Danaher Corporation (DHR) 41st Annual J.P. Morgan Healthcare Conference (Transcript)

Danaher Corporation (NYSE:DHR) 41st Annual J.P. Morgan Healthcare Conference Call January 10, 2023 4:30 PM ET

Company Participants

Rainer Blair – President and Chief Executive Officer

Conference Call Participants

Rachel Vatnsdal – JPMorgan

Rachel Vatnsdal

Perfect. Hello, everyone. Thank you for joining us. This is Rachel Vatnsdal from the life science tools and diagnostics team here at JPMorgan. I am pleased to present Rainer Blair from the Danaher team. Today will be your normal session like the rest of the day, 40 minutes. The first 20 will be focused on the company’s presentation, followed by 20 minutes of Q&A. During Q&A, if you are joining us via webcast, feel free to submit your questions through that Q&A function online. And for those of you in the room, if you have a question, please raise your hand and we have mic runners throughout the room. So with that, thank you.

Rainer Blair

Thank you, Rachel and thank you to JPMorgan for hosting us today and hello to all of you. It’s great to see so many of you again in person and of course, also to those of you that were connected via the webcast. So it’s great to be here. Now before we get started, please have a look at our forward-looking statements advisory. Please feel free to review that at your convenience.

Now before I get started, let me give you a quick overview about what I’ll talk about. First, I’ll give a quick current update on the fourth quarter and then I will talk about our separation of the Environmental and Applied Solutions separation, where we see ourselves creating a great deal of shareholder value. And then I will talk about Danaher’s positioning post the EAS separation in 2024 and beyond as a science and technology leader with a focus on human health.

Now the fourth quarter exceeded our expectations. You may have seen our announcement from yesterday after the close of the markets. We highlighted our fourth quarter that very strong finish to the fourth quarter in 2022, culminating in what was another tremendous year for Danaher. Now in the fourth quarter 2022, our estimated core revenue growth was up high single-digits and that’s versus a guide of flat to slightly negative. We had high single-digit base business core revenue growth and that was as expected and then we had better-than-expected respiratory testing revenue at Cepheid with that coming in at over $1 billion for the fourth quarter. Now at the same time, we expect strong earnings and cash flow with adjusted operated profit margin exceeding our prior guidance.

Now if we switch to EAS, our separation teams are in play. The work streams are progressing well and we expect to separate EAS by the fourth quarter of this year 2023. So, just a great quarter and a great way to finish 2022 for Danaher. Now as we think about the EAS separation, keep in mind that for both Danaher and EAS, the separation allows both companies to reach their full potential as separate and public companies. And we couldn’t be more excited for the teams about the opportunity and under the leadership of Jennifer Honeycutt, who will be the President and CEO of the new public entity. In fact, Jennifer has been with Danaher for over 20 years, is an exceptional DBS leader and highly experienced in M&A. And the business she will be running is shown here on the left it’s an outstanding $5 billion lineup of the leading franchises in the most attractive areas of water quality and product identification. In fact, what you have here are razor/razorblade business models with spec-in consumables supported by strong secular growth drivers, and in aggregate, a highly differentiated ESG positioning.

And on the right, you will see our anticipated long-term performance of mid single-digit core revenue growth, recurring revenues of over 50% and adjusted EBITDA margins of 25% with very strong cash flow. And of course, now EAS will have the ability to deploy that capital with a bias towards M&A with meaningful cash deployments. At the same time, EAS of course will maintain at its foundation, the Danaher Business System and a commitment to continuous improvement with the strong execution that we have seen for a decade plus and the resulting market share gains. Now if you bring all this together, fantastic franchises, differentiated business models, fantastic ESG positioning, the ability to deploy cash to M&A, we see all of that driving tremendous shareholder value creation.

So now if we fast forward, post EAS separation to Danaher in 2024 and beyond, how are we positioned then? Well, let’s start off with the fact that we are changing our segmentation of the business. We are extracting the biotechnology business from what is now then the legacy life science businesses and you will have three segments rather than two and of course, EAS, in this time period would also be – already be a separate public company.

