Danaher Corporation (DHR) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. Thanks for joining us. A real pleasure to have a management team from Danaher with us. We have Rainer Blair, CEO. We have Matt McGrew, CFO. And I think, behind the scenes, we have John Bedford, the new Head of Investor Relations. And I think, Matt Gugino, who used to run IR, just got promoted. So Matt, congratulations to you. Well deserved. So with that, it looks like Matt is following the other Matt's footsteps, so I can only expect great things sort of going forward. With that, Rainer, Matt, thank you guys for spending the time with us this afternoon.

Pleasure, Vijay. Thanks for having us.

I do want to start with some near-term questions, just given this -- the news on the new variant. And I think the most important first question is can your Cepheid test detect the new variant?

Well, great question, and the answer is absolutely. So whether it's the COVID-only test or the 4-in-1 test or the 4-in-1 plus, all of those are able to detect the Omicron variant.

Fantastic. That's brilliant. I think some of the headlines coming out on the weekend, I forget the number of mutations, I think 30 or 40 mutations, it did cause some alarm. So glad to hear GeneXpert is strong. Maybe segueing from the top, there's been some chatter about lockdown restrictions in Europe, Rainer. Has that had any impact on the business? Or how are you thinking about the base business, if you will?

Yes. I mean we're monitoring the situation very closely, but we've not really seen any material impact at this stage, Vijay.

Got you. And then off on similar lines, Rainer, when I look at your base business, I think the guide was high singles for base business, with mid- to high contribution from [ cold ]. That was the Q4 guide. Year-to-date, your base business trends have been really, really strong. I think 3Q was off about 10%. This Q4, are there any moving parts in Q4? Or perhaps this is the typical Danaher, we'll put a number out there and we'll see where we land after the Q?

Well, we are certainly Danaher, in the fourth quarter as we always are. But I will tell you this, the high single-digit guide on the base business is on the back of really strong performance. As you pointed out, we were double digits there in Q3. The 2-year stack is 6% to 7%, 100% base -- 100 basis points higher than prior to the pandemic. So we've come out of the shoot here doing very well. And I would tell you that in our base business, we believe, because of the strength of our value propositions, our ability to execute with DBS, but also our ability to ensure that our supply chain remains secure and robust, that we're taking share. And so we have good momentum here in Q4, and we wanted to be prudent, as always, in our planning assumptions giving -- given the other factors that we see around us.

Got you. That makes sense. I think a couple of other moving parts, which have come up in conversations, Rainer, has been COVID testing. Clearly, most companies, given the rising testing volume, they've -- we've seen volumes go up. Is it safe to assume, for Cepheid, volume should be going up sequentially? Or perhaps the capacity constraints come into the picture for you guys when you look at Q4?

Well, we continue to have more demand than we're able to supply. We think the 16 million test number that we put out post-earnings is still the right number. And we feel very confident about that. We saw a resurgence, in fact, of RSV as an example in the southern states, but also, more broadly, in the U.S. and Europe. And as a result of that, beyond the absolute number of tests, which we feel very strongly about, we're also seeing that mix shift. We talked about having, in the flu season, perhaps a shift to 50-50 COVID-only versus the 401 test -- 4-in-1 test. And that's manifesting itself as we speak. So we feel good about the quarter, and it's developing as expected.

Got you. And then maybe a couple of other macro kind of questions, Rainer, before we get into some of the business segments. I think we had the infrastructure bill pass, the talks about [ ARPA-H ] coming back into the mix here. Should that matter for Danaher? I know the mix has changed, but I'm curious how you guys are thinking about it.

Yes. I mean the macro environment remains very strong for us, whether that is COVID-related or whether that's related to the secular growth drivers that really underpin our base business as well, right? So we continue to see a very strong biologics development funnel that is non-COVID, right, whether that's monoclonal antibodies, gene and cell therapies or other modalities, where funding continues to be very strong and I would say, even accelerating. When we look to our Environmental & Applied Solutions segment, also here, we see that the infrastructure improvement efforts are helpful, but also there, the business has recovered from the pandemic. We feel that we're executing strongly and taking share. And the food sector and packaging requirements, in order to protect the food supply, continue to be very strong. So we think the base business and the macro is very strong. And as it relates to the ARPA-H proposal there, it's a little bit early days still, right? We don't know the specifics of that. But we would say that, that directionally is also helpful in what is already generally a pretty strong funding environment.

