My name is Shelby, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Danaher Corporation's Third Quarter 2022 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

[Operator Instructions] I will now turn the call over to Mr. John Bedford, Vice President of Investor Relations. Mr. Bedford, you may begin your conference..

Thanks, Shelby. 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, our third quarter Form 10-Q, the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call and additional materials are all available on the Investors section of our website, www.danaher.com, under the heading Quarterly Earnings.

The audio portion of this call will be archived on the Investors section of our website later today under the heading Events and Presentations and will remain archived until our next quarterly call. Replay of this call will also be available until November 3, 2022.

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 third quarter of 2022, 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 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..

Well, thank you, John, and good morning to all of you. We appreciate you joining us on the call today. So let's jump right in. Our positive momentum continued in the third quarter with 10% core revenue growth and solid earnings and cash flow performance.

This strength was based across the portfolio with high single-digit or better core growth in all three reporting segments. We're particularly pleased with the consistent performance of our base business which has grown high single digits or better for nine consecutive quarters.

Now these well-rounded results were driven by our team's outstanding execution through a challenging operating environment. They've done a terrific job running the Danaher playbook to proactively reduce structural costs while continuing to accelerate high-impact growth investments.

We believe our ability to deliver meaningful innovation and reliably serve customers, has contributed to market share gains in many of our businesses. Now during the quarter, we also announced our intention to separate our Environmental & Applied Solutions segment to create a publicly-traded company.

This new company, which we'll refer to as EAS for now, will be well positioned in the most attractive areas of the water quality and product identification market.

EAS will be comprised of outstanding businesses with strong ESG fundamentals, durable business models and a very attractive financial profile, averaging mid-single-digit core revenue growth over the last five years with 55% recurring revenue today and an adjusted EBITDA margin of approximately 25%.

Now as a stand-alone company, EAS will have greater opportunities to meaningfully deploy capital towards M&A. And of course, EAS will have the Danaher Business System as its foundation, along with the commitment to continuous improvement that will support the same outstanding results EAS as a part of Danaher today.

Of course, we look forward to sharing more details here in the coming months. As for Danaher, this separation will establish us as a more focused science and technology leader committed to innovation and making a profound impact on human health.

We've got a great lineup of leading franchises positioned in highly attractive life sciences and diagnostics end markets, all united by a common set of durable, high recurring revenue business models.

We remain focused on strengthening our portfolio and competitive advantage in these areas, and we see tremendous opportunities to continue delivering sustainable long-term performance. So with that, let's turn to our third quarter results in more detail.

Sales were $7.7 billion, and we delivered 10% core revenue growth, including 8.5% core growth in our base business. Respiratory testing contributed an additional 150 basis points to core revenue growth in the quarter. Geographically, we continue to see strong demand across the developed markets despite current macroeconomic and geopolitical events.

North America's core revenue was up high teens with all three segments delivering double-digit or better core revenue growth. Core revenue in Western Europe grew high single digits with customer activity and funding levels remaining healthy. High gross markets core revenues were up mid-single digits.

In China, our teams effectively managed through ongoing COVID-19 headwinds to deliver high single-digit growth in the quarter. Our gross profit margin for the third quarter was 59.8%, and our operating margin was 26.3%.

We had 50 basis points of core operating margin expansion, driven in part by disciplined cost management, productivity measures and price actions. The operating environment remains dynamic across our businesses globally, but we experienced fewer supply chain disruptions in the third quarter. Logistics improved as freight costs began to stabilize.

We also saw modest improvements in material availability, though certain electronic components remained difficult to procure. Despite these challenges, our teams have done an outstanding job taking proactive measures and leveraging the DBS tool set to minimize the impact of supply chain constraints and inflationary pressures.

Adjusted diluted net earnings per common share of $2.50 were up 7% versus last year. We also generated $1.7 billion of free cash flow in the quarter and $5.2 billion year-to-date. So now let's take a look at our results across the portfolio and give you some color on what we're seeing in our end markets today.