And so what you see here is that over the last years, we have dialed our portfolio into the most attractive end markets in biotechnology, in life sciences and of course, in diagnostics. And together, this has rerated our growth higher to high single-digits. That’s so important. And at the same time, you see that, that growth is balanced across the three segments.

So, let’s have a look at those. In biotechnology, you have got nearly a $9 billion franchise anchored by the bioprocessing business and growing at high single-digits long-term. If you look at the life sciences business line up here on the bottom with the logos, you can see those incredibly strong life science instrument companies in addition to the very strong genomics businesses, $7 billion of revenue, once again growing at high single-digits. Then you look at our diagnostics businesses, here you are talking about an $11 billion segment that just in 2019 was $6.5 billion. And these businesses are aligned on the most important secular growth trends in diagnostics.

Let me give you some examples. For instance, the under-penetration of molecular diagnostics at the point of care, Cepheid is the gold standard with the largest installed base by a long shot, the deepest and widest menu in the world. So when you think about the fact that we continue to invest everyday in expanding that installed base and expanding the menu, that’s just an outstanding positioning. And I am sure you have all heard about the trend of healthcare decentralizing and moving outside of the core treatment centers, while at the same time, the automation of workflows to address the skilled labor shortage. While all of our diagnostic operating companies cover these trends, but particularly Beckman Coulter Diagnostics. So when you bring all this together, 2024, so post the EAS separation, what you have is a more focused, faster growing $26.5 billion science and technology powerhouse that’s focused on human health.

Now also in 2024 and beyond, our businesses will be united by a common business model. These are razor/razorblade business models in mission-critical applications with spec-ed in high-value consumables. And if you look to the right here, you see in 2024 and beyond, 80% of the revenue is recurring, up significantly from years past and also significantly reducing our cyclicality. Now at the same time, the customer intimacy we have developed with these mission-critical applications and the frequency of the interactions associated with these more consumable-oriented businesses, this has allowed us to inform our innovation engine. This allows us then to deploy our proprietary solutions at higher margins certainly, but also for share gain. So when you are bringing this altogether and you think about these attractive end markets, these leading franchises, the power of the Danaher Business System, you can see how we bring lasting leverage to our growth and earnings trajectory.

Now I mentioned that I would talk a little bit more about the biotechnology business, specifically bioprocessing the anchor asset in that new segment. And the reason I want to do that is, because of course, the acquisition of Cytiva has done so much to differentiate our capabilities there, but it’s also just such a great example of how Danaher creates value through scaled capital deployment. And this is a three-phase process for us this acquisition. And I have to tell you it starts with the team. I can’t say enough about our Cytiva team. They are innovative, they are motivated, they are highly qualified, and they are totally dedicated to our customers and patients. And it’s without them – it is with them and with that level of capability that we have been able to pull off this extraordinary acquisition.

Let’s start with Phase 1 which is the carve-out, we are over – where we exited over 200 transition service agreements. We hired, trained and deployed to the point of impact 3,000 associates. And we launched a new brand, which is already in the top echelon in terms of brand recognition in our industry. Now when you move to Phase 2, which is stand up and operate. Phase 1, carve out; Phase 2, stand up and operate. You can see that our Cytiva team embraced the Danaher Business System ran over 400 manufacturing kaizens, so important of course to improve productivity, but also to increase our capacity during the critical time during the pandemic, during the critical time in the pandemic and at the same time, meaningfully improve the customer-facing metrics here with on-time delivery.

Now in parallel, we continue to invest in the business over $1.5 billion in capacity expansions. I will talk about that with more detail in just a second. But by way of example, you can see here we have more than doubled the capacity of our single-use technology business. You may know that that’s one of the fastest growing segments within bioprocessing and that we are the largest player in single-use technologies as well. So that’s the standing up and operating part, but how are we doing financially? And if you look to the right here, I think the financials speak for themselves.