That's helpful, Rainer. And maybe now diving into some of just points to raise, right, I think biopharma, clearly, it's front and center for investors, along with vaccine and durability. But I want to dig in on the base biopharma for a bit, if you will because it's really interesting how the businesses evolved for you guys. I think the current -- at your Analyst Day, you put out a high single-digit sort of number for Cytiva. Clearly, the order trends have been well north of those numbers year-to-date. And you did mention perhaps we were seeing some acceleration in the macro on the biopharma side. Maybe talk about should biopharma be more like a double-digit grower for Danaher versus the high singles outlook?

Sure. I mean I think there's 2 things there. One, of course, the short term is stronger and above this longer-term outlook that we talk about as high single digits, right? We've also talked about the shorter term here being low double digits-plus. But I think, more importantly, is if we take a step back, when we originally acquired the GE Biopharma, now Cytiva business, we viewed that business really as being a 6% to 7% grower. And what we've seen here, through the pandemic, through the funding increases, but also through our share gains, is that, that for the long term, is really a high single-digit growing business. And the way to think about that is today already, this business, far larger than we anticipated at $7.5 billion of bioprocessing business, that larger base, along with this higher or re-rated growth rate, will continue to compound here for the long term. So we think we've framed that appropriately for a world post-pandemic, yes, so endemic as opposed to pandemic, being sort of a high single-digit growth business.

And just maybe on the order book on the biopharma side, we've been hearing some chatter in the industry about order cycles being -- or lead times elongated. What kind of lead times is Danaher seeing? And does that give you visibility into '23? Are you [ thinking ] book of business for '23 at this point in time?

No. I mean it's really too early to talk about '23 for a couple of reasons. One, if you think about what we thought about the world 2 weeks ago versus what we think about it today, a lot has transpired. And so to think about '23 might be premature. But also from an order perspective, we don't reflect orders that are greater than 12 months out in our order book, right? So the $2 billion that we've talked to you about, those are really orders that are in hand and that are for 2022 delivery. And that's a strong order book. If you consider that for 2021, we've shipped and will ship right around $2 billion in and of itself. So we enter the year 2022 with an order book that is the same as the shipments that we executed in 2021.

This is -- that $2 billion, that's specific for vaccines, not for the base business, correct, Rainer?

So that $2 billion is for vaccine and therapeutics. And think about it, 85% vaccines, 15% therapeutics, that order of magnitude.

Got you. And this is a number you guys updated on the call. And [ I know ] just given this Omicron and booster shots, I guess, becoming more of the norm now, is that reflected in that order book, what we have so far?

Well, the latest news here around Omicron is not as -- I don't think anybody is really sure what the ultimate implications are. But one thing is for sure. It does appear that a broader percentage of the population is going to be going for booster shots. But it's almost easier to talk about what's included and not included in that order book, in the sense that we anticipated that in the developed markets, that the broader adult population would require a booster shot. And so that's included as well as the children in the U.S., 12 and younger, was included. But if you think about what's excluded, that would be a broader stroke of population requiring boosters outside of the U.S. as well as children 12 and under having the approval to get now shots as well. So that's excluded, and that represents a potential upside, sure.

Got you. And then maybe one more -- or a couple of questions on this biopharma, just given it's been such a key part of the business for you guys, does it make sense to think about large molecules, small molecules and cell and gene therapy? I think some of your peers have tried to segment the market in 3 different buckets. Does it make sense to look at Danaher's portfolio along those lines? And what is your exposure to those different buckets?