In our Life Sciences segment, reported revenue grew 4% and core revenue was up 8%. Strength was broad-based with most businesses achieving high single-digit or better core revenue growth. In Bioprocessing, robust activity levels drove over 20% growth in our non-COVID business at Cytiva and Pall Biotech.

As expected, our customers continue to transition away from COVID-19 vaccine and therapeutic program and into programs for other modalities. We expect these trends to continue through the fourth quarter resulting in high single-digit core revenue growth in our Bioprocessing business for the full year.

In September, we hosted an Investor Day at Cytiva to showcase our Bioprocessing business and highlighted the tremendous long-term growth opportunities we're positioned for in biologics and genomic medicine. We also announced that we're bringing together Cytiva and Pall's Life Sciences as the biotechnology group.

The combined portfolio has the broadest offering in the industry with end-to-end solutions across all major therapeutic modalities for monoclonal antibodies to emerging cell, gene and mRNA-based therapies.

The biotechnology group will have unmatched global scale with the industry's largest commercial team, allowing us to further extend the reach of our best-in-class customer service.

We also believe focused innovation across the joint portfolio will ensure our products and solutions are aligned to best meet customers' needs around quality, yield and cost.

With Pall's Life Sciences and Cytiva joining forces, the Biotechnology Group is uniquely positioned to help our customers become more efficient and bring more life-saving therapies to market faster. Moving to our Life Sciences instrument businesses.

They collectively delivered double-digit base business core revenue growth, led by SCIEX, Leica Microsystems and Beckman Coulter Life Sciences. Funding levels remains strong globally, and we saw solid customer demand across most major end markets.

We continued our strong pace of innovation in life sciences with the introduction of Beckman Coulter's Biomet Ingenious. The Ingenious is a cost-effective easy-to-use sample preparation system that reduces manual transfers and hands-on time and next-gen sequencing library construction.

This is a great example of how our investments in innovation are delivering impactful solutions to our customers. Our genomics businesses had another quarter of double-digit core revenue growth, led by strong demand for plasmic, RNA and next-generation sequencing solutions.

This quarter, marked Aldevron's first anniversary as part of Danaher, and we couldn't be more pleased with the team's performance. Financially, the results speak for themselves, with more than 30% year-over-year revenue growth since acquisition.

The team has done a tremendous job embracing DBS tools and processes to meaningfully reduce lead times and increase capacity. Now this capacity is certainly supporting customers' needs today, but it's equally important to support Aldevron the long-term growth outlook.

With a view towards the future, we're excited about the opportunities to collaborate across our genomics businesses and create unique solutions to help our customers accelerate the development and commercialization of mRNA and other nucleic acid-based therapies. Moving to our Diagnostics segment.

Reported revenue was up 9.5% and core revenue grew 13.5%, led by nearly 30% core revenue growth at Cepheid. Leica Biosystems grew mid-teens in the quarter, driven by strength in core histology and advanced staining.

As customers seek to improve productivity within their labs, we're seeing strong early momentum for Leica innovation, BOND-PRIME, a fully automated advancing platform. Beckman Coulter Diagnostics delivered solid results with mid-single-digit core growth despite ongoing COVID-19 headwinds in China.

In Molecular Diagnostics, core revenue across Cepheid's non-respiratory test menu grew approximately 10%, led by double-digit growth in virology and infectious disease testing. In respiratory testing, global PCR volumes have moderated, but demand is still elevated for symptomatic testing at the point of care where Cepheid is the gold standard.

Cepheid's respiratory testing revenue of approximately $875 million exceeded our expectations of approximately $325 million.

Higher prevalence of circulating respiratory viruses, combined with advanced purchases by customers in anticipation of a more severe respiratory season in the Northern Hemisphere, led to both higher volumes and a preference for our four-in-one test for COVID-19, Flu A, Flu B and RSV.