First of all, we have more than doubled the sales of the business since acquisition. Keep in mind we closed this acquisition at the beginning of April of 2020. At the same time, we have been able to improve our competitive positioning allowing us to re-rate our long-term growth expectations of the business from what was originally 6% to 7% to now high single-digits and I think the return on invested capital says a lot. This is double-digit return on invested capital in such a short period of time and frankly exceeded all of our expectations.

So, let’s move on then to Phase 3. What’s that all about? Well, Phase 3 is to bring together Cytiva and Pall into the biotechnology group. This is the premier bioprocessing business in the world. It’s unmatched. It has the broadest portfolio and the deepest portfolio across the bioprocessing workflow. And when I talk about broad, what does that mean? Well, it means that we can essentially provide you any individual product you might need to produce your biologic therapies, but we can also provide you the end-to-end solution. If you need us to build a plant with the clean rooms around it in the building and the IT infrastructure to run it properly, we can do that too.

But what do I mean when I say the deepest portfolio? Well, the deepest portfolio is all about the number of modalities that we can address to meet the here and now, but also to the needs of the future. So for example, of course, we are leaders in protein therapeutics. So monoclonal antibody, antibody drug conjugates, bispecifics and the lot. But also in nucleic acid therapies, so gene, cell, mRNA, oligonucleotide, CRISPR-CAS9, we can provide the individual as well as the end-to-end solution to be able to develop at lab scale, scale up for clinical trials and ultimately produce at GMP quality levels for commercialization. That’s unique. That’s unique.

Now we bring together what I consider the best and brightest and the best trained commercial and technical service teams in the world. And I’ll talk about the scale of these efforts in just a second. And the mission of this team is only one, to ensure that our customers have the best customer experience through the entire development cycle, so from R&D all the way through to commercialization. Now with the insights that we have in these mission-critical workflows, with the breadth that we now have in the portfolio, we are ultimately able to help our customers achieve that, which they ultimately care about, which is the best quality, the drugs need to be safe, quality is how that is characterized, the highest yields of the process. We want these drugs to find higher penetration and meet the patient’s needs around the world. That means we need to have the highest yield so that we can also deliver the lowest cost of ownership. And that’s what our innovation is. That’s what our teams are focusing on everyday.

Now if we look a little bit further down here, we’re investing, of course, in capacity expansions. I mentioned that earlier. And that, of course, is important to meet the needs of the day and, of course, the needs of tomorrow. But as important in this industry is supply security. So we are able to now deliver that supply security in region – for region in all the major regions, including having redundancies in the supply chain to ensure that we can address worst-case scenarios some of which were arriving here during the pandemic in our industry as a whole. So we have made those investments, we continue to do, and we help to simplify our customer supply chains.

Now we also, of course, continue to invest organically in the business. We’ve launched myriad innovations, as I’ve mentioned, to improve the productivity of the processes to improve the titers through the cell lines and cell culture media formulations that we deliver and any number of other examples. But at the same time, we continue to invest inorganically in this business to round up our competitive capabilities and our offering to our customers.

Just to give you a couple of examples here, we have acquired Precision Nano Systems. These are smaller companies with big technology that allows us to deliver lipid nanoparticle capability to our customers. All of you are familiar with lipid nanoparticles because that’s what envelops nucleic acid, vaccines, such as mRNA. That’s what allows you to absorb the mRNA into your body and ultimately your cell. Aseptic fill/finish capability with the acquisition of NRx, so important with the sensitivity of nucleic acid therapeutics to have that aseptic capability – fill/finish capability in our organization. And then by way of my last example here, stable as well as transient cell line capabilities, so the cells that ultimately produce for instance, a gene therapy, either transient that’s one type of technology or stable, critically important to the future of these nucleic acid medicines.

So here you see what we mean by scale over 16,000 associates in over 40 countries around the world, jumping out of bed, if you will, every morning, looking to help our customers get those therapeutics to the patients in need around the world via 36 global manufacturing sites. So this is what I mean about scale, capability in region, for region manufacturing in order to shorten supply chains and lead times, simplifying them from a complexity perspective and then ultimately providing unrivaled supply security.