Yes. I mean we can talk about it in that context. Just to be clear, small molecules are really a very small part of our business. If we just look at the Life Sciences segment as an example here, with $15 billion of total revenues, and you look at about $7.5 billion of that being bioprocessing, and then extract from that COVID revenues, just for the sake of argument, you end up with about, call it, $13 billion in total revenue without COVID, right? About half of that would be then the bioprocessing business, which is largely -- the great majority of that is large molecule, right? And then you have the genomics business, broadly speaking, about $1 billion. And then the remainder splits evenly between applied, clinical and research. And so when you look at that segmentation there, less than 5% of the $15 billion is small molecule. So really not a large factor. And if you look at the performance of the portfolio, the base business without COVID, so that $13 billion, that's been growing 9%, 10% here for the last 3, 4 quarters.

That's amazing. It really is because, I mean, I go back to the last cycle, '08, '09, not many of us thought that these businesses would turn around and we would be talking about high singles growth. That's been a remarkable journey for you, guys. I think, along those lines, with Aldevron coming into the family, it's really -- I think that, that transaction surprised people for a couple of things. One, the [ more -- paid ] -- was this is not the same Danaher, which bought Beckman back in the day. This is a different -- this is a confident Danaher, which is hunting for premium assets in the marketplace, if you will. Maybe talk about why this transaction and what does it bring to Danaher.

Sure. Absolutely. Well, as you pointed out, Aldevron is a premium asset question for a number of reasons. And from our perspective, keep in mind, the way we execute M&A is we get comfortable with the market and the long-term drivers of the secular growth drivers of that market. We understand the players in that market and what the long-term competitive advantage really implies here. And then, of course, we look at the financial model that's associated with that. And when those 3 elements, if you will, flip to green, that's when we'll confidently execute. And as it relates to Aldevron, Aldevron really, for us, brings in new capability and represents sort of the cornerstone of our genomic medicine strategy because they are so well placed here with competitive advantage in plasmids and in other products as well. And frankly, we couldn't be more pleased with how they've joined us and the performance that they are delivering. They're delivering beyond expectations. As you saw in our earnings call, we are very pleased with the adoption, I have to say, the pull of DBS in order to continue to accelerate, not only capacity expansions, but also growth. And that's just really encouraging. So as you think about Aldevron, that really brings new capability to Danaher at the -- on the one hand. On the other hand, we're able to bring a great deal of health and capability to expand Aldevron going forward as well.

And just maybe one more question on this Aldevron topic, Rainer, the -- I think the general view was that the cell and gene therapy market, I mean, this is going to triple, I guess, over the next few years, based on some of your peer commentary. Any -- I mean my understanding is Aldevron is the #1 player in that space for those specific products' [ rate ]. Any reason why Aldevron's growth should be any different from the end-market growth rates?

Well, I'll tell you. I mean we look at the facts on the ground. We have seen 30%-plus growth here in Q3. That was sort of the first quarter that we've had Aldevron on board. We've talked about a 20%-plus growth rate here going forward. We think that's still a good way to think about it. But you can imagine that we work every day to ensure that, that continues to accelerate.

Fantastic. And that segues me back into perhaps as a question for both Matt and you. When you think about fiscal '22, so far, a comment from [ LST ] peers have been comps don't matter. '21 was a strong year. But right now, in the midst of a very strong CapEx cycle, how should we think about Danaher's base business? Let's leave out testing and vaccine for a second. Should base business, should be in line with your [ LRP ] commentary or perhaps above [ LRP ]? Or should comps matter?

I'll tell you, we'll get into '22 with our -- with a guide here in January. But I think I can help with trying to frame it this way. If you look at our base business, already, in 2021, we're seeing on a 2-year stack, 6% to 7% growth, which is 100 basis points higher than it was prior to the pandemic. So we feel like we have good momentum building there. And as we look to '22 and think about the secular growth drivers that support those base businesses, we think those are in great shape, whether it's the biologics funnel that we talk about. If you think about mAbs, 1,500 mAb projects in the development funnel, which is 50% higher than just 5 years ago. Or in the cell and gene therapy development funnel, you're looking at 1,000-plus projects in that funnel, once again, 10x what it was just 5 years ago. And of course, many other modalities that are associated with that. So as you think about that, as you think about infrastructure investments, certainly in the United States, but also around the world to protect the water supply, as we think about protecting the food supply, and not to mention the diagnostic requirements that roll out and the opportunity that we see in molecular testing, we feel that we're very, very well-positioned here in the base business in 2022 and beyond.

