Good morning, everyone, and welcome to Danaher's 2018 Year-End Investor Day. For those of you that I have not met before, I'm Matt Gugino, Vice President of Investor Relations here at Danaher. A special thank you for all of you for coming here to The Plaza this morning, as well as a special thank you to those that are joining us on the webcast. Just forward-looking statements, I'm not going to read all of these, but I do need to say today's presentation may include forward-looking statements and actual results may differ materially from these statements. Please refer to the slides for more information. Just on the agenda, I think we have another great day for you. Tom's going to come up first, give his opening remarks. After that, we're going to do two sets of platform presentations where our platform leaders will come up.
We're going to do a Q&A session after each of those two sections. After that, Tom will come up and give his closing remarks, as well as talk about our guidance for 2019. He'll close with a final Q&A session. That will end the formal presentation at about 12:00 P.M. We'll follow by lunch in the Centennial Room, that's through the atrium. That will go from about 12:00 P.M. to 12:45 P.M. With that, we'll go ahead and get started and bring up Tom.
Thank you, Matt. Good morning, everyone. Let me add my thanks to the acknowledgement that Matt gave you all for coming today. We really appreciate it. We know this is an incredibly busy time of year, all of us at Danaher appreciate you taking time out of your busy schedules to join us here at The Plaza. For those of you on the webcast, thank you for taking time out of your schedules, to join with us today. We've got a lot of flow generation and our capital deployment, which continues to help us build and evolve into a stronger and better Danaher. We made a lot of progress in the last three or four years. Some really meaningful transactions and significant acquisitions that we believe have now positioned us in an exceptional way in some really attractive end markets.
I'll talk to you about those end markets today and how we see those attractive secular drivers that we think continues to position us well for enhanced growth trajectory over time. Finally, we'll talk about what we call running the Danaher playbook. This isn't the first time you've heard us use that term, but we'll get into a little bit more detail about how we continue to drive our cost structure to enhance gross margins, introduce new products to further enhance those gross margins, and control non-customer facing costs. In so doing, that allows us the flexibility to continue to invest in innovation and in sales and marketing with the end result being an enhanced growth trajectory. An enhanced growth trajectory that we've seen throughout the course of 2018.
That's really the model of how we create long-term shareholder value, combined with that tremendous free cash flow that we continue to deploy towards strategic M&A opportunities. Doing, that allows us the flexibility to continue to invest in innovation and in sales and marketing with the end result being an enhanced growth trajectory. An enhanced growth trajectory that we've seen throughout the course of 2018. That's really the model of how we create long-term shareholder value, combined with that tremendous free cash flow that we continue to deploy towards strategic M&A opportunities. Let's talk about 2018. Maybe let's start with the fourth quarter. We feel good about where we are in the fourth quarter.
We look back at a pretty solid October and November, right now we see ourselves very much in line with the expectations that we set out for ourselves to wrap up this year. If we step back, look at 2018 as a body of work, really what gets us excited is this meaningful step up that we've seen in core growth versus prior years. I'll talk about some of the contributors to that step up in core growth during the course of this presentation. If we look across the segments, Life Sciences, Product ID, Water Quality, Diagnostics, all mid-single digits or better throughout the course of this year. I think what encourages us most about that is sustainability.
That really comes from deploying the tools of DBS to drive innovation and to drive our commercial execution in a way that ensures that we secure market share gains and enhance our strategic and competitive positions. While we've looked at our core growth, we've also expanded margins, while at the same time, referencing again the Danaher playbook, reinvesting for growth. Operating margins at the core up 100 basis points, gross margins up 60 basis points while investing in R&D, and you see 10 percentage point growth in R&D. That all has led to strong adjusted EPS growth and solid free cash flow. 2018 will be our 27th consecutive year that free cash flow exceeds our net income. We're looking at, as you see on this screen, 123% conversion during the course of the full year.
Of course, strategic M&A continues to be an important lever for us over time. As we look back on 2018, we're excited about the addition to our Life Sciences portfolio of IDT, and Rainer Blair will get into that in more detail, as well as Blue Software, a significant addition to our packaging workflow efforts in the PID platform. Finally, of course, we announced the spin-off of our dental business, we're making good progress along the road towards that in 2019. We look back, we're excited about a terrific year that we've had in 2018, a year that we think sets us up well for continued progress in 2019. How did we get here?
Well, there were a series of meaningful transactions that helped position the portfolio to be today in some of the most attractive end markets in the world at large. Pall, Cepheid, Phenomenex, and most recently, IDT, not to mention the spinoff of Fortive, all contributing to shift the dynamics of the portfolio over the last three to four years. Those dynamics being first and foremost our core growth, which we've lifted from low single digit to mid-single digits, enhancing the portfolio by lifting the percentage of the portfolio associated with recurring revenue from 45% just three or four years ago to 70% now, and I'll talk more about the importance of that recurring revenue in just a few minutes.
Customer intimacy gives us real opportunities to drive competitive advantage in the market, the higher our percentage of direct engagement with our professional end users, the greater that customer intimacy is, and the more we can create those competitive advantages in the minds of our end users, and we've lifted our direct presence through go-to-market efforts from 60% to 70%. Finally, when you put all those together, you see gross margins now up 400 basis points from just a few years ago. We've evolved the portfolio. These transactions have helped shift those dynamics in a way that creates a more attractive portfolio for the long term. We've evolved into a $20 billion portfolio organized into four segments and five platforms, 25 operating companies, each of whom have number one or number two positions in attractive end markets.
We've evolved into a higher growth and higher recurring revenue portfolio. Let's camp out on that topic of recurring revenue for just a minute and talk about the value of that. First of all, a high level of recurring revenue is one of the things that unites the business model. That's a common aspect of the business model at Danaher. A steady consumable stream is a core part of that, as is service. That consumable stream and those service relationships are a function of an extensive installed base of instrumentation. Recurring revenue made up of both consumables and service contrasted with our instrumentation and equipment portfolio, which represents roughly 30% of the portfolio. These consumables are high-value mission critical consumables that are associated with applications that demand high-quality products and often that are associated with meeting regulatory requirements, which creates incredibly sticky relationships with our customers.
To give you some examples, some of them are what you might consider to be somewhat traditional razor blade examples, where consumables revenue attached to that installed base might represent anywhere from two to five times the revenue that was associated with the initial sale of the instrumentation. They're often associated with long-term contracts as well. You see some of the brands in the portfolio where that is the case. In other cases, many of these captive consumables are actually specced in to the applications. In some cases, that's a function of FDA-approved processes or validated protocols, particularly in the life science market in biologic drug production. In other cases, that might be associated with EPA methods, for example, at Hach, where Hach consumables are specified in EPA guidance manuals as the preferred methodology associated with EPA compliance. Finally, service.