As importantly, over 20 R&D and innovation centers where we are working together on a daily basis with our customers, not just to meet the challenges of the day, of course, but also to understand the opportunities of tomorrow and the day after in innovating the next level of solutions. If you look to the right, you see the investments and several, like I said, $1.5 billion here in all the major product lines, certainly improving capacity, more than doubling capacity, but also slashing our lead times for competitive advantage and once again, to be closer to our customers.

So at the heart of world-class execution at Danaher is the Danaher Business System. This is how we operate. This is how we execute across our businesses, all the operating companies. And that will be the case for EAS in the future as well as it is for Danaher. And in blue, you see our core values and our shared purpose helping realize life’s potential, which is the basis for over the competitive advantage, sustainable and differentiated that we have refined over decades. The Danaher Business System, it’s not just a collection of tools. It’s a culture. It’s who we are, and it’s how we do what we do. It’s why we’re different.

So let me give you some proof points. I mentioned that I talk about the life science instrument businesses. And on the right side, you see here from 2012 to 2016, those businesses were growing in the low to mid-single digits. And so we applied here the power of the Danaher Business System to a group of businesses in very attractive end markets to sustainably improve our innovation processes. And on the left, you see examples of that, the problem to portfolio tool that SCIEX deployed to better understand the most material and critical pain points of our customers, resulting in the launch of the 7600 ZenoTOF, you’re all aware of the importance of proteomic research. The 7600 ZenoTOF identifies and quantifies more proteins than any other platform in the world. The 7500 triple quad that was launched in parallel is the most sensitive mass spectrometer, allowing for a far better bioanalysis in the ultimate development of drugs. And this has resulted to 40% of SCIEX’s growth attributed to new products, and you can see a sustained improvement in growth from mid to high single digits on the right.

You think about Beckman Coulter Life Sciences, launched over 30 products since 2018. That’s an order of magnitude, more order of magnitude more than the equivalent prior period through using the accelerated product development tool. And then lastly, and this is one I’m super excited about. Of course, I’m excited about all of them, but I’m super excited about the improvement here at Leica Microsystems. When you launch a breakthrough in life sciences, a critical factor is how quickly will it be adopted. Scientists, understandably are very conservative, and so it’s so critical to be able to, after launch, have a high adoption rate to accelerate your growth. And so we developed a product launch excellence tool here. And Leica Microsystem launched a product called Mica. And it’s a microscope that combines widefield microscopy with confocal micro fees in a form factor in price that allows principal investigators to do high-resolution live cell experiments in their own lab as opposed to having to send those cells to the core lab with all the trouble you can imagine that’s associated with that.

We’ve had an extraordinary uptake of this amazing breakthrough. It’s, of course, increased the size of the market by now bringing these solutions to principal investigators versus the fewer core labs. And you can see an increase in revenue of over 40% in new products in the last 3 years. So you can see the power of the Danaher Business System to sustainably improve processes and growth in this example in the Life Science instrument group. And it’s one of the reasons why this business has been growing so strongly here, including the fourth quarter here of 2022.

Now let’s switch gears and talk about sustainability. It’s so important, and it’s getting more important every day. And as a result of that, it’s, of course, also a priority for Danaher. Now we define our sustainability activities along three categories: team, innovation and environment. You can see that down in the middle. And as you likely saw one of our core values is the best team wins. And so for us, building the best team means building a diverse team: more resilient, more innovative and more motivated. And as such, 75% of our recent hires are diverse.

If we look at innovation, of course, innovation, as I just spoke about, is central to our business. It’s what we do to help improve lives but we also want to help improve the planet here. And so what we’ve done is we’ve integrated sustainable design practices in our R&D processes. We’ve upped our R&D investment by 30% to have an outsized impact here as well. And then lastly, if we think about the environment, we’ve signed up for over 50% reduction in greenhouse gas emissions, not by 2050. But by 2032, concrete steps to deliver real progress in greenhouse gas emissions by Danaher and if you are interested in hearing more about our sustainability journey and the progress that we’re making. We’ve just published our sustainability report 2022 in the fourth quarter, and you can download that from our website.