Now we're starting to see our customers consolidate their point-of-care PCR testing platforms onto Cepheid gene expert. The gene expert provides significant value to clinicians with a unique combination of fast, accurate lab quality results and the best-in-class workflow.

Customers are also increasingly interested in opportunities for broader utilization of Cepheid's leading testament. Our opportunity funnel for non-respiratory tests has increased significantly this year and we see opportunities to continue gaining market share moving forward. Moving to our Environmental & Applied Solutions segment.

Reported revenue grew 5% and core revenue was up 10.5%. Water quality was up mid-teens, and product identification grew low single digits. Electronic identification, marking and coding was up low single digits and packaging and color management grew mid-single digits.

Videojet was up low single digits, in part due to a difficult year-over-year comparison as the business grew low double digits in Q3 last year. Now during the quarter, we saw strength in food and beverage as well as the consumer end markets. In Water Quality, ChemTreat and Hach each grew high teens during the third quarter.

Demand for analytical chemistries and consumables remain solid across our major end markets, municipal and industrial project activity was broadly consistent with the first half of the year, driving solid equipment growth.

Now last week at WesTech, the annual wastewater trade show, the water quality team highlighted several solutions that are improving the efficiency and sustainability of the water treatment process.

POC's Ultra Low Range Chlorine Analyzer raises the industry standard to parts per billion chemical detection levels, helping customers extend the membrane life of their treatment systems and reduce maintenance costs.

At Trojan, innovative solutions such as Trojan UV Signa and Trojan UV 3000+ reduced environmental impact by treating water with ultraviolet light instead of traditional chemical disinfection method. Every day, over 1 billion people benefit from water treated by Trojan.

So these are just a few examples of how our water quality platform is supporting customers day-to-day, mission-critical water operations and making a positive impact on the world. So with that color on what we're seeing in our businesses and end markets, let's now briefly look ahead at expectations for the fourth quarter and the full year.

In the fourth quarter, we expect to deliver high single-digit core revenue growth in our base business. We expect a high single to low double-digit core revenue growth headwind from COVID-19 testing, resulting in a core revenue growth being flat to down low single digits in the fourth quarter.

Additionally, we expect the fourth quarter adjusted operating profit margin of approximately 30%. Now for the full year 2022, there is no change to our previous guidance of high single-digit core revenue growth in our base business.

We now expect high single-digit overall core revenue growth, which is up from our prior expectation of mid-single digits as a result of our strong COVID-19 testing performance in the third quarter. We continue to expect operating profit fall through of approximately 25% for the full year.

So to wrap up, we're very pleased with our third quarter results. Our well-rounded performance really is a testament to our team's commitment to innovating and executing in support of our customers. These results also reinforce Danaher's strength and durability.

Our differentiated portfolio is well positioned in attractive end markets with long-term secular growth drivers and our business models are resilient with nearly 75% of our revenue today being recurring.

So putting it all together, the strength of our portfolio and balance sheet, combined with our talented team and the power of the proactive application of the Danaher Business System, provides an outstanding foundation for delivering sustainable long-term results. So with that, I'll turn it back over to John..

Thanks, Rainer. Shelby, that concludes formal comments, and we're now ready for questions here..

[Operator Instructions] We'll take our first question from Derik De Bruin with Bank of America..

So, obviously, there's a lot of questions on the Bioprocessing market given one of your competitors in that market was talking about inventory stocking yesterday and which hit the sector.

Can you just sort of elaborate on what you're seeing in a little bit more detail on Bioprocessing inventories? Also, we've gotten the question -- you're talking about high single-digit growth for the full year. I think you commented high single to double-digit prior quarter.

So can you sort of walk us through the dynamics? Are you still looking for like $1 billion in COVID vaccine for this year? Just a lot more color what's going on given that's going to be -- given how sensitive topic that is?.