Attachment rates are critical here. That's a great example of Videojet. Joakim Weidemanis will talk about the importance of service at Videojet later on today. That's a great example of building competitive advantage, where over the last few years, we've actually doubled the attachment rate to now north of 50% service attachment associated with each new instrument installation. This level of captive consumables or recurring revenue obviously has a number of benefits. It reduces revenue volatility, creates an increased level of customer intimacy, and finally, of course, are typically associated with higher margin opportunities. As a result of that increasing level of consumables, it has enhanced our ability to continue to drive margins in such a way that we can reinvest some of that margin benefit in driving growth.
Another aspect of the portfolio today is the strength of our businesses' positions in really attractive end markets. End markets with strong secular drivers, some of which are horizontal, meaning they cut across our portfolio. For example, the high growth markets. Each one of our businesses has benefited from an enhanced position and percentage of their balance of sale in high growth markets today, particularly in China, where we continue to grow high single to double digits on a consistent basis. Regulatory requirements, as I just mentioned, whether that's through EPA requirements or FDA requirements, those regulatory requirements apply to multiples of our businesses across the portfolio. Finally, workflow efficiency. Generally, we sell a broad suite of instrumentation to professional end users who are challenged every day to consolidate work steps, to create more efficient workflows, often in environments where skilled labor is at a premium.
Workflow efficiency is a critical horizontal driver across virtually every one of our businesses. There are also strong secular drivers that apply vertically to our markets. For example, in Water Quality, where water scarcity and the impact of our businesses at Hach and Trojan and ChemTreat continue to benefit, and the sustainability of water resources, which are so critical around the world, both in the developed markets as well as in high growth markets. In product identification, product proliferation. All you need to do is go to your local grocery store to see the breadth of product packaging that's associated with growing market share in that competitive environment of consumer packaged goods today. Our Videojet business, our Esko business, our X-Rite business sits squarely in the middle of these demands associated with global brand consistency and associated with product packaging proliferation.
Our Life Sciences business continues to benefit from the growth in biologic drug development and the importance of personalized medicine over time, and certainly the evolution of the genomics market as that market continues to evolve into a higher growth and more substantial contributor to our core growth. In Diagnostics, molecular continues to be a really significant growth driver for us today, and the addition of Cepheid to our portfolio has positioned us extraordinarily well to take advantage of the importance of molecular as it penetrates from very low levels in the marketplace today to what we know will be significantly higher levels in time.
The decentralization of healthcare, where the architecture of products like Cepheid, for example, the unique architectures for the point of care and ultimately perhaps for physician office labs will take advantage of secular drivers that are associated with lowering the cost of healthcare over time. Finally, in our dental business, where digital dentistry continues to evolve and where our position today in the advanced areas of imaging across multiple imaging modalities as well as software that integrates those imaging modalities across the patient workflow continues to be a key driver. Aesthetics continue to be an important part of dentistry today.
Therefore, where our position today with our orthodontics business in traditional wires and brackets, and not to mention our new innovations around clear aligners and our position with Nobel in implants take advantage of that continued growth and evolving middle class in a number of markets around the world and the importance of aesthetics to those end patients. A number of really attractive end market drivers that we think position this portfolio for continued good performance over a long period of time. Really wonderful businesses in attractive end markets. At the end of the day, it's how we run them that matters. That's where DBS comes in. DBS, of course, is who we are, and it's how we do what we do. That all starts with our core values. Those are on the left side of the screen.
Those core values begin with the best team wins, putting the best team on the field every day. Then charging that team with the second of our core values, which is customers talk, we listen. Ensuring that we're bringing the voice of the customer, not just explicit needs, but implicit needs into our businesses to drive innovation, to drive creative commercialization models, to help ensure that we're meeting what are often unmet needs in our marketplace. Which brings us to the third of the core values, which is around continuous improvement or Kaizen, which is our way of life. Continuing to thrive in an environment of a restlessness around opportunities for improvement. Seeking every day for how we can serve customers better, how we can improve our operating model, and continuing to evolve DBS along the way. All of that leads to driving innovation.
As you'll see later on in our presentations and throughout the course of this day in other presentations that you'll hear, innovation continues to be a greater and greater component of enhancing our core growth at Danaher. Finally, those four core values lead us to the fifth, which is that we compete ultimately for shareholders. A little bit of a double entendre there in the sense that we compete on your behalf in the marketplace, and we compete for you and for your attention on the basis of the consistency of our performance over time. DBS, of course, is made up of a broad set of tools and processes beyond these core values that help us live those core values and implement every single day.
Our foundation comes from Lean over decades, that foundation led us to evolve the tool set into a set of growth tools, which has helped us enhance that growth trajectory through innovation and commercialization in time. None of that is possible without leadership, without that best team on the field. Let's talk about how we've driven leadership in time. We've established two fundamental strategic priorities. We simply want to be the best and most preferred workplace. Within that workplace, we want to have the best people leaders. Those people leaders embrace a culture at Danaher and live those core values that I talked about as a function of a culture of and. You all know we love metrics at Danaher. Many of you have been to our businesses. You've seen the bowling charts that we talk about.
You see the way we drive metrics every day in all of our businesses on a consistent basis. We also make sure that our people understand that metrics have meaning, and that understanding how those metrics mean something to customers every day is what we try to ensure. Performance has always been important at Danaher, and we've driven performance consistently, but we make sure that our people understand that it's about performance, and it's about people, because people are what make it happen. Finally, you know we've always been about results. Results matter. We stand by those every single day. We take pride in them. It's also important that those results internally have recognition. A culture of and. Metrics and meaning, performance and people, results and recognition matters.
At the end of the day, that helps us create a workplace in which we meet the needs of our associates every day, where their daily work, their relationship with their leaders, their belief in their future and their development, a sense of purpose. At Danaher, we have a very simple purpose, but an important one. It's about helping realize life's potential. It's about doing that in an environment that's diverse and inclusive, that ensures that living the best workplace is living the best workplace, and where we have the best people leaders in such a way that values diversity and that values inclusiveness along the way. We measure all this as a function of associate engagement. We're proud that over just the last five years, we've lifted that president level and above, operating company president level and above, with our internal team.
Those are the metrics that really matter at the end of the day when it comes to figuring out, are we creating the best workplace? Are we becoming the best people leaders? Good businesses in attractive markets with the tools of the Danaher Business System and a tremendous team and a great culture. When you put that together, how do we create value? I think we shared this with you earlier this year and perhaps even last year. We create value as a function of the Danaher playbook. What I'd like to do today is give you a little bit deeper sense of what are the components of this playbook and how do we ultimately create value and what do some examples look like of how we've done this.