Now let’s bring it all together. What does all this mean? Once again, post the EAS spin and Danaher 2024 and beyond, we are rerating both our growth as well as our margin profile higher. So our growth from mid-single digits plus to high single digits. And if we look underneath the hood, how is that? Well, here you see it, the scaled leading franchise in bioprocessing, $8.8 billion, the combination of Cytiva and Pall growing at high single digits. The gold standard at the point of care for molecular testing which will represent more than 10% of Danaher, growing low double digits. Then you have our genomic – excellent genomic franchise is growing well into the double digits and are very strong, and I just talked about those life science instrument and clinical diagnostics businesses growing at mid-single digits plus. So you bring all that together, that’s your high single-digit growth rate, and we’ve re-rated our fall-through from 30% to 35% to now 35% to 40%. And you couple that with our very strong free cash flow conversion, and you channel that to capital allocation with a bias to M&A, you see why we’re so confident in our double-digit plus EPS growth trajectory and the power of the compounding returns that, that implies.

So to wrap up, once more, just the key takeaways. Post the EAS separation, so think 2024 and beyond, we have differentiated positions in the most attractive areas of biotechnology, life sciences and diagnostics. We’re enhancing our growth trajectory and long-term competitive advantage every day through investments in innovation and capacity where appropriate and M&A. And lastly, we have rerated both our long-term growth and margin profiles higher, driven by the power of the Danaher Business System.

So with that, thank you. I think we have some time for Q&A. And so over to you, Rachel.

Question-and-Answer Session

Q – Rachel Vatnsdal

Thank you. [Operator Instructions] So first off, congratulations on the preannouncement, high single digits core and then high single-digit space business, well above expectations. A lot of that was driven by respiratory season and outpaced growth at Cepheid. But just wondering if you could walk us through, were there any other businesses that grew above your expectations internally. Bioprocessing is obviously an area of interest for most of us in the room. So can you walk us through what are some of the trends you saw in bioprocessing?

Rainer Blair

Sure. So I mean we’re just closing the books now as you can imagine, but I think I can give you some color here. First of all, I would tell you that bioprocessing grew as expected and we closed the year at high-single digits growth, which is something that I have been communicating as our expectation, and that’s where we are. As we think about our life science instrument group, it grew in the high-single digits with some of the operating companies that you just saw well into the teens like the fleet average in the high-single digits, also as expected, very strong growth. As we move to diagnostics briefly. Here, we saw of course, Cepheid crushing it with the beat. But then also, we saw our Leica Biosystems and Radiometer [ph] businesses growing into the high single, low-double digits. And then lastly, Beckman Coulter Diagnostics, there we did see the impact of the China reopening with an impact on patient volumes, but really at the margin. So, in aggregate, life or – diagnostics of course, together with Cepheid, outperforming our expectations.

Rachel Vatnsdal

Great to hear a really strong performance across the board there. So, maybe just to get into some of this bioprocessing dynamic. So specifically, you laid out recently a range of outcomes for that non-COVID bioprocessing heading to next year. You said it could either be in that high-single digit to low-double digit range, which is our longer term growth profile that you have historically pointed to or it could grow mid-teens in line with the 3-year CAGR that we have seen just off the robust growth we have had in recent years. So, first off, can you give us an update on what you are seeing from this destocking dynamic at some of those COVID customers that bag on COVID and that market just hasn’t come to fruition? And then how is that – how are those conversations translating into where you are thinking bioprocessing will shake up on ‘23?