Absolutely. And I do want to come back to this 2022 [ LRP ] question. But before that, maybe Matt, for you, I know your favorite has been on the incrementals, right? You guys have done a phenomenal job year-to-date. I mean how should we think about incrementals for '22, right? You do have some travel expenses coming back. I think Gugino made a point to note that his travels have gone up in Q4. So I'm curious how we think about '22 margins.

Well, I mean, I think the way that we kind of thought -- forget about '22. I think we've kind of talked about the rerating of the growth profile. And I think there's a rerating of the margin profile as well, right? So I think, pre-pandemic, we will probably call it a 30%, 35% VCM business. I think as we have been, like you mentioned, kind of 40%, 45% here recently, on the back of a lot of things like you said, travel not being there and kind of a lot of Zoom meetings and everything else that have -- and not being in person, has kind of given that a bit of a lift. But I think when we get to the other side, and we think about margins as a VCM, I think when we get to that, post-pandemic, whatever that looks like and whenever that is, I think we've got a margin -- a structural margin increase as well as core growth, right? And so I think instead of 30% to 35%, I think, going forward, we're going to be more, call it, 35% to 40%, a little bit below maybe where we've been for the last 4, 5 quarters, but still a margin profile above where we were before. And that's due to a couple of things. One, I think if you think about the businesses that we have brought in, the Cytivas and the Aldevrons, just those are at structurally -- marginally structured higher businesses. I think then when you also think about what we've been able to do at Cepheid over time, if you remember, that business came in and it was essentially a flat OP business, didn't make any OP, and that has obviously taken a turn up here. And then let alone, what we've been able to do sort of with the rest of the base business that we have, the margin improvements there, so you can kind of combine those 3 and I think that's how you get to, call it, that 35% to 40%, to go with that better top line growth than we've been talking.

That's helpful perspective, Matt. Rainer, back to you on -- I think some of your peers have spoken about, look, given the current inflationary environment, pricing, perhaps for '22, should be above historical trends. And as you think about the planning cycle, what should pricing contribution be for Danaher in '22? And should it be above historical trends?

Yes. I mean once again, I mean, we'll talk about the specifics of '22 in January, Vijay, but maybe the following can be helpful here. First of all, I would tell you, the Danaher Business System is a real differentiator in this environment, right, where daily management, as we call it, is the key. We have live teams on the ground, in the plants, cross-functionally, problem-solving every day, to not only drive supply security to ensure that we have supply, but also to ensure that we're driving cost in the right direction. We're containing it where possible. Now having said that, of course, we implement additional measures, whether that be freight surcharges or fuel surcharges and of course, price increase. And we do those not only at a greater magnitude, but also at a higher frequency. So to give you a sense of this, and this is not a top-down sort of mandate that we do, we drive this bottom-up through our operating leaders. Today, we are realizing prices, increases of about 150 basis points, which is about 50 to 75 basis points versus -- higher than our historical price achievement. And that gives you a sense of the kind of momentum that we build and are building as we go into 2022 as well.

That's helpful, Rainer. I think off of that, I think another topic that's come up is this concept of diagnostics emerging a stronger post-pandemic, right? I think the Cepheid installed base, it's something that's been spoken about. Maybe the one, at least for me, is that diagnostic [ pie-based guideline ]. That's a constant, right? So there have to be winners and losers. Everyone has their installed base going up. Why should Cepheid be different? And what gives Danaher the confidence that there is going to be a leverage off of this higher installed base emerging from the pandemic?

