance as part of our overall core growth revenue metric beginning in the second quarter. So now let's take a look at our first quarter results. Sales grew 3% to $4.3 billion, driven by 4.5% core revenue growth. The impact of foreign currency translation decreased revenues by 1.5%. Geographically, high-single-digit revenue growth in the developed markets was partially offset by high-single-digit declines in high-growth markets. Revenue in China was down more than 25% as a result of extensive shutdowns related to COVID-19. While January and February were solid across North America and Western Europe, we saw a downturn in demand toward the end of the quarter when the pandemic became more severe across these regions. Gross profit margin for the first quarter was 56.2% and operating profit margin was 16.1%. Adjusted diluted net earnings per common share were $1.05. We generated $694 million of free cash flow, a 21% increase year-over-year, helping to support our strong financial position. Now we'll take a more detailed look at the results across the portfolio. Life Science reported revenue increase of 1.5% with core revenue growth of 2.5%, led by high-single-digit or better core revenue growth at Pall, IDT, and Beckman Life Sciences. The global effort to develop COVID-19-related testing and treatment drove demand for our bioprocessing, genomic, and automation solutions. That strong performance was partially offset by declines in our more instrument-oriented businesses, Leica Microsystems, and SCIEX, which were negatively impacted by deferrals of large capital equipment purchases. This dynamic was particularly acute in academic research as most of these labs around the world remained closed due to COVID-19-related shutdowns. Moving to Diagnostics, reported revenue was up 6%, with 8% core revenue growth led by very strong results at our point-of-care businesses Cepheid and Radiometer. Cepheid achieved more than 40% core revenue growth with broad-based strength across all major product lines and geographies. Particularly strength in Cepheid's flu assay was driven by the combination of a more severe flu season and increased testing during the coronavirus outbreak. We also saw early strong demand for Cepheid's COVID-19 test, which received U.S. FDA Emergency Use Authorization at the end of March. Our Radiometer business achieved high teens core revenue growth. Surges in hospitalized patients being treated for COVID-19 drove demand for Radiometer's blood gas instruments and tests, a key parameter to monitor in critically ill patients. With the largest global installed base of blood gas instruments, Radiometer is well positioned to support clinicians and patients through this unprecedented healthcare challenge and beyond. Beckman Coulter Diagnostics' core revenue decreased mid-single digits. Solid performance in North America and Western Europe was offset by significant declines in China, as a result of the extensive shutdowns initiated in January. These containment measures resulted in very few patients going to hospitals for treatments or procedures that were not COVID-19 related, which greatly reduced core laboratory testing volumes. Moving to our Environmental & Applied Solutions segment. Reported revenue increased 1% with 2.5% core revenue growth. In our water quality platform, mid-single-digit core revenue growth was led by double-digit core revenue growth at ChemTreat. Our Water businesses provide essential products and solutions used to test and treat water around the world, a mission-critical service in any economic environment. Good demand for our consumables and chemistries continued, while equipment sales declined toward the end of the quarter, as the broader macro uncertainty prompted many customers and municipalities to postpone larger expenditures. Core revenue at our product identification platform was down low single digits, with growth in marking and coding offset by declines in our packaging solutions businesses. At Videojet, equipment sales were down, but we saw strong demand for consumables across consumer packaged goods, medical, and food and beverage end markets, as widespread shelter-in-place orders drove a surge in consumer purchases. So the first quarter was challenging on many fronts. But we believe that the combination of our outstanding team's DBS-driven execution and differentiated portfolio enabled Danaher to outperform on a relative basis. So moving on to what we saw in April. The trends across our end markets through the month were largely a continuation of the dynamics that began to take hold during the last few weeks of March. We continued to see a bifurcation across our life science end markets. COVID-19-related research and development increased significantly over the last 60 days among our pharmaceutical and biotech customers, particularly in areas like antiviral therapies, vaccine development, and immune response research and testing. In turn, this generated strong demand for our bioprocessing, genomic, and automation solutions. Good momentum also continued for other non-COVID-19 related bioprocessing, driving demand for filtration, chromatography, single-use, and cell and gene therapy products. However, most academic research labs in the U.S. and Europe remained closed and labs in China have only recently started to reopen. These closures have resulted in significant installation delays for existing instrument orders, and it appears that customers are holding off on new capital purchases until the labs reopen and they fully return to work. Looking across clinical diagnostics, we continued to see very strong demand through April for molecular point-of-care and acute care testing, which is also driving increased instrument placements globally. This contrasted with lower activity in hospital labs and reference labs, where the significant declines in elective procedures, emergency department visits, and wellness checks continue to negatively impact testing volumes. We also saw delayed orders and deferred new spending on larger capital equipment in these labs. In the applied markets, the divergence of demand between consumables and equipment persisted through April. Consumables remained solid, as customers sustained essential business operations like testing and treating water and safely packaging consumer product goods and medicine. But equipment purchases are being delayed, as mission-critical operating expenses are prioritized over larger capital investments. The cadence of these end market dynamics appears to be consistent with the spread of the virus, with the negative impact in North America and Western Europe trailing that of China. China gradually improved in April, as lockdowns were lifted and businesses started to reopen and revenue growth was slightly better than initial expectations heading into the quarter. In North America and Western Europe, we believe that declines are beginning to stabilize and expect modest sequential improvements over the next few months, as these regions begin to gradually reopen. In light of these recent trends, we expect second-quarter core revenue growth including Cytiva to be in the range of flat to down 10%. So to wrap up, as I reflect on the events of the last few months, I am humbled by our team's dedication and innovative response to this unprecedented crisis. True to our core values, our associates are listening to our customers and innovating to help address their toughest challenges. Never before have these challenges been more collectively urgent and abundant and I'm so proud of how our associates have risen to the occasion. Looking ahead, we feel very well positioned to navigate through this uncertain environment. We believe that the combination of our outstanding portfolio, exceptional team, and DBS-driven execution will continue to differentiate Danaher in 2020 and beyond. Now before we go to Q&A, I want to address the press release that went out last night regarding our upcoming CEO transition. After more than 30 years at Danaher, including the last six as CEO, I've decided to begin the transition to retirement. I do this knowing that Danaher has never been stronger. The combination of our portfolio, enhanced execution around innovation, and our seasoned leadership team driven by the Danaher Business System create a strong foundation for continued outperformance. I have loved every day of the past three decades. And throughout my entire Danaher career, I've been privileged to be part of an incredible team. I've always considered the primary responsibilities of my current role to be focused on deploying capital efficiently, enhancing the portfolio, driving innovation, and developing talent. And I can now look back fondly on the tremendous progress we've made on all these fronts. I plan to see the corporation through the challenges of the next few months, and I'm confident that our portfolio and the team are both in a fantastic position to thrive in the years to come. Many of you know Rainer Blair well from his days as President of SCIEX and more recently as our EVP leading the evolution of our Life Science platform, enhancing the platform's growth and margin profile while leading the acquisitions of Pall, IDT, and Cytiva, to name just a few. There is no question that Rainer is the right person to lead us into the future. With the support of our senior leadership team and our Board, I'm confident that Rainer is well prepared to execute our strategic priorities and continue creating significant value for our shareholders. So what's next for me? Well, first off that question is one for several months from now. But I'm looking forward to spending more time with my family and I'll continue to serve on the Boards of MedStar Health and the College of the Holy Cross. I'll remain in the CEO role through September 1st of this year and I'll be around into 2021 in an advisory role. But for now, as soon as we finish this call, we will be right back to work because we have a lot to do in the coming months. With that, I'll turn the call back over to Matt, so we can start taking your questions.