It's really about that process of controlling and driving your cost structure, gross margin in the G&A line, gross margins up, G&A down as a % of sales, reinvesting in R&D and sales and marketing, and dropping some portion of that into the operating margin line, while at the same time using that reinvestment to continue to drive core growth at the top. Leading to that formula to creating shareholder value, both focused on ensuring that we're doing the right thing from a margin perspective and reinvesting in the business in the interest. Some portion of that into the operating margin line, while at the same time using that reinvestment to continue to drive core growth at the top.
Let's open that up a little bit. Let's talk first about how do we improve that cost structure. In terms of gross margins, we focus on the core components that allow us to drive gross margins. Material cost is obviously a significant component of what goes into our cost structure every day. The way we focus on purchase price variance is working with suppliers, both in terms of value engineering our products towards lower cost, as well as how we manage commodity pricing and how we consolidate suppliers in the interest of the greatest efficiency, all combine to help enhance gross margins. Labor efficiencies are important.
Labor is a smaller part of our overall cost structure, but our DBS tools have always helped us drive higher levels of productivity through labor, and also at the same time have helped us restrain our capital needs at the same time. Quality is a big cost factor as well. Of course, there's always freight and logistics that contribute there. There's a whole series of DBS tools that help us do this, and this is even before new products come into play, where we focus on new products being an enhancement to gross margin, not just equivalent to the fleet average. You see an example there, Beckman Life Science, a great business in our life.
There's a whole series of DBS tools that help us do this, and this is even before new products come into play, where we focus on new products being an enhancement to gross margin, not just equivalent to the fleet average. You see an example there, Beckman Life Science, a great business in our life science portfolio where their gross margins since 2015 are up 500 basis points as a function of these enhancements to using DBS tools. G&A, general and administrative costs. We focus on the non-facing costs around the OpEx line. In this case, we use tools like visual management and transactional process improvement.
You see an example here at Pall, a great example of holding G&A by driving it down, in this case, greater than 500 basis points since acquisition. If you look now more broadly at the way we've driven the cost structure, over the last 3 years, we've lifted gross margins 200 basis points and taken G&A as a percentage sales down by 50 basis points. By focusing on those non-customer facing costs, that's allowing us to reinvest back in the business and enhance the growth trajectory. Once we've got those costs under control and we've got those benefits in hand, what do we do with them? Well, again, going back to the playbook, our first focus is on how do we reinvest those for growth. Innovation is the place we turn. There's a number of opportunities here, and you see the results.
We've lifted R&D as a percent of sales by 50 basis points over the last three years. We've added over 40% to our R&D associate population, and our annual R&D spend today is over $1.2 billion. We focus in a number of areas to ensure that we deploy these important dollars carefully. We want to encourage an entrepreneurial spirit while maintaining the rigor that's associated with DBS from a process standpoint. A number of newly acquired businesses have been really helpful to us in terms of helping us understand what does an innovative culture look like. Cepheid, Phenomenex, IDT, all tremendously innovative businesses that we have learned from and where we've been able to incorporate those lessons into DBS. Improving the efficiency of the R&D process by driving a focus and a prioritization on a narrower set of higher impact projects.
Finally, compressing cycle times to get those products to market that much faster. The formula is a pretty straightforward one. Enhance the funnel of ideas and opportunities through focusing on the customer, drive on-time delivery of those projects, commercialize them more effectively through launch excellence and transformative marketing, thereby enhancing our core growth as a function of new product vitality. Driving new products is great, but at the end of the day, you really have to be sure, we have to be sure, that we're commercializing them effectively. DBS tools, again, have made a real impact on allowing us to meet our targets in terms of commercializing exciting new products to the targets in their markets. It starts with tools like transformative marketing, where we seek to understand what are the opportunities in the market today? Who are the customers that we're not seeing?
How broad are the segments that we're not touching today? How do we meet customers in the market and sell to them in a way that they appreciate? In some cases, that might be through digital means. In other cases, that might be through direct application support. A combination of those things, tied in with effective lead handling and nurturing, allows us to then focus in visual management on driving the funnel and ultimately driving win rate. You see a great example here from Pall, where the team at Pall, using these tools of DBS and using this process flow, actually lifted their market visibility as measured by the number of contacts in targeted strategic end markets by 80%. Obviously, that creates a pretty wide funnel. How you drive that funnel down ultimately to core growth is a function of driving qualified leads.
They 10x the number of qualified leads as a function of that market visibility and lead nurturing. Finally, it's all about win rate. Using the processes of DBS and funnel management, the Pall win rate's been lifted by 15%. An exceptional example, I think of where DBS, from a growth tool perspective, has really helped to enhance the performance of a relatively newly acquired business. We're pleased with the impact, both from an innovation standpoint as well as from a commercial perspective. If we look back for a minute, we use 2016 as a jumping-off point here, we'll call that low single-digit growth across the portfolio.
As we look at the impact of what we've been able to execute over the last few years, those efforts around innovation and commercialization, both in businesses that have been with us for quite a number of years, as well as newly acquired businesses, have contributed meaningfully to lifting core growth. Those meaningful transactions that we've done, the additions to the portfolio of great growth businesses like Pall, like Cepheid, like Phenomenex, like IDT, like Blue Software, previously defined fleet average. We're excited about the fact that IDT will actually come into the core in April of this coming year. Finally, better end markets are not to be ignored. We know that 2018 has been a terrific year from an end market perspective. We've seen globally synchronous growth across all of our markets.
That's certainly been a contributor, as we break down our core growth really by business and by platform, we see that our own execution, both from the standpoint of innovation and commercialization, as well as from the contributions of our past inorganic moves, have really set this portfolio up to be a more sustainable mid-single digit grower over time. That's the organic side of the house. The inorganic side of the house, as you all know, has always been and will continue to be a really important component of how we enhance the strategic capabilities of this portfolio and the financial performance. I've talked to you in the past about the way we think about deploying capital. It starts with attractive end markets. There's so many examples of this.
If you look at the penetration of the biologics market that led to the acquisition of Pall, or the identification of the molecular diagnostic market that led to the acquisition of Cepheid. Or if you look at the genomics market and its attractiveness that led to the acquisition of IDT. If you look at the packaging workflow dynamics and the importance of extending our footprint in the packaging workflow that led to the acquisition of Blue Software. Each of those represent an example of following the model of market first, company second, and then ensuring that we're delivering ultimately value as a continued focus on return on invested capital, the DBS opportunities, and the ability to deliver long-term shareholder value. That model remains very much consistent today. Where we sit, well, we sit in a wonderful position from the standpoint of our capacity.
In fact, if you look back to 2014, and you tried to compare where we sit today from a capacity perspective to then, you'd see it's roughly comparable. Prior to the Pall acquisition, compared to our capability to deploy strategically into attractive end markets. The impact of what we were able to do, again, looking back through that same timeframe at capital deployment, a significant one at Pall, certainly with the addition of Cepheid, Phenomenex, and IDT. We've ramped up that EPS contribution from high single digits to well into double digits. Now with the capacity that we have today, a capacity and a debt-to-EBITDA ratio that hasn't been this low since prior to the Pall transaction, we feel wonderful about our ability in a market that, frankly, is getting a little choppy right now. Choppy markets tend to be markets where things open up.