Sure. I mean I think there's a myriad data points to sort of underwrite that hypothesis. And let me start by level-setting. We've nearly, almost, not quite, doubled our installed base since 2019. We're over 35,000 installed instruments at this point, and that's, by far, the largest molecular diagnostic installed base around the world. And at the same time, we also have the largest menu. So beyond the COVID testing, which I'll come back to in a minute, we have the largest menu approved, over 20 assays in the U.S. and over 30 assays outside of the U.S. And so the entire hypothesis has been that, absolutely, we need to help in this pandemic and position these instruments in order to drive COVID testing, and we've done that. And at the same time, we want to make sure that those instruments have application after a pandemic in a post-pandemic world. Today, we've actually modified our hypothesis to say, we believe a post-pandemic world has COVID be endemic. In other words, COVID does not go away, COVID testing does not go away, but it continues on. So these instruments will find use certainly as for COVID testing. But we also know that when we place those instruments, that these were care settings that would be able to take full advantage of the menu, such as hospital-acquired infections, sexually transmitted diseases and many others. Those are all a part of that. And we're starting to see there where the care settings actually have capacity to do something other than COVID testing. We're starting to see that menu adoption occurring. So that's, I think, one set of important data points, but there are others. As we look back the past year, which seems much longer than a year, quite frankly, as we look at that, you'll recall that we had periods of time when testing volumes were dropping. But that was not the case for Cepheid. In fact, we continued 1 quarter after another to ship more tests as we expanded capacity. And we continue to be sold out. So for us, demand continues to exceed available capacity. We feel very good about the 16 million units that we talked about shipping in Q4. And we do see that mix shift towards 4-in-1 versus COVID-only occurring as we thought to 50-50. But that's just an indication for you of how strong that value proposition is at the point of care, right? People, clinicians, in particular, want the right answer. They want it quickly, and they want it to be easy enough for a lab tech to take care of it in that care setting, so that they can make a diagnostic decision -- excuse me, a therapeutic decision such as prescribing an antibody cocktail or a small molecule antiviral or some combination thereof. So we think that's a unique value proposition. And as the market contracted between the surges that we had, we continue to see that value proposition gain traction with continued growth.

And then that segues really nicely into this next question, Rainer. With some of the data coming out of Pfizer under [ antiviral, it ] was pretty remarkable, right, 90% reduction. I think one of the hypothesis investors have been having is, well, if someone gets diagnosed next year, point-of-care testing and then [ you got the antiviral ], that seems like -- it sounds like Cepheid to me. So I'm curious, has your -- if there's any [ relation to ] that hypothesis. And if it does get -- if it should be given credit, then does that 45 million testing outlook you guys give, does it perhaps sound conservative?

Yes. Well, 2022 will come to in January, so we're just thinking about it. But I can frame it this way. Look, first of all, what fantastic news, right, that there is this antiviral that could be that effective, and we'll see and hope that it's approved here in the U.S. as well in short order. So we'll see how that works. But look, the way we think about it is, first of all, as I mentioned to you, we don't have very large small molecule exposure, right? So in terms of that generating business directly, that's less of a factor for us. On the other hand, we believe that vaccines and the associated boosters are still the primary and the best prophylactic and that this small molecule or this antiviral that's being pursued, Merck and Pfizer. But these are really what you do for folks that have chosen, for whatever reason, not to get vaccinated, perhaps they don't have access to vaccines yet, or folks that have gotten a breakthrough infection, right, that for some reason, perhaps get in trouble and are in -- immunocompromised or something like that. So we see that as a very powerful thing. One, we don't see it affecting, materially, vaccination rates. On the other hand, as you suggest, before you can prescribe it, you must have an accurate diagnosis, which would be supportive of just the kind of solution that Cepheid provides at the point of care. So we see this really as a double thumbs-up from nearly any perspective.

Understood. Understood. And then now, I want to get back to sort of the [ LRP ] question. I think it's -- I wouldn't call it a tale of 2 cities, but certainly, the amount of inbound questions has increased post your guidance philosophy on the [ LRP ]. I can't tell you the amount of debate, the [ pluses ] cost, the [ mid-single-digit-plus versus plus ], versus your peer putting out a [ 7 to 9 ]. Is it as simple as, look, you guys were just conservative and you're not assuming some of these trends to sustain for 3 to 5 years. But near term, there should be no change in your business versus your peer. Is that a fair comment? Or help us contextualize the [ 7 to 9 versus plus ].