Thanks, Derek. And let me get right after that question here. So First of all, let's talk about 2022, and I'll certainly speak about the inventory topic here as well. I think Important to reiterate that overall, we're seeing very strong customer demand in Bioprocessing, and we expect to finish 2022 with high single-digit core growth.

Now that splits up in a number of sections. Let's start with the non-COVID Bioprocessing is growing well over 20%, and we continue to see that. And the underlying fundamentals here are the funding is there, the clinical trials continue to progress. The pipeline is strong.

We're seeing product move into commercial production from Phase 3 and this has really accelerated across all modalities. So sure, monoclonal antibodies, but yes, we're even seeing cell and gene therapy starting to gain their approvals.

Additionally, pricing is above historical levels, which is driving some incremental growth, if you will, on top of the underlying demand in the non-COVID areas. Now as I mentioned in my prepared remarks, customers do continue to move away from COVID-related projects. And I don't think that's a surprise to any of us.

That's something that we have been speaking about for some time. And in fact, we can confirm that, that is happening. And I think it also reconciles with what we're seeing in the marketplace. We're seeing that vaccines, our uptake is relatively slow. People are unsure if the current vaccine inventories will address the newest variance.

So, there's a bit of uncertainty there, I think, in the public as to where we go from a vaccine perspective. And that reflects naturally in what we have seen here with customers starting to move to the other modalities and drive the projects that they had on hold forward.

And for us, that manifests here in for the full year that we see $800 million of COVID revenues in Bioprocessing as opposed to the $1 billion that we had been talking about previously.

So, we do see customers moving away from these COVID projects and driving their energies, their efforts, and their financial resources into the other projects, and that helps explain why we see the larger part of the business growing at well over 20%.

Now, we are not seeing significant stocking, but we do see pockets of stocking, particularly there where there were large COVID-related, either therapeutic or vaccine programs. So, those players that heavily invested in large programs here those players that, in fact, have higher inventories than is normally the case.

Having said that, those large players also are those, which are best positioned to redeploy those inventories to other projects. So, we do expect an inventory burn down with those players here in the coming quarters. So that's the inventory situation there, Derik.

And then as it relates to some of the other points here, I think we continue to be -- and I just want to reaffirm the high single-digit growth. We're high single digit here year-to-date, and that's how we see ourselves in Bioprocessing concluding the year..

Got it.

And the order book, the growth in the order book for Bioprocessing on the non-COVID growth there?.

Sure. Sure, Derik. So for Q3, our orders are down over 20% as expected. And I think that's a number which bears some commentary and context. First of all, we're coming off of order comps that are well in excess of 50% in the prior year.

And so it's important to take in order to be able to rationalize these numbers that sometimes are viewed in isolation with the right context. The three-year order stack is over 20%. And I think something that is perhaps not as well known and that bears some conversation is we and many others have meaningfully reduced our lead time.

And we've done that through capacity investments. We've done that through productivity investments. We've been able to do that because the supply chain has become more secure. And that's a pretty significant impact on the order placement cadence of our customers.

So just to mention an example here, if lead times go from 52 weeks, which has been the case in some product categories in the marketplace, to 12 weeks, customers fundamentally change their order patterns.

To give you a sense of that, if a customer wanted to order over time four bioreactors, they would order all four bioreactors at one, if there's a 52-week lead time. But if it's a 12-week lead time, they would order one bioreactor and then follow up with other orders in the future.

So what we're seeing right now is really the normalization of the marketplace coming from a red-hot pandemic fuel time of constraint a long lead times for orders ramped up significantly. So order rates ramped up significantly to the supply chain now normalizing and customers adjusting their order cadence.

And then yes, of course, the COVID volumes are down. That's expected. We've been talking about that, but we also see the strength of the non-COVID market. And keep in mind, that's a much larger market. And currently, it is growing at well over 20% and there's a backlog to be burned down there because previously COVID had been prioritized.

So, the orders were negative to repeat, but not unexpectedly and to be seen in the context of a market that is now readjusting..