We feel good about the opportunity to deploy capital over time towards enhancing. This evolution of the portfolio has helped us build wonderful footholds in great markets with really high-quality businesses. The results, well, they speak for themselves. Over the last three years, 200 basis points of core growth improvement, core operating margins running at greater than 85 basis points per year. Double-digit free cash flow, once again, this year and over that last three years. Finally, over that same period, mid-teens adjusted EPS growth. A tremendous team armed with the tools of the Danaher Business System and a balance sheet in fighting shape. With that, I will close the opening remarks and welcome up Rainer Blair, our Executive Vice President, responsible for our life science platform, who's going to give you an update on the many exciting things going on in the world of life science.
Rainer, welcome.
Thank you, Tom. Good morning.
Morning.
Morning, everybody. It's a pleasure to be here, and to update you what we've been up to here with the Life Sciences businesses in 2018. Working really every day, as Tom mentioned, to create additional value. Why don't I get started with a quick overview of the platform. With our leading global brands and our high-performance solutions, we really compete for share gain in a roughly $50 billion market that's growing in the mid-single digits. You see the brands here and the operating companies on the left that contribute to the majority of that $6.5 billion of revenue that's growing at high single digits today, delivering EBITDA margins in excess of 25%. We are straddling some very attractive, strong, and secular growth drivers.
For instance, the evolution of life science research, where in the genomics markets, for instance, we're decoding life and disease, or that shift in medicine from small to large molecules with the red hot cell and gene therapy market. Of course, high growth markets are investing in basic and applied research, particularly in China and in India. If you look at our revenue mix there down the middle, starting at the top, you can see our bias to razor blade business models with recurring revenue at a very high 65%. From a geographic and end market diversification perspective, I'd like to call out our high growth market in biopharma positioning in particular. As we think about 2018 and closing the year, I'd like to share some highlights with you, particularly those which create some momentum for us going into 2019 as well.
Tom talked about the importance of the Danaher Business System. It's who we are. It's what we do. This applies here as well as we've enhanced the cadence of our innovation, supporting our accelerated growth rate of 7.5% here year to date. At the same time, the Danaher Business System Lean toolbox has helped us to have strong core operating margin expansion through improved lean execution, and you see a nice over 250 basis points of operating margin expansion there. The team at Pall continues to exceed our initial expectations. They're delivering $350 million of cost savings by year five that we've discussed before. You might recall, for those of you who have been following this since the beginning, that our original hypothesis was just $200 million. That speaks to the power of the Danaher Business System in space.
At the same time, we continue to deploy capital. Tom mentioned this $2 billion acquisition of IDT, a well-positioned genomics reagents consumables player, and I'll speak to them in just a minute in a couple more words there. We've really transformed the platform here over the last five years. Frankly, it all started with Leica Microsystems back in the day. Since then, we've deployed over $20 billion of capital and over 25 acquisitions. What we typically do with leveraging the Danaher playbook, the Danaher Business System, and this disciplined capital deployment, is we enter these attractive end markets with a scaled acquisition. Examples of that would be SCIEX, Beckman Coulter Life Sciences, Pall, and more recently, IDT. We'll go ahead and round out the competitive positioning of those companies with additional bolt-on acquisitions.
Just to mention some here, Xitogen, Agela, Phenomenex, and AWC. Now, all along, we're rolling out that Danaher playbook that Tom referred to earlier, where we're looking at processes with the Danaher Business System, shortening them, accelerating them, removing waste, and taking this in order to improve our gross margins, reduce our G&A, and then subsequently trajectory of the platform by applying the Danaher playbook, the Danaher Business System tool set, as well as this disciplined capital deployment. You see the results here, five years ago, $2.5 billion platform, today, $6.5 billion. As we think about our core growth from low singles to high single-digit growth, our recurring revenue from 35% to a very sticky 65%, and then our earnings from the mid-teens really to well over 25% EBITDA. What's our winning formula? How do we do this?
Well, it really starts with the four focus areas here book that we just spoke to. You see how we've ramped up our R&D investment. Here we're focusing on breakthrough innovation that is proprietary and really matters. Matters to our customers in terms of resolving their workflow challenges and their science, and it matters to us because it moves both the top and the bottom line. We like that proprietary nature of innovation. Why? Because it provides greater defensibility and additional pricing leverage. From a commercial perspective, we continue to invest in direct high-tech sales forces. These are highly qualified professionals that are doing much more than selling gear. They're helping our customers advance their science. We think about it the same way with service. Service is much more than break/fix.
For us, it's a high-touch aftermarket channel through which we deliver a differentiated service product portfolio, help our customers achieve their original experimental design, and at the same time inform our innovation funnel. You see our growth rates here, high single digits in service over the last three years as a proof of concept. High-growth markets, you can't win globally anymore without winning in high-growth markets, we invest locally. China, for China, is a critical element of our strategy there, we've been investing significantly in localizing our R&D and manufacturing capabilities there for share gain, you can see here attractive double-digit growth. Let's explore this topic of investing in attractive end markets just a little bit more. We couldn't be more pleased with the acquisition of IDT.
After years of cultivation, we were finally able to welcome them to the Danaher team, they've exceeded our expectations here, both on the top and the bottom line in the early days. As Tom mentioned, we expect them to hit our core growth numbers in April of next year. IDT is a $300 million operating company, a mid-teens grower with competitively advantaged custom oligonucleotides and high-performance genomic reagent solutions, some of which you see pictured here on the top on the right. At the same time, we have our existing Beckman Coulter genomics business, where we have a differentiated position in high-throughput automation, particularly since the recent launch of our Biomek i-Series, as well as the gold standard reagents in sample preparation. Beckman Coulter is also growing at double digits.
Together, we have an over $400 million platform here, well exposed into this very attractive genomics end market. By adding over 200 basis points to our core growth in 2018, improved innovation execution has been a critical part of our accelerated growth. The Danaher Business System allows us to assess the capability of our innovation processes, identify pockets of opportunity, and provides the roadmap for how we can mine those pockets for improved execution. There's some great examples here. If we look at Leica Microsystems, they found opportunity in their launch processes, and they were able to launch over 20 new products in the last three years. Just for sake of comparison, they launched three products in the three years prior to the acquisition by Danaher.
Lastly, if you think of our problem to portfolio tool set in play at Pall, this is helping us to really better understand the pain points of our customers as we define the specifications of an innovation, it accelerates the adoption of those innovations by customers and improves our revenue achievement of the original business cases. That's improved by a factor of two. You see how important the Danaher Business System is to improving our innovation performance, not only to significantly increase our growth, but to create competitive advantage through proprietary innovation and share gain. We talked about how key China and high-growth markets are to our overall growth strategy, and we've been working hard at that. You see the progress here. We've doubled the business since 2015.