Look, I think there are many factors, including the ones that you mentioned, right? But I will say this. Look, we look at the long term as the long term, right, including the next several years. And so we like to talk about the pre-pandemic world and the post-pandemic world. And today, and that would be different, we think of the post-pandemic world as having COVID, the endemic, right? Endemic. So that there is a tail there that is relatively long, and the magnitude of which remains to be defined. However, when you look at the really purpose-driven portfolio evolution that we've had, we just look at the data. And the fact that before Dental left the portfolio, before we acquired Cytiva, Cepheid was only 5% of the portfolio instead of 10%. When we add these factors and we look then at sort of the post-pandemic, where all along, we've said we intend to exit the pandemic stronger than we entered it with a 30% increase in R&D investment, 10 acquisitions and plus in 2021, we really believe that, as Matt pointed out, this not only rerates our growth rate to something higher than what it was previously. That's what the plus seems, okay? But also, the gross margin and operating margins rerate higher due to structural and mixed reasons, and that we are as well positioned as anyone in this environment with our portfolio, which is underpinned in every segment by very, very strong secular growth drivers.

Got you. No, that's a helpful comment. The -- one maybe on water and environment then. I don't know if it's a fair question, but there certainly seems to be an ESG premium for certain stocks. Does Danaher get that credit with water and Environmental being part of the Danaher family?

Well, I would tell you that I think we've made a lot of progress here on ESG. And you've heard us talk about our 3 primary ESG pillars, right, innovation, people and the environment. In innovation, we invest very significantly in these life-saving technologies that ultimately result in the development and manufacture of life-saving technologies and diagnostics, yes, in detecting contaminants such as pFe in the water or even COVID in the water and protecting the food supply in our PID platform. So from an innovation perspective, the core of our business is ESG-related. From a people perspective, we've gone to some very powerful declarations of where we want to be, which is 40% women representation by 2025; 38% U.S. people of -- in the U.S., people of color representation, which we upped from 35% because we're making such great progress there. And then when you think about the environment, here we've been very clear as we tend to be about the metrics that we want to achieve around energy consumption, greenhouse gas emissions and landfilled waste, each of which we want to reduce by 15%, in that case, by 2025. And we're applying our DBS toolkit there and really driving it down. And in our last sustainability report, which we just published, we actually published the progress we are making against these metrics and even going as far as to publish race as well as ethnic demographic data for our U.S. associates. So we see that the topic of ESG is an integral part of who we are in the businesses that we drive forward. And so yes, I believe we're getting credit for what we do in EAS. But EAS is one part of the story, yes, and then the rest -- the other 2 segments, of course, contribute to that as well and very powerfully so.

You brought up a number of points. But one, you said the DBS tools [ allows ] Danaher to track some of these metrics, right? Is that an annual target? Is management comp tied to some of these [ DNI ], ESG metrics?

Absolutely. So as you would expect, we have metrics. We have tool sets developed that drive, for example, energy consumption reduction. And as another example, for instance, our leadership, our people leaders have diversity and inclusion objectives in their variable compensation.

Yes. And back to the water and Environmental segment question, Rainer. Perhaps I didn't phrase my question properly. Now I look at someone like a Xylem, gets a lot of credit for being -- getting the ESG tag, right? Would water and environment testing get a higher [ mark pull ] if it was because it goes right into that ESG angle? Or does it get the same credit as it deserves being part of Danaher, was the question?

Well, it's a great question. And I think that our water business has the multiple of the entire Danaher Corporation, which I think compares well with others that you mentioned there. So I do think that we get credit for water, and water gets credit for Danaher. And that from an ESG perspective, we're telling our story. This is something that's relatively new for us to do, but I think we have charged down this path with clarity, with commitment, around real metrics and objectives. We're measuring our progress, and we're publishing it on an annual basis in our sustainability report. Management incentives are aligned. So we feel like we're making great progress here.