Rainer Blair

So, regarding the stocking dynamic in bioprocessing, I think we have talked about the fact that we actually didn’t see broad-based inventory builds across the breadth of the bioprocessing market. Where we have seen them, it was related to larger players with larger COVID related, so think vaccines or therapeutics programs that ultimately either didn’t come to fruition or the uptake, as you can imagine, with some of the vaccine uptake that we have seen relatively low, simply didn’t generate the volumes. And what we are seeing there is that these customers with whom we are in a dialogue with regularly are starting to burn down those inventories because they are applicable to other programs that we have. So, that is going as expected. And we have talked about that taking a couple of quarters, and I think that’s our view there as well. And as we think about the non-COVID business, just back to the fourth quarter, we saw that growing 20% plus as well in the fourth quarter. So, what we are doing right now, and this is that time of year for us, so it’s not unusual. We are in a dialogue with our customers nailing down with them, their production plans for 2023. Those roll-ups are in process. The team is working it as we speak. And actually, I will be updating all of you here during our earnings call on January 24th, so just a couple of weeks away here on where all that shakes out for ‘23.

Rachel Vatnsdal

Great. Maybe just spending a moment here on COVID vaccines and therapeutics and sort of kind of touching on it already, can you just talk to us about, were you able to hit that $800 million in COVID revenues for vaccines and therapeutics this year. And then how does that translate into your confidence for that $500 million last – or for the upcoming year? Obviously, that’s been a bit of a dynamic market. So, what gives you confidence that you are able to reach that $500 million next year?

Rainer Blair

So, first, we did hit the $800 million slightly more in the COVID business and bioprocessing for 2022. We today, are talking about the $500 million number for next year. And we are, as I have suggested a minute ago, and dialogue with our customers today regarding their production plans in order then to come to a final perspective on 2023. And we will share that here in a couple of weeks.

Rachel Vatnsdal

Perfect. And then there has been some questions on this pharma and biotech pipeline. Just given funding concerns, mAbs, biosimilars as well. You flagged during your Analyst Day this fall that you expect mAbs to grow double-digit CAGR in the next 5 years, and then for biosimilars to increase 20% from 2022 through 2027. So, can you talk through some of the data points and what gives you confidence that, that long-term funnel that you are going to be able to support long-term?

Rainer Blair

Sure. So, I mean if we start with the funnel and let’s say, monoclonal antibodies, the number of projects in that funnel has increased by 50% here in the last 5 years. This is a product class, which is now in its 25th year to 30th year and efficacy and the understanding of these molecules has increased so much over the years that we continue to expect that pipeline to progress through the various clinical phases and then ultimately be commercialized. Monoclonal antibodies are here to stay for the long-term and our real growth driver. And of course, they are by far, by far, the largest segment or modality in the drug development pipeline. And that’s what gives us the confidence to do that. And of course, some of the investments I have shared with you today are essentially catalyzed by our confidence in that funnel. And then if you think about the next-generation drugs, gene and cell therapy, mRNA, and of course, gene editing with CRISPR-Cas9 and so forth. Those are in their early stages. It’s a relatively small market, but we see that the development funnel has increased by an order of magnitude. So, 10x in the last 5 years, and we see these projects progressing through the drug development phases and sometimes at an accelerated rate. And hopefully in the next year here, we will also hear about additional approvals in those drug classes. And those also not only inspire us in terms of what’s possible in terms of curing patients, but also in terms of the health of this business, as the critical mass of those therapies picks up here over time.

Rachel Vatnsdal

Helpful. Maybe shifting over to some of this instrument strength that we have been seeing across the sector, can you just give us an update on how you are thinking about that instrument market. The acceleration that we saw this year, was a lot of that just underlying market growth with some of that share shift? And then how do you see that translating into 2023 as the comps get much more difficult?

Rainer Blair

Sure. So, as we think about 2022 as a starter, it has been a strong funding environment. There is no question that the market overall is very healthy. We in particular, have been able to benefit from this. I just talked through some of the innovations that we were able to launch. So, together with this healthy funding environment, our very strong growth, and we think share gain is based on the new product development cycle on top of that. And then as we get into 2023, as you can imagine, I will talk to you more about that here in a couple of weeks, right. But we continue to believe that we are in an advantaged position there.