The way we've done that is by aligning with the secular growth drivers in that country, increased healthcare investment, life science research accelerating significantly, and more recently now, a vibrant local biopharma development market as well. We've got a strong local presence with our operating companies there who have invested in local research and development and manufacturing ability, that gives us now the opportunity to compete effectively, not only against other multinational companies, but also against local Chinese players. All of this comes with the Danaher Business System being alive and well in China.
We invest significantly in the development of our associates in China, they have been fantastic in embracing the Danaher in Shanghai. Lastly, of course, we also deliver on our M&A playbook in China, we do that not only for additional market access and local brands, as you see here with Xitogen and Agela, but also to be able to participate in the local innovation economy. China, for us, major opportunity. We're well-positioned with a very nice growth platform here. In summary, also in conclusion, I hope you've been able to see how we've really been able to transform the growth and earnings trajectory of the platform over time by indexing towards those very attractive end markets, at the same time, really changing the structure of our revenue with a much higher recurring revenue profile.
At the same time, we continue to improve our competitive advantage by driving the Danaher Business System in innovation execution, as well as lean execution. Lastly, we've built up this nearly billion-dollar platform in China, which is going to serve us well to take full advantage of those attractive secular growth drivers in that particular country. Thank you very much. With that, over to you, Tom.
Thanks, Rainer. Terrific. We're going to move quickly to the next platform. We're going to now shift to another platform where we have an equal number of exciting growth and profitability.
Pleasure to be here again, give you a status update of what we have been doing in the past three years and the road ahead. Let me start reorient you again one more time with this platform. It's about $2.8 billion. It's a combination of specialty consumable in ortho, as well as the implant, as well as traditional tools that a dentist uses in office. Over 55% gross margin. We are beginning to make progress playing that Danaher playbook in here. Headquartered in Southern California with over 12,000 associates worldwide. We have one of the largest footprint when it comes to the go-to-market and maintaining relationship with our customers. We talked about the high growth market continuously, you're going to hear that we have significant opportunity for growth in that space, as well as digitization.
Digitization is around productivity and being able to provide better care, better clinical outcome, more effectively through the procedures that dentists are going through. I want to talk a little bit about what we have done so far in 2018, I'll take you back through the journey that we have been in and what you can expect moving forward. We have been deploying DBS into this platform. We introduced it about three years ago. As we mentioned, about three years ago. We're treating it as a new acquisition, we are introducing it at the point of impact. We are beginning to see momentum in here, putting really good momentum around high growth market, putting significant amount of energy around innovation. We started this a few years ago.
We're beginning to see the outcome of that, gaining share in the specific product categories that we have introduced over time. This has been a difficult market. It's been a choppy market in the past couple of years. We are seeing a sign of a stabilization, and we are pleased with the performance that we have had, given the challenges, and specifically in North America. Beginning to see a better sell-out, more stabilization around inventory, and on some of the growth investment that we have put in place, beginning to see momentum around it. Our specialty businesses around ortho and implant, we have been able to move it from low single-digit to mid single-digit. In China, we continue to make investment and there's significant opportunity over time in here. Since the acquisition of Nobel, we have improved the margin in Nobel by 1,000 basis points.
We have added over 100 basis points to our R&D. We have over 6% R&D investment in this platform, and it's going to take some time, but the results are beginning to show. This is the framework that we created a few years back. We said we want to apply the Danaher playbook in here, create simplicity, create opportunities and fund for growth, invest in innovation, invest in commercial activities, and then build a sustainable business model over time. We have been three years through this journey. We have more room for improvement. As we are beginning to see the outcome of the work, we are more positive as we walk into 2019. Let me give you a few examples of what we have been able to accomplish, specifically around building this strong foundation.
We have outcome of 28 acquisitions in the past 14 years, many different operating companies with overlapping product and positioning. We've been able to consolidate a lot of that into three major operating companies. We've been able to reduce our footprint by over 30%, our manufacturing footprint worldwide. Legal entities, offices, simplification of our brand. A lot of that has taken place. We're bringing a lot of shared services on a regional level. DBS is truly at work in here around innovation, around growth, around Lean, and about talent. Outcome of it, over 50 basis points of a growth margin improvement, consolidation, more room to execute in here. We have been able to reduce the G&A, specifically in Nobel, by 400 basis points.
Our goal is to be able to put a sustainable business model together that continuously, year after year, produces plus 50 basis points of a margin, move us from mid-teens, and see the performance of that for years to come. On the innovation side, on the growth side, one of the key tenets of this transformation is around cadence of innovation. Put products out there in an ongoing basis, so we have an opportunity to go back to our customers and have meaningful discussion around productivity with them. Commercial initiatives. Put in resources in order to be able to provide training and capabilities that dentists need across the world. Continue to add capabilities in the high-growth market.
In the past three years, we have added 50% to our China sales force, the outcome of that is we're beginning to see this, our software capabilities, consolidation, and we have added over 10% to our commercial resources over time, cadence of a product would increase, better relationship with our customers, building relationship for the long term, and providing support, service and support capability on an ongoing basis. We are focused on areas that make a huge impact. These areas are primarily on implant, on ortho capabilities, and in the high-growth market. On implant, in the past three years, Nobel has gone from low single-digit to about a mid-single-digit growth. We have added 15% to sales force over time, providing better coverage, and we have added over 20% to their R&D investment.
The pipeline of the product that is coming out of Nobel is there for years to come. We're beginning to change the dynamic of this market, how implant is done. We're really bullish about what we are going to be able to put in the market year after year. Again, the outcome of that has been shifting the business model, getting to a better growth trajectory. On our traditional wire and bracket, we're the number one player in there, continue to hold a strong position, and there is significant opportunity in our core business. In the past two years, we have made significant investment to get to a $2.5 billion market, open a front, introduce clear aligners, and offer our customers alternatives. We have been able to introduce that through a clinical trial in Australia.
In the past 510(k), we're trying to be very thoughtful and deliberate on how we put that in the market, how we make our customers successful, and continue to grow it over time. Going back to the high-growth market, we only have about 23% of our business coming from those geographies. There's significant opportunities for oral care in many of these geographies. China gives us a good roadmap of what we can do in other places. I mentioned significant investment that we have done in China, providing a single point of contact with people in China. Outcome of that has been over 20% growth in the past five years. This recipe can be replicated in Latin America and Russia, Eastern Europe, Middle East, and APAC. We're committed to make that happen in an ongoing basis. What have we seen on the long term?