Matt Gugino, Vice President of Investor Relations

Thanks, Tom. That concludes our formal comments. Chrystal, we're now ready for questions.

Operator, Operator

Thank you. Your first question comes from the line of Derik De Bruin with Bank of America.

Derik De Bruin, Analyst

Hi, good morning.

Tom Joyce, CEO

Good morning, Derik.

Derik De Bruin, Analyst

Hey. So a couple of questions and then I'll congratulate you on the retirement, I'm jealous by the way. So to start off, can you tell us what you're embedding into the guide in the 2Q for COVID-related contributions? I mean, you're producing a lot of Cepheid tests, the serologies ramping. I guess, are all those tests going to be used what all was spoken for? I mean, I was just curious in terms of what do you think about utilization and sort of what's embedded into the guide? Thanks.

Tom Joyce, CEO

Sure. Thank you, Derik. I'm happy to explain that a bit. Let's focus on the COVID impact in Q2. I view it primarily as a beneficial factor that likely adds around 500 basis points of growth, mainly coming from Cepheid, Radiometer, and IDT. Regarding what is currently allocated, Cepheid is operating at full capacity. We are expanding our capacity, but every test we produce each day is being shipped, and demand continues to grow. Radiometer is also at full capacity, having the surge capabilities we needed, and their performance has been outstanding, while IDT is maintaining its position as well. Therefore, overall, Cepheid, Radiometer, and IDT can be seen as positive contributors. On the downside, the rest of the portfolio could be potentially down between 5% to 15%, with more significant challenges anticipated from areas like Beckman Diagnostics and Leica Biosystems, which are heavily dependent on patient volumes. We will need to see if patient volumes rebound as elective procedures become more available. Additionally, there will be significant headwinds in equipment-focused businesses like LMS and SCIEX, along with some challenges in PID. When we consider all these factors, there is a partial offset from Pall and Cytiva, which are showing positive growth that is not solely related to COVID, but is certainly impacted by advancements in therapies and vaccines. This is how I would generally summarize the positive and negative influences of COVID on our Q2 performance.