Rachel Vatnsdal

Maybe shifting over to China, so you mentioned during your earlier comments about Beckman having a little bit of a headwind there. Can you just talk to us about what you are seeing in the China market as a whole? You were able to really grow in 2Q despite lockdowns. But this is a bit of a different scenario with some of the outbreaks that we are seeing, especially on the personnel side. So, can you walk through what that means from a patient volume perspective and just your ability to be successful and grow in China in the near-term here?

Rainer Blair

Sure. Well, first of all, it’s difficult as this situation is in China for the people in China. One has to really feel for what’s going on there. Ultimately, this is going to result in a more robust growth outlook for China, which we continue to be very positive on. So, we do view this as a phenomenon, which may take a quarter or two quarters in order to shake out. But what we have seen, and even into the fourth quarter, for instance, our Life Science instruments business continues to be very strong. So, stepping back from what is a turbulent, but we hope brief time here in China, we expect the markets perhaps even to release pent-up demand in the second half of 2023, that’s unclear at this stage. But also, in the long-term, we remain bullish on China. The needs of the Chinese population from a healthcare perspective, we are just scratching the surface there, and we expect China to be a growth market for the long-term.

Rachel Vatnsdal

Helpful. And then in terms of your long-term guide, obviously, this portfolio has gone under a significant transformation in the last decade here with Fortive and then with Envista, acquiring Aldevron, Cytiva and then better physician diagnostics franchise coming out of the pandemic as well. So, you guided to high-single digits long-term. And so that’s post-spin EAS, and then some of your peers have also guided to high-single digits, but that’s inclusive of some of these lower growing businesses. So, can you kind of talk through the dynamics there? And then what would it take to really push Danaher into a double digit growth scenario over the next few years?

Rainer Blair

Well, first of all, we believe really when we talk about long-term, we are not talking about 3 months, 6 months, 12 months, right. We are talking about 3 years, 5 years, 7 years. And we think that high-single digit growth at the scale of the businesses that we are talking about is the sweet spot in terms of how to think about that long-term. Can we imagine years that might be stronger, we can, absolutely. And will there be years perhaps when the step is taken back, that could be too. But we do believe in the long-term that a high-single digit growth rate for a $26.5 billion franchise is a significant vote of confidence in the strength of the portfolio, the differentiation of those businesses and the power of the Danaher business system.

Rachel Vatnsdal

Great. And then kind of going off of that, obviously, this is not your first time spinning out of business. So, can you just talk about what did you and the rest of the management team really learned from spinning off Envista and Fortive? And then how will those learnings really impact the EAS spin?

Rainer Blair

Well, there has been a myriad learnings, as you can imagine, we have developed quite a bit of capability here in terms of the standard work. So, if you will, the standard operating procedures that you go through in order to efficiently and appropriately be able to separate a business like this. And I will tell you the biggest equation, as you can imagine, besides tax and behind – besides all these other important details, is the talent, right. So, we have really learned how to ensure that our talent sees the opportunity of the separation. You can imagine some meet this kind of news initially with some trepidation after having been long-term Danaher associates, but when they recognize that the future where they are now positioned really as a differentiated business with such a strong ESG profile, an attractive set of franchises and the ability to deploy the cash flow that they generate, not the life sciences or diagnostics, but to their own businesses, is an incredibly attractive proposition to them. And so if I had to summarize the biggest learnings and underline at 3x, it’s, make sure that you communicate well to the talent, the opportunity, not just for the business, but for them as individuals. And then you see the great leadership that we have appointed there to be the President and CEO with Jennifer Honeycutt, that’s what we have done in each one of these separations and that has been incredibly important.

Rachel Vatnsdal

Perfect. And that we are out of time. Rainer, thank you so much for joining us today. Really appreciate it.

Rainer Blair

Thank you, Rachel. Thanks everybody. Good to see you.