In the long-term area, we think that specialists specifically looking for these productivity gains to be able to do things more predictable, do it more efficient, and I think we are well positioned to take advantage of it. Just to give you a little bit feel, less than 5% of people that they really need an implant are able to get implant today. The reason for it is cost, skills, and fear, and time to healing. We are well positioned in order to be able to address all three dimension of this. We see DSOs as a great opportunity to provide oral care to a much broader set of population. The buying power of these companies, as well as our ability to really help them, train them, educate them, and make them more productive over time, offers a significant growth opportunities to us. High growth market.
Another trend, a cyclical trend that is going to give us an opportunity to continue to establish our position with the brands that we have over time. The digital offering has a lot of runway. We have one of the largest install base of imaging, and there is plenty of room to be able to do a much better job in Diagnostics in order to be able to do a better job on planning and execution. Software plays an important role in here. We have been investing and trying to create a holistic environment to digitize and simplify the workflow, connect various pieces together in order to make the job a lot easier over time. We now have an opportunity to do some strategic M&A, both on open innovation and technologies, as well as adding to our core portfolio, as well as in adjacent market.
Combination of all of these would put us in a really good position to create a sustainable business model that is differentiated over time. Over 90% of what dentists need today is the Danaher playbook in here. What you have heard so far is exactly the model that we are going through. Improve our core revenue. How do we do that? Through better execution, commercial execution, improving the innovation, and by stability that we are seeing, specifically in North America. Continue to improve our margin. As I mentioned before, there is opportunity. There is still opportunity for us to continue to reduce G&A to redirect resources to impact our margin in an ongoing basis. A strong free cash flow that we can put to work. Continue to do acquisition over time in order to create attractive EPS growth over time, a business model that we can be all proud of.
Pay our team and continue to execute it as we go forward. We have a team that is coming from executives. We have done this in Danaher multiple times before. Fortive is a great example of creating a business model that replicates what has worked, and we are following that process. We feel pretty excited about what is ahead, and I think the team is geared up to execute on the strategic priorities that we have communicated over time. Last, not least, in summary, this is a market that we are really excited about. It has significant legs under it. Opportunities in every aspect. There's opportunity inside what we do on a day-to-day basis, getting better at execution, having clarity around priorities, and making sure that our talent and management team is geared to the key priorities and focus area that moves the needle.
We have built a strong foundation that allow us to continue to improve the core revenue and margin. By adding some additional acquisition to this portfolio, we would be able to create a sustainable engine that have, on an ongoing basis, earnings growth. I want to thank you for giving us the opportunity to demonstrate what we are able to do. With that, let me ask Rainer to come back on stage and see if there are any questions that we can answer. Thanks.
Hey, thanks. Over here. Maybe just a question. The comment was made that there were some lessons learned around innovation from some of the acquisitions. Over here, Rainer. On how they've improved R&D efficiency. Cepheid wasn't necessarily known for R&D efficiency, so I'm just curious if there are things there that you can translate to maybe other parts of the business as well.
Sure. Cepheid is really in our Diagnostics platform, so later on we'll have a shot, we'll have Dan speak to that. As we think about some of the lessons we've learned, at Pall and some of the other acquisitions that we've made, they start with focus. We've often found that the acquisitions that we make are very innovative, but very dispersed and fragmented in their resource association with those projects. In other words, lots of fragmentation and not really having a very large impact. That's why I mentioned DBS in particular has allowed us to not only improve the cadence, but the focus to larger projects that matter. That's what we've been learning, really in each one of these acquisitions, if not to say every one.
If we think about the opportunity set for you guys for M&A, you've been maybe less willing to go into pharma services to the same degree that some of your competitors have. I'm just curious why, maybe Thermo, for example, is more active in that space in terms of drug manufacturing and potentially doing more on the CRO side, and why maybe you're less willing to do that.
I would not specifically comment on Thermo strategy there, but I would like to speak about how we think about that market in general. One, CDMO is a very large market. Tycho, I'm using CDMO and you're nodding. That's what you're thinking of. Good. On the whole, if we can be more general, and we look at the margin opportunities there, we see a lot of labor arbitrage going on there, and a lot of speccing in by the customer of products, where we don't see as much DBS opportunity to shorten processes, exchange products out and so forth. We tend to be a little bit more neutral on our assessment on that market overall.
Right in the middle.
Hi, Cliff. Morning.
Cliff Ransom. Thank you. A quick homework question. Is there an Obeya room for the dental spin, and where is it?
It's managing that. There's seven work stream and we are actively involved in it.
I guess the big question is, what was it in dental? Why did dental get so far away from you? In terms of, it's one thing to say the market fell apart, and reimbursement and payment and everything else, but there are obviously fundamental problems where the spirit and culture of DBS had not taken hold. Have you been able to determine the root cause for that? What were your principal countermeasures when you went back at it?
Yes. Tom explained that we start with the market. I think we really like the market. Next, company. Unlike any other parts of Danaher, that we buy a marquee brand and use it as an anchor point to build around it, we bought many companies that they were in the same space. The second part is around leadership and continuity. I've been in other parts of Danaher, and you have seen that in other parts of Danaher, that continuity makes a huge difference. It gets DBS into our DNA. We internalize it. We execute it year after year. Unfortunately, we did not have the continuity on leadership. We didn't get that rigor and execution. We have changed that in the past three years. We mentioned about three years ago, we're treating it like a new acquisition. We are operating exactly in that format.
The consolidation of brand, the continuity on leadership of the recipes that makes DBS work make Danaher work.
Great. Hi, Derik de Bruin from Bank of America. Two questions, one short term, one strategic. Short term, have you seen anything in the life sciences as just pull forwards in terms of people stockpiling products ahead of the trade issues and tariffs. We've heard that from some companies this morning. What you've seen, and also just thoughts on budget flush in Q4 that was very strong on last year, and just thinking about the comps for the quarter and just the market dynamics in the near term.
Thanks, Derik. Good morning. I would say we have seen very little of the pull forwards related to tariffs and taking advantage of that in the short term. If at all, it's been on the margin, and I don't think it would materially affect how we think about Q1 going forward. That's the first point. The second point, I'm sorry, Derik, if you could repeat that.
There was a rather large end-of-year budget flush last year.
That's right. I was thinking about our funnels in that regard. I would say our funnels are very strong and comparable to last year. We would expect the same sort of dynamic end of year here as we have in prior years.
Great. One more strategic one. If you go back and look at Danaher a few years ago, you could obviously say you were underweight in certain things like bioprocess and liquid chromatography and genomics.
On the end markets that we talked about, more in the applied and more in biopharma versus academic. We have a tendency to believe more in private funding streams as opposed to public budgets, which, if you look at it from a worldwide perspective, tend to be chronically underfunded, despite some spikes every once in a while. Really our focus is being attached to those private money flows that we see in biopharma, the applied markets, and so forth.
At that sort of recurring revenue stream and then your remaining capital equipment businesses, how are you thinking about economic sensitivity in your portfolio, and where are the areas where you would expect if we saw any disruption to possibly see a little bit of variability versus what parts of the portfolio are you very rock solid confident within a pretty tight band on growth for next year?