Matt McGrew, CFO

And Derik, it's Matt. I just want to make sure also you've kind of – we mentioned serology. We are not assuming anything here in the quarter for serology. Even though we're ramping up with Beckman and we're going to have some capacity here, our view is that it's just a little too early to really kind of tell what the volumes might look like, what a national testing program or any other kind of local testing programs might look like. So that COVID tailwind does not include serology just to be clear.

Derik De Bruin, Analyst

Great. That's really helpful. And I guess just one question on Cytiva. In general, did you see any stocking in the first quarter? And I'm just curious what are you assuming for organic revenue growth in the Cytiva stand-alone business for the second quarter?

Tom Joyce, CEO

Derik, we saw very little. It's always hard to tell when it's on the margins as to whether or not there was stocking going on there. Generally, we don't think it was particularly material. But I'd tell you Cytiva was off to a great start, as I mentioned 10% core growth in the first quarter, really strong momentum in the core bioprocessing business and that's really driven by folks working on solutions to COVID-19. And, but as we look forward, I think we have really, as you can imagine given we just closed the end of March 1st of April, we're just getting in there to really understand what that funnel looks like. And there's plenty of uncertainties about how much that volume will build over time depending on the progression of therapies and vaccines. So I think we've got an outstanding start here. But in terms of where we are from a guide perspective on Cytiva, we're still trying to size up what that backlog is starting to look like. Obviously, we haven't even gotten face-to-face with the team yet from an operating review standpoint given the limitations we have here on travel. So right now, we're going to focus on obviously a good deal of rebranding work that we need to do. We're going to stand it up as a stand-alone operating company, execute on the TSA and exit those TSA work streams and costs and make sure that we're embedding DBS into the business and working on opportunities to continue to improve its performance. So we'll come back and give you a better sense of what Cytiva looks like in the balance of the year, once we get a little bit more stability here in terms of how the bookings trends look and we round the corner here coming into the second half of the year.

Derik De Bruin, Analyst

Great. Thank you.

Tom Joyce, CEO

Thanks, Derik.

Operator, Operator

Your next question comes from the line of Tycho Peterson with JPMorgan.

Tom Joyce, CEO

Good morning, Tycho.

Tycho Peterson, Analyst

Thanks. Good morning. Tom I'll start with congrats on the transition. I think it might be helpful to hear from you why now is the right time? I know you plan these things out well in advance. But I think people were caught a little bit off guard in the middle of a pandemic after closing your largest deals. So could you maybe just talk a little bit about how long this transition had been planned? And why now is the right time?

Tom Joyce, CEO

Sure. Absolutely, Tycho, I'd be happy to. I can honestly say that you would have to go all the way back to my very first year in the role where we along with the Board made sure that we talked about talent development, about ensuring that we are progressing in various ways through our leadership ranks to get to the point where we are today and had an outstanding choice in Rainer Blair to succeed me. So this has very much been the culmination of a succession planning process that really has gone on over the last five or six years. We always want to do something like this when we're in a position of strength. And I think the combination of where we are with the portfolio and our performance, where we are around driving innovation and growth and the strength of our team and talent really is what I think makes us very comfortable that this is certainly a good time to turn the reins over. It was super important that we got Cytiva closed. And that we gave ourselves time to ensure that the transition here of the role allows for both Rainer and I to contribute to ensuring that Cytiva comes into the organization smoothly. So I think it's really a combination of all those things. I think the Danaher Board was incredibly supportive and constructive around this all along. I am really excited about Rainer and the talent and the capabilities that he brings to this role and he's just going to do a fantastic job. So we all feel great about it.

Tycho Peterson, Analyst

Okay. Thanks. And then for the follow-up just a question on some of the longer-term COVID-related tailwinds. For Cepheid there's presumed to be less rule-in rule-out flu testing tied to COVID going forward. So I'm curious how you think about that? And then how you think about the durability of that test once there is a vaccine on the market? For Beckman curious if you can put anything around pricing for serology? And then lastly for Cytiva and Pall just curious how meaningful you think vaccine and therapy development could be for those businesses on a multiyear basis? Thanks.