And Derik, you had asked about the non-COVID as well. So if you think about the book-to-bill there in the quarter, it was essentially 1.0..

I'm sorry, what?.

Essentially, 1, 1.0..

Okay. Got it. And do you still -- and just one final question.

Do you still expect to take significant price across the portfolio next year?.

We continue to think about price as a lever for us. And we think that lever is available to us next year as well. We have taken the necessary steps to do that. We're over 400 basis points here in the quarter. That's up from 300 basis points in the first half of the year.

We expect the fourth quarter to be similar, and we're going to try and keep that momentum going here in the new year as well..

And that commentary is overall, Derik, but I don't think that, that would be any different for Bioprocessing numbers..

We'll take our next question from Scott Davis with Melius Research..

Go back a little bit to Cepheid. Are there costs -- I would imagine that cost was not a main focus when you were supplying just extreme demand for quite the last couple of years.

But are there costs or is there a playbook where cost can come out of the business and to give you a little bit of a tailwind on the margin side while growth kind of stabilizes?.

So we have, as you suggested, invested significantly in order to drive -- to be able to supply the demand here during the pandemic and watch very carefully where our capacity needs to be, one, to, of course, serve the needs of the pandemic, but also to fuel the growth in our non-COVID testing business. And that continues to grow very well here.

You saw the very strong growth we had in COVID, but not to be underestimated, the very nice 10% growth in non-COVID off of a very strong comp in the prior year. So capacity for us is an area of great focus. And we're able to adjust that capacity up and downwards, both in terms of units of capacity, but also cost adds we need.

So that is a relatively flexible lever for us, and we'll continue to adjust that lever up or down, both from a capacity perspective as well as a cost perspective as required..

So that's helpful. And let's -- if we can go a little bit bigger picture. Reiner, when you think about the M&A funnel, how wide is the lens. You guys obviously have a lot of big focus asking..

I would characterize our lens as broad and not limited to cell and gene therapy. We want to have a profound impact on human health, Scott. We've talked about that here now for some time, and that allows us a very large space in order to identify investment opportunities, capital deployment opportunities.

And as such, our funnel is wide and deep and very active as always..

We'll take our next question from Vijay Kumar with Evercore ISI..

Congratulations on a good steady print here this morning. Just maybe back on the vaccine question. I appreciate all the color. And I know given that we don't have the order numbers, I know what you implied by the lead times coming down, but just maybe to put a finer point on that.

Is your outlook for Bioprocessing including vaccines, I think Danaher expected high singles for '23. Has that changed? And I think prior expectation was $0.5 billion of vaccine revenue for next year.

Has that changed?.

As you can imagine, we're very focused on delivering the fourth quarter here and the full year. But as we think about '23, and I say that because there's a lot of data points to collect here in the fourth quarter as well in such a dynamic environment.

And so as we think about the Bioprocessing business for 2023, we still think that there is room for $500 million of COVID opportunity in order to support the needs of the population, the variance to replenish expired sell-by dates and all the things that you can think about. But of course, that's a number that we watch very closely.

More importantly, we think that the non-COVID business, which, of course, will again proportionately be a much larger part of the business, will continue to be very robust. Funding levels are there, the number of modalities that continue to grow in the pipeline is broad, our own project activity in early, mid- and late stage is very strong.

So, we do not have a different view on 2023 for Bioprocessing today. But of course, it's a fluid situation, and we continue to watch all of that, and we'll update in January when we speak again..

That's helpful, Rainer.

And just to sort of clarify, any change here, that sensitivity would be on the vaccine side, but not on the base correct?.

That's correct. That's the way we see it for sure today. And recall, I mentioned just a minute ago to Derik that in 2022, we were expecting $1 billion of COVID vaccine, therapeutic revenue. We've taken that down to $800 million. It is, of course, offset by the non-COVID business so that we deliver that high single digits here in 2023 for file process.

And then looking forward to 2023, we would see that going from $800 million to $500 million..