First of all, I think you're absolutely right in the sense that there is an insulation effect, if you will, by the higher recurring revenue streams that we have. As important really are the end markets to which we're exposed, which tend to be less cyclical. If we think about Tom's comments around the biopharma market, we see that that continues to be healthy here independent of some of the noise that we're hearing in the macro. We see that similarly in the applied markets, in food testing, and so forth. Yes, as important as it is that we have that recurring revenue stream and we like that, we also are looking at the end markets and feel pretty good about our positioning there. As it relates to the more capital related, we see that as a material headwind the way we're positioned.
Maybe Amir, just quickly on the dental side. I noticed there was a piece in the slide that said feet on the street were up about, I don't know, 15% or so. One of the key challenges, more so for the dental business on the North American side was all of the distributor sort of noise. I'm guessing probably more of those feet on the street are ex-U.S., and maybe in China and some of the markets where you've had very, very strong growth. Help us think a little bit more about the direct model, and we've seen other manufacturers as well supplement with their own sales force, kind of the distribution efforts as a means, particularly on the equipment side, possibly to get a little bit more touch with the customer and have better connectivity there in order to possibly stimulate demand.
Okay. Over 50% of our business is direct. We go to market on our implant ortho business direct, and those resources that have been added, in fact, about half of them are in our direct business in U.S. We also have significant opportunity in the service arena. We have a team in Atlanta that received dynamic of some of the exclusivity has given us opportunity to broaden our reach working with our distributors. We have been putting a lot of resources and energy around training.
The life sciences division like historically and going forward, it seems to be a bit more focused today on the potential to accelerate growth from here. In particular, maybe anything within AB SCIEX. Then the second we move more towards from IO to CAR T to gene therapy, can you provide some color on is there a potential to see growth accelerate as these different types of biologics move their way through the clinical pipeline? Thank you.
Sure. Let's start with the innovation, then we'll come to the Pall positioning in a second. From an innovation perspective, we've worked hard, and Tom has shown you what we call the new product introduction equation, on not only improving the funnel, the number of really big ideas, but also how we execute those and then deliver those on time to the market. We see that having contributed over 200 basis points here in this year, and quite frankly, that's the kind of contribution that we expect to sustain going forward. I can't comment on any particular project at any particular OpCo, but I would tell you that SCIEX has been taking share here recently, and it's our expectation that they continue to do so.
From a biopharma perspective, how is Pall positioned as it relates to some of those products outside of vaccines, outside of monoclonal antibodies and getting more into the cell and gene therapy. I would tell you, we have a unique and competitively advantaged positioning there with our iCELLis bioreactors, which is really the only bioreactor today that you can use in adherent cell cultures at scale, and that's particularly important in viral vector production. These vectors that you use to insert into cells to exchange genes or modify genes in gene therapy are made with these kind of bioreactors. Of course, you know Pall has the downstream business in terms of filtration and clarification as well. We really like the way we're positioned with some of these newer drug therapies that are out there.
Thanks, guys. Thanks for those terrific questions. Tycho, let me just round off on the question you asked Rainer, because I was the one who teed up that point about what we learned from newly acquired businesses, and you were right about your comment about Cepheid. Let me delineate lessons that we learned. I would separate lessons that we would learn from a business like Cepheid, which are largely around how do you create an innovation culture in a business? How do you create an environment of ideation, of creativity, and yet, how do you then also execute effectively on those? Expectations in terms of the way they executed from the standpoint of bringing those products to market. We're still working on some of those products, as a matter of fact.
I think on the other hand, businesses like IDT, like Phenomenex, are at the other end of the spectrum. Maybe not as terrific in terms of the level of ideation, but phenomenal at the number of reps that they can apply to application opportunities. That sense of unmet needs in the marketplace and quick turn innovation, responding to application opportunities, I think that execution side of the house is what we learn from businesses like Phenomenex and IDT. I'd separate the two, and think of those lessons as coming from a couple of different perspectives. Dan, I thought I'd just take the pressure off you to follow up with Tycho. You can go to your next question when Dan comes up.
Speaking of the other platforms, while Dan waits in the wings, we're going to lead off with Joakim Weidemanis, who's going to join us and talk about two of our platforms, our product identification platform and our Water Quality platform, both of which Joakim is responsible for. Joakim, you're up.
Thank you, Tom. Good morning. Good morning to actually all of our employees. There are many of them following along on the webcast this morning. Many of you have visited me in Wood Dale, Illinois, just outside of Chicago, earlier this year. You know a little bit about what we do. Because I get the question sometimes, aren't you guys more industrial? What are you guys really doing in Danaher? I thought I'd just start by explaining in simple terms what it is we do. I'm obviously holding something here that has something to do with what we help our customers with. Our customers, 50% of these businesses here are the product identification platform. We help those customers design the packaging and get products faster to market.
We also make the printers that give these products unique identities, whether that's the best before date or the other manufacturing data that you would print just before these products leave the factory. That's one part of what we do. The other part of what we do, our Water Quality platform. We're in the measurement of Water Quality, and we're also in the treatment of water. We make sure that we. What I have in my hand here, by the way, is a premium product and a, let's call it a no brand or a more basic product. From our point of view, in product identification, both of these packages need to be designed. Both of these products need unique identities. For us, in reality, there's the same business opportunity.
From a water point of view, there are different kinds of water that go into these bottles, but these customers need the same. When the economy's a little bit better, we might spend a little bit more on these kinds of things. When the economy's a little tougher, we still need water, food, all the other industries, comes from the fact that we serve both ends of the spectrum, if you will. Let me then jump into a little bit more about how things are going here. Both of these businesses, there is a strong recurring element, and I'm going to unpack that a little bit here, later in the presentation. We're having a very good year. The end markets are healthy, and our teams are executing well, both on the top and the bottom line.
You see here that geographically, we're well spread, following the global economy, working with global customers. From a vertical point of view here, you can see that what sometimes is referred to in our mix as industrial customers, behind that are actually on the water side, the blue, are actually a lot of water utilities, municipalities that don't behave the same as general industrial customers. In the industrial segment for water, there are actually, as I explained here, a lot big users of water, including these consumer packaged goods companies, right? Healthy macro drivers. We've got a great portfolio, helped by healthy macro drivers. There are various regulations around the world around how you measure and protect the quality of water. It helps us.
Even in the consumer goods space, there are various industries where we, as human beings, find it more and more important to know where things came from or how they got to. This shades right into our printing businesses as well as the track and trace businesses that we acquired some time ago. All of our customers are trying to get more out of their investments, and usually, they have challenges around Water Quality. For example, by having different departments and water utilities collaborate. This gives up the need for digital solutions to help them get more out of their investment in assets and people. Helping them to market quicker, and I'll come back and talk to you a little bit more about that. We are having a good year on the back here of both innovation and strengthened commercial, continued commercial execution.