Tom Joyce, CEO

Sure. Thanks, Tycho. We have a lot happening regarding the future effects of COVID, and I believe we are well-positioned for both the short and long term. Starting with diagnostic testing, Cepheid has made a significant impact alongside IDT and Radiometer in terms of frontline treatment, as well as with Beckman in serology and IgG testing. This combination of capabilities is quite unique. Regarding the durability of the Cepheid test, as you know, we are leaders in flu testing. In the future, clinicians will likely want to conduct flu testing alongside COVID-19 testing. The ability to perform both tests on the same platform and cartridge presents a substantial advantage for Cepheid. With the current surge in demand, we are witnessing increased demand not only for the test cartridges, but also for our installed base, which is growing. This increased installed base will support not only COVID-19 testing but also expanded flu testing, ultimately increasing our market share over time. Additionally, there is a wider range of tests that can operate on the Cepheid platform, which will also benefit from this growth. We see strong durability in the Cepheid architecture even in a future where we have effective therapies and vaccines. As for Beckman and serology, we believe that serology will primarily involve blood draws and that IgG tests will become integrated into routine testing. Consequently, the cost per test should be reasonable and comparable to other immunoassay tests. While we mention a capacity for 30 million tests, as Matt previously noted, we wouldn't include that in any projections, but it does highlight the potential for IgG tests to become a standard in immunoassay testing. There is great potential here, especially concerning public health advancements and population testing, with public health authorities working to identify hotspots over time. Regarding Cytiva and their work on therapies and vaccines, both Pall and Cytiva are in a strong position to provide essential inputs like filtration and resins for vaccine and therapeutic candidates. Currently, we estimate that there are over 150 therapeutic and vaccine candidates in development, and Pall and Cytiva are collaborating with many of them. While there will be both successes and failures, we believe we are well-positioned with several key players that will likely contribute to future therapies and vaccines. Overall, we feel confident about our standing.

Tycho Peterson, Analyst

Great. I appreciate it and congrats again on the retirement.

Tom Joyce, CEO

Thanks, Tycho.

Operator, Operator

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

Tom Joyce, CEO

Good morning, Vijay.

Vijay Kumar, Analyst

Good morning, everyone, and congratulations to Tom on a well-deserved break. To begin with the leadership question, Tom, you mentioned Rainer, who is recognized in the industry but might not be well-known by everyone. You indicated that he is the right choice for this role. Can you compare your leadership style with Rainer's and explain what he brings to the table? What should investors anticipate during this transition?

Tom Joyce, CEO

Sure. I want to start by noting that Rainer and I have collaborated closely for nearly all of his ten years at Danaher. Many might not know that when Rainer joined Danaher, he initially served as the President of Videojet. I believe he and his wife Elaine hadn't even fully settled in when we were looking to fill my position at SCIEX after its acquisition; I was heading to Beckman and we had this remarkable leader just starting at Videojet. There was a pressing need at SCIEX, and Rainer quickly moved to Boston and led SCIEX for several years, doing an exceptional job. Since then, we have worked together daily, including through the SCIEX era, the acquisitions of Pall and IDT, and the great work he did in recognizing the opportunity that became Cytiva, our largest acquisition to date. Given our extensive collaboration, I suppose there are several similarities between us. However, Vijay, you will have ample opportunity to ask Rainer about this, and he'll likely provide a more thoughtful comparison than I can. He is an outstanding individual, incredibly intelligent, and well-versed not only in life sciences but throughout Danaher. He commands immense respect across Danaher as a leader in DBS, an excellent teacher, a dedicated practitioner, and someone who embodies Danaher's core values and our shared mission of helping realize life's potential every day. His track record in M&A and his commitment to fostering innovation through both early and more mature investments is exceptional. I believe you'll see many shared values between us, but Rainer will certainly leave his own unique imprint on Danaher, and I am extremely confident that this will be a remarkable and lasting contribution.

Vijay Kumar, Analyst

That's helpful perspective, Tom. Just maybe one housekeeping question perhaps for Matt. Matt, I think the press release had a couple of hundred basis points contribution from Cytiva. That perhaps implies double digits, maybe even low teens growth in the business. I just want to make sure with the business doing 10%, I think, in Q1, continuing double digits in 2Q, is that just the business growth as usual? Or was there any contribution perhaps from COVID-related business? And then, perhaps, also address the decremental margins here for 2Q? Thanks, guys.