Appreciate the color, Rainer. Matt, One quick one for you.

Based on current FX rates, and I think your assumptions on pricing for next year, how should we think about incremental margins for '23?.

For '23?.

Yes..

I'm going to go ahead and ask that we get through Q4 here and see where it is. If I had to guess on the FX margins today, I would have been wrong a quarter ago and wrong the quarter before that. So we'll give you a full update on '23. I mean I think you've seen where the margins have gone to.

You know that we're going to have an FX headwind next year on the top line of probably, call it, $800 million. So you can probably start there. I would say that the fall-through on that is probably going to be the pretty typical 35% to 40% fall through.

And that could be a little bit better or worse depending on where that revenue actually comes in from a mix perspective. But that's probably the best I can give you now, what we know what the rates are. But from a full margin perspective, I'll have to wait until we get a little bit closer and to our guidance in '23..

We'll take our next question from Dan Brennan with Cowen and Company..

If I may, just Rainer, I know on the last call, and it was already addressed in some of the Bioprocessing information. But when you look more broadly, obviously, you see a lot of mixed signals on the macro.

Last call, you had suggested all-in organic mid-single and if you factor in the COVID would roll off low single digits, like any updated thinking on how you think about that? I know you've already addressed the bioprocess side, but just wondering for the other parts of the business, kind of how those are playing out right now?.

Thanks, Dan. So, I think we are still in that ZIP code here, specifically, if we think about our base business without testing, so our business without COVID testing. For 2023, we still see that as mid-single-digit plus. And of course, we're watching.

There's a lot of headlines in Western Europe and emerging markets, but to date, our business momentum does not indicate any dramatic slowdown here. And so we think mid-single-digit plus from today's point of view, for the base business is the right way to think about it.

And as we go forward here and Matt mentioned this, of course, we're looking at all the data points daily here. And then in January, we'll update you again, but from today's perspective, mid-single-digit plus for the base business.

And then as it relates to COVID testing, we do still anticipate that step down, the experts that we speak with, our customers still think that COVID is endemic by the end of '23, beginning of '24 and that will step down there from where we've been here, close to 50 million tests to about 30 million tests or the $1.2 billion roughly of COVID revenue.

And then lastly, I'll say, the FX situation is very dynamic. We've been talking about that. And I think Matt covered that as well..

Great. And then just maybe one more follow-up. I don't want to kind of continue to readdress Bioprocessing, but I'm just wondering, you talked about bringing in lead times dramatically, which suggests that customers aren't going to need to order as far in advance, right, because you've got them down significantly.

The peer yesterday talked about inventories at 12 months versus six months and I know you addressed inventories in one of the prior questions. But can you just speak to it just one more comment, and I apologize, is on the base business.

I believe you've done a better job from prior conversations about maybe managing and kind of avoiding some double ordering.

But just kind of what do you see broadly on the inventory side for your base business? And kind of how does that kind of impact your outlook for the base power production business as we look forward to '23?.

We have been as a result of the pandemic, even closer than traditionally working with our customers to understand their production plans and to ensure that they are not overstocking at the expense of others who would need the product. And what was a time of constraint here for the last, call it, 18, 20 months.

So as a result of that, we feel as though we are well positioned to understand the inventory situation. We do regular surveys with our customers. And as a result of that, we don't believe that there is a general overstocking in the market. Having said that, we do think there are pockets where inventories are high.

And those are based on customers ultimately changing their production plans, in other words, canceling orders specifically for COVID. And so the large COVID players whether that be for vaccine production or whether that be for therapeutics production, they have larger inventories and those will likely exceed six months of inventory.

But I think it's important to note that those large players have many programs, and they're able to redeploy that inventory. In most cases, these are not tailor-made solutions for any specific molecule and can be redirected and burn down using -- in the use for other modalities or other programs at the same modality.