Many of these things are driven by applying DBS in our various operating companies. We should recognize that a particular two businesses that are within these groups, Videojet and Hach, are two of the older businesses. Over the years, these teams have also contributed to the DBS library, if you will. We have plenty of development of DBS tools and approaches in these businesses that we then roll out into other parts of the group. In Videojet, in particular, we had an uptick here in product launches that helped us. I'll come back to that a little bit. In addition to the strong execution on the innovation commercial side, we were able to move up our positions in geographical market.
Hach made a tremendous progress in China over the last year, and you can see some of the tremendous growth that we've enjoyed here, and more to come, of course, over the years. In Videojet, we've continued to move up our position in how we leverage connectivity, data, and digital to provide our customers with services that, quite frankly, others that we compete against struggle to provide of our portfolio here. It's about 55% in total, for what I'm talking to you about now. In two of the larger businesses, that ratio is much higher. I'd like to tell you a little bit about the resilience of the portfolio overall, as well as the strong recurring piece of our businesses here.
As I tried to explain to you before in the opening here, even if I don't talk about the recurring piece in the customers, they really have to use our categories of equipment. They have to test for the quality of the water, and they have to give these products unique identities, right? We're part of mission-critical operations here. We're also a low CapEx, and actually for many of them, hardly even CapEx. We're typically not hit. What about the recurring piece of the portfolio then? Two, I think really great examples here. One from Hach. It's a Water Quality measurement device. What we've done here is we have come out with a new product that helps our customers test a variety of different parameters using one instrument, but using very clever approach to consumables.
You might see at the bottom of that instrument, there are a couple of things that stick out, look like little USB sticks, perhaps. We call them keys. Those are the consumables that we make, that we send to the customers. They own the instrument and to do a test, they expose these keys to water, and then they insert this, pretty much like you would insert a USB stick into your laptop, into this instrument. Very easy to use. Our consumables, of course, are of a quality that allows them to, together with this sophisticated instrument, get very accurate and reliable measurements. It's the ease of use, it's the accuracy, the reliability that really drives customers to use our instruments and the consumables here. On the Videojet side, we have, and this is an inkjet-based printer.
The ink cartridges that we sell are, of course, filled with high-precision inks. If you're running a Coca-Cola bottling line at 1,000 cans a minute, these inks you print on the cans, those inks, what you print has to dry in milliseconds. These are not some regular inks that a lot of people can produce. As you can imagine, these printers are designed and optimized together with the inks that we have. These ink cartridges have intelligence built into them that help guide our customers how to optimize the performance of these printers. There's a good reason for why the recurring business is so strong here. In addition to the consumables, both of these businesses have a strong service element to them.
Most of our customers will use our products for 8- 10 years, and obviously, they bought these products not just to experience the purchasing cycle, but they want to get the maximum they can out of these products over their lifecycle. Many times, we need to help them with calibration of the instruments or things go wrong in their operations, and they simply need a helping hand. Service is a growing piece of this portfolio overall. What about 2018 then on Water Quality? How did we win? You can see here on the right-hand side that we continue to do well against our peers. We launched a number of new products in this segment as well. With help with the DBS tools, we've been able to get faster to market.
You see in particular here in our Trojan business, we've made tremendous progress here over the last couple of years. Of course, this is helping us fuel the nice growth that we're seeing in that business. We're also launching products here that expand our available market, and I'll leave that comment for the next slide. I'll come back to that. On the commercial side, we have for years been investing in digital marketing and put together a platform that allows all of our water businesses to quickly ramp and leverage the power of digital marketing in multiple countries around the world. You need some tools, you need some experts, and the team has really put together a very good approach here to allow all of our businesses to capitalize on this opportunity.
You can see some of the growth we've been able to generate here. In the high-growth markets, we continue to add feet on the street, but we're also selectively acquiring distributors. Most of these businesses are businesses where we sell direct. These are application-specific sales, value-oriented sales, where customers consider it very important to work with people who could advise them on how to use our solutions, not merely which products to select and use. What about the innovation then that allows us to expand our available market? This is an organic investment that we've made here, built on the domain knowledge that we have of what goes on in a water treatment plant. Let me just set the stage for you here.
Many water treatment plants, with all the infrastructure that they have, might be the size of half a football field or even a football field. They might have 20, 30 different measurement points where they measure the quality of water that's spread around in this area. They have different departments that do different things. There are people who focus more on measuring certain things, making sure that all the instruments and the equipment are up to the standard that they need. There might be people who are focused on making sure that everything is compliant, because as you can imagine, around water, there will be a lot of regulations. Then you have the people who are running these plants, who obviously are wanting to get the most out of digital, a software workflow-based solution.
We're helping each one of these teams do their jobs better, whether it comes to managing the instruments with predictive maintenance, or whether it is helping the people who work on compliance make sure that they have available all the data and can consolidate that very easily. Whether it's even helping the people who run the plants to make decisions or recommend decisions so that they can run the plant more efficiently. We're growing very nicely in this area. As you can see, the available market is very interesting and the penetration rate at this point in time, there are hundreds of them. Also another good year. Also continued outperformance versus our peers. We've done a number of things during the years.
I think what I like to talk to you a little bit more about is how we're continuing to advance our understanding of how we can change how we serve our customers. Again, our customers use our equipment for maybe up to 10 years, and they want to get the most out of them during that time. If you're running a high-speed Coca-Cola plant, again, 1,000 cans a minute, you lose 1% of your production time because there's a problem with a piece of equipment, that might mean 17 million Coca-Cola cans a year. That's a lot of Coca-Cola. Could be a lot of revenue for that plant, too. Service is very important. I'll come back to talk to you about exactly what we're doing there.
We are now almost at the point where we have 10,000 connected printers connected to the cloud that are continuously feeding data to the cloud, which of course give us unique insights about how to help our customers. On the hardware, the product side, with the help of DBS tools, we've here also improved our accuracy of product launches, and basically, we're doing it faster. The measurement we've shown here is the on-time delivery, if you will, of these product solutions. Excellent progress here. On the design side, designing packaging, we are the world leader. These are software businesses that the large consumer goods companies use to design these packages. We've continued to add functionality to our software portfolio there. Of course, with the acquisition of Blue Software earlier this year, we gained further functionality, but we also gained further reach.
This is important for us because we're still in the early days here. This is still just a little less than $100 million business, but growing very fast. One of our struggles is just simply to get enough good people quickly onto this team. Acquiring a company like Blue also gave us that. We've gained critical mass and are super excited here about the continued growth there. What about the service journey here in that Videojet? Maybe we can start in the bottom right-hand corner here. Most equipment businesses will be working on something like this, I suppose. Where service matters, that is