Matt McGrew, CFO

Yes. Sure. So from Cytiva perspective, I mean, I think it grew 10% there in Q1. I think that's probably a reasonable place for the business to be here in the second quarter as well. So I think your math on that is pretty correct. As far as decremental margins go, I think the place that I'd start is probably about 40% decrementals. It can vary quite a bit depending on mix, et cetera. But I think starting with 40% is a good place to start. I will tell you that probably in Q2, in Diagnostics though, probably need to be more like 50% or 60% decrementals and that's all related to FX. So that delta will be because of FX here in the quarter, so 40%, overall, maybe a touch higher here in Q2 in Diagnostics.

Vijay Kumar, Analyst

Thanks, guys.

Tom Joyce, CEO

Thanks, Vijay.

Operator, Operator

We have reached the allotted time for questions. Your last question comes from the line of Scott Davis with Melius Research.

Scott Davis, Analyst

Hi. Good morning, guys, and congrats, Tom.

Tom Joyce, CEO

Thanks, Scott. Good morning.

Scott Davis, Analyst

It's been a great six years. I'm a little surprised you're leaving, but I understand. Retirement sounds pretty appealing right now.

Tom Joyce, CEO

Scott, it was not informed by the current economic uncertainties. It was very much part of the plan.

Scott Davis, Analyst

Yes. Sure. Sure, I believe that. Anyway, so I wish you the best. I know, we'll see you before you go, but anyway…

Tom Joyce, CEO

Thank you.

Scott Davis, Analyst

A great run. With just switching to business what are the challenges of integrating Cytiva here in this kind of new world? I mean, can you really teach DBS and do Kaizens and all that stuff on a Zoom video?

Tom Joyce, CEO

Yes. Thank you for the question, Scott. Yes, that's the answer. Given how crucial it is to be on-site and engage with the real environment, we recently initiated our DBS training called Executive Champion Orientation virtually via Microsoft Teams just two weeks ago. I led the kickoff, and Rainer was on the call. John Sekowski, from our DBS office, facilitated the session. We managed to include a significant number of participants over that day and a half due to the advantages of using a virtual platform. So, to sum it up, we're making progress. We're off to a good start and are finding innovative ways to accomplish our goals. Interestingly, our businesses outside of Cytiva are successfully conducting multi-day Kaizens through virtual tools like Zoom and Microsoft Teams. While it's not the same as face-to-face interactions and we wouldn't rely on it as a standard moving forward, we are encouraging our teams to think creatively and continue pursuing continuous improvement even in this current situation.

Scott Davis, Analyst

That's encouraging. I want to shift topics and mention the numerous inquiries about Cepheid and Beckman, which are understandable. However, if we look at Environmental & Applied Solutions, there are some diverse businesses with varying cyclicality. Can you provide some range of outcomes for the second quarter that we can consider for those businesses? I appreciate your positive insights on Videojet and also on Water. Overall, Tom, can you share any additional insights on this?

Tom Joyce, CEO

Yes, Scott, these are excellent businesses even in a challenging economic environment. Hach holds a leadership position in Water Quality analytics, significantly outpacing its nearest competitor. Videojet is also a leading player in terms of market share. Both companies have a strong focus on consumables, with over 70% to 75% of their sales coming from aftermarket consumables and service. Water quality testing needs to be conducted daily in municipalities worldwide, and consumer packaged goods must be marked and shipped every day globally, which means these consumables continue to support stable performance. They serve as a safety net for the revenue structures of these businesses. While certain aspects, such as equipment in water quality or even some software businesses, may face more pressure, I still believe these are very robust businesses even in tough times. I wouldn't exchange them for any others in their markets.

Scott Davis, Analyst

I should ask it differently. Will this segment decline more than your corporate average, Tom?

Tom Joyce, CEO

Well, yes; I mean I think they would be down a bit more only because they're not buoyed by the terrific performance that we continue to see at Cepheid and IDT as well as Radiometer and even with what we think is going to be pretty solid performance at Cytiva and Pall. So, yes, I think these businesses would be at the lower end of the core growth component. You could potentially see the segment EAS down potentially mid-to-high teens inside of the guide.

Scott Davis, Analyst

Okay. Perfect. Thank you and congrats again Tom. Best of luck.

Tom Joyce, CEO

Thanks, Scott. Good to hear from you today.

Matt Gugino, Vice President of Investor Relations

Chrystal, that concludes our questions. Do you want to get any final remarks? Well thanks everyone for joining us today. We're around all day for questions.

Operator, Operator

This concludes today's conference call. You may now disconnect.