So we do see that the market is currently resetting itself from, as I mentioned, a red-hot pandemic era of constraint with long lead times to one where lead times and supply chain disruptions are starting to normalize and then add to that the cancellation of some COVID vaccine or therapeutic plans just because the uptake hasn't been the same or the variants have rendered them not usable for that application.

So, we are confident that the strength of this market and its fundamentals, remain very, very strong.

Biologics, in all the modalities that we've talked about are very underpenetrated in the market, and it is a matter of getting the penetration up launching the new products in the pipeline that we'll continue to drive the growth of this market despite the reset that we see going on in the supply chain..

We'll take our next question from Dan Leonard with Credit Suisse..

So my first question, Rainer, I was hoping you could elaborate on trends in China across your different OpCos? I think you said growth was high single digits in total, but flagged some weakness in diagnostic.

So just wondering, if you could offer more color by OpCo?.

Sure. So as you just said, just to level set, you see high single-digit growth here in China, both for Q3 and we anticipate a similar level in Q4. And that's really a broad-based strength there. Let me start with Diagnostics where we did see patient volumes impacted by these rolling shutdowns.

So this zero COVID policy shutdown that you're likely reading about in China. So that affected patient volumes and think of those as being 90% to 95% of what they were in 2021. And we're working through those and continue to see China as really a very, very strong market. Now lastly, the rest of our business continues to be very, very strong.

As you think about life science instruments, as you think about EAS, as you think about the diagnostics, the other diagnostics companies, we continue to see robust demand there.

And as patient volumes normalize, which we expect to happen sometime in the next year, we're confident that China continues to be a really strong growth lever here for the future..

And Dan, just to give you some context, I mean, life sciences and EAS were both up high single digits in the quarter. And Diagnostics, while it did struggle a little on the patient volumes, I mean, it was still up mid-single digits..

Appreciate that color. And Matt, just a quick follow-up.

Can you talk about the impact of higher interest rates on the business? Did that change at all how you're managing the balance sheet or your capital allocation priorities?.

A, running the business the balance sheet, given where we're at on fixed sort of mostly fixed debt here, and I don't think it really impacts us on our thinking about doing something different than what we do, which is allocate capital towards M&A largely..

We'll take our next question from Luke Sergott with Barclays..

So I want to talk about the instrument growth. It looks like another big quarter for SCIEX and LMS. This is following a very strong first half of the year.

Can you just give us a sense of where all the demand is coming from? Is this like a new facility build-out? Or are these from upgrades? And then how does -- how do think about this from a comp perspective, how you guys are thinking about it for next year?.

Just a level set, our Life Science instrument business grew low double digits in Q3. And as you pointed out, this is really led by Leica Microsystems, SCIEX, Beckman Coulter Life Sciences with some very, very strong results. And I think the strength of that comes from two areas. The first is the end markets continue to be very strong.

So especially pharma, CROs and academic research continues to be well funded, and we're seeing strong buying behavior there, especially towards instruments that provide the necessary answers here in the research. And that's really the newest generation of instruments.

And that brings me really to the second pillar of the strength that we've seen there, which is our continued innovation performance there, with all of the operating companies really leaning in and launching leading edge really pushing science further instruments. And I'll give you some examples at SCIEX, ZenoTOF 7600 and the Triple Quad 7500.

At LMS, you have the THUNDER widefield imaging system, and we talked about the Mika launch, which is doing extraordinarily well. And then we just talked about the Ingenious launch here at Beckman Life Sciences.

So, we're really seeing strength from a funding perspective, and we believe that on top of that, we're outperforming because of the innovation strength that we've shown here, launching a number of great solutions. Now from a comp perspective, we really do think that the strength in the market is sustained.

We expect that to be the case in the fourth quarter. And in 2023, like I said, we'll talk about that more in January, but we don't have reason to believe here that this will be significantly different..

All right. That's helpful. And then when you're thinking about -- when you called out the supply chain, right, and things are starting to get better.

Can you talk about where you're seeing the biggest relief in your end markets or businesses and where you're still seeing things constrained and not getting better?.

Sure. So I think the first place where you're starting to see some of the pressure dissipates is in the logistics area. So, logistic capacities have ramped. We're starting to see greater availability.

We're also starting to see freight rates come down, specifically if you think of container freight Those, in particular, have come down quite significantly. And that, of course, is helpful with the global businesses that we have. At the same time, we do see continued pressure on a more limited set of electronic components.

So with the Danaher Business System, call it, we've been able to really knock down 80% of the issues there. And I think with that, able to continue to take share because of the availability of our solutions. And with 20%, we're still in countermeasure mode.

And I would say that number continues to get smaller every day, but there's still on the electronic component side, some tightness here. And then lastly, I would just say, what is still the same as labor continues to be tight. That is the case, practically everywhere we operate.

And so that that's a constraint that we would expect to see get better here over the next 12 to 18 months, but currently still see that as an area to watch out for..

We'll take our last question from Patrick Dolly with Citi..

Maybe just one. You touched on China, but maybe on Europe, a lot of macro concerns kind of popped up their heads there over the last couple of quarters.

Can you just talk about what you're seeing, again, across the different OpCos there? Any change in terms of your expectations or any elevated concerns as we work away even into '23 with some of the kind the kind of power rationing and things that are happening there, maybe just your exposure, any customer conversations, how you're feeling in that region?.

Starting with Q3 here just to level set. We had high single-digit growth in Western Europe, and we would expect that comparable here going into the quarter. Our funnels continue to be strong. And I would say that we're starting to see deal velocity slow a little bit.

So it is clear that people are starting to think about where they're going to invest their cash at least for Q3 and Q4, we're still seeing robust demand and robust funding. Having said that, and in view of everything we read in the news as to you, we continue to watch that very closely to see whether that sustains going forward into '23.

And of course, we're going to talk to you about that again in January. Now as it relates to our own exposure, specifically as it relates to energy, we continue for many reasons to take a very close look at our energy consumption, so also from a sustainability perspective. But now particularly this becomes an area of focus for Europe.

And in fact, we do not have a lot of heavy manufacturing, so energy-intensive manufacturing in Europe. It's mostly light assembly, and we have taken the measures to ensure energy supply continuity through the appropriate backup systems.

And then in the event of, if you will, fuel rationing, whether that's gas oil or otherwise, we also have contingency plans there to ensure that we're able to reduce our demand, but still supply mission-critical capabilities, including manufacturing, should that become the case. So yes, it's something that we're closely focused on.

Two, we've taken measures in order to ensure that we have supply and can provide supply continuity. And then lastly, we also have the contingency plans should the situation deteriorate..

Patrick, this is Matt. We did a kind of bottoms-up analysis plant by plant, company by company, even factoring in higher costs that we might see here over the winter into the next year. I mean this is a very, very manageable number. It's just not a big number..

Okay. That's good to hear. And then maybe just a follow-up on Luke's instrument question. I guess just kind of wondering in terms of the visibility you guys have. I know the backlog has been elevated. Order growth has been really strong, particularly on SCIEX.

There's kind of this -- is there a pull forward? Is there not? Maybe just talk a little bit about, again, the visibility you have, what the backlog looks like currently and just how durable some of that instrument strength is it's been elevated for a while now.

So just trying to get a handle on the comfort level of the strength there?.

So as you suggest, the backlog is elevated. That is due to two factors. The strong demand that I referenced earlier, that's really broad-based, pharma, academic, and so forth. But also because there has been, over the last 18 months, some supply constraints around electronic components.

So we see demand remaining strong across the board for all these research applications that I referenced. And as a result of that, we also see that in our order rates and backlog position, not just here for Q4 but also going into '23..

It appears that we have no further questions at this time. I will turn the program back over to our presenters for any additional or closing remarks..

Thanks, Shelby. We're around all day for questions and follow-ups. Have a good rest of the day..

Thanks everyone..

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