Understood. And then maybe one on M&A. I guess it's remarkable. You guys did a transformational deal, which includes -- not too long ago. And the balance sheet is now at a place where it's -- you guys could be out in the market if need be, right? So how does that pipeline, that funnel look? And are there any interesting assets out there for Danaher to go? I don't know if whale hunting is the right term, perhaps fishing in a trawler, I guess. How would you want to call it?

Okay. So well, I mean, first, to level-set, I think you're right. We're really pleased to be in the position that we're in so quickly after, as you say, the transformational Cytiva deal. And in fact, we expect, even after the Aldevron acquisition this year and the 9, 10 others that we have made in addition to Aldevron this year, to be at 2 turns net debt EBITDA here by the end of the year. So we feel as though, from a capacity perspective, we have the powder, if you will, to do meaningful deals. Now having said that, and coming back to your question around deals, our funnel is very active. And as you would imagine with us that, that funnel consists of a real mix of assets, large, medium and small. And we run our process rigorously and in a disciplined fashion. And we always think there are assets out there that we like. And so it's a matter of the 3 things that we focus on: market, right, which is so important; the quality of the asset and the sustained competitive advantage that we see in it and the value that we can bring to it; and then, of course, the financial model, which has to be in the right space for us. And so when those 3 things together flip green or meet our requirements, that's when we'll be ready to execute.

Understood. And then maybe the last question, and perhaps this is more of a Matt kind of question. Free cash flow has been something that differentiates Danaher from other companies. I'm curious, does free cash conversion as a metric, does it get enough attention from investors in your mind? And when you think about that metric going forward, should it be at 100%, 110% or sub-100%?

Yes. I mean I think we talk about it quite a bit with folks. I think people understand that it has been pretty good for a while now. Yes, I would say, I think this year, obviously, a heavier CapEx year for us at $1.5 billion, a lot of investments that we've been making. So kind of right around that 100% is about where we've been every quarter. And I suspect, next year, we kind of have roughly similar types of levels of investment, maybe not quite exactly the same, but something like we saw this year. So I think for, at least the near term, 100% is still sort of where we are. And I think, in the longer term, especially after we get through some of maybe the pulled-forward investment that we talked about at Cepheid and Cytiva and Pall, to meet not only the pandemic, but the demand that we think is coming, I definitely feel comfortable with 100% conversion ratio. But I think people get that cash flow matters, and the conversion has been pretty good for us over time. And we certainly try and talk about that as much as we can with folks.

Understood. And Rainer, sorry, Matt made a -- Matt's point on CapEx and investments, it brought another question to my mind. Given the amount of investments in the biopharma space, do you worry about excess capacity in the industry when we're in '23 or '24? Or I'm curious how you look at CapEx investments.

I don't. I don't worry about it, and here's why. First of all, keep in mind, the pandemic goes to endemic, not to 0. So there is a baseline there. We all can negotiate on how high that baseline will be, and I don't think anybody really knows. But we know it's not 0. So there is a long tail there. Second of all, and we talked about this. The amount of funding that the Life Sciences research area is attracting is extraordinary, and it's historic. And so the increase that we see in the development funnel and in the number of projects, even just at the standard success rate, never mind technologies that are increasing the success rate through the pipelines, if the standard historical success rate implies extraordinary growth, a new modality's coming online. Keep in mind, right, we talk about monoclonal antibodies. That's a relatively sizable market already. Yet the penetration of these often life-saving therapeutics around the world is relatively low. The volume requirements that are out there as we continue to become more efficient at producing and delivering these kind of therapeutics is extraordinary. Then if you add the explosion of cell and gene therapy, never mind other things such as mRNA vaccines, beyond COVID and others, there's just an extraordinary amount of demand out there. And we think that the capacity that we're building is not only needed but required.

Fantastic. I think, with that, we're at the end of our allotted time. Rainer, Matt, thank you so much for spending the time with us this afternoon.

Vijay, thank you, and thank you to the team. This has been a great conference.

Thanks. Bye.

Thanks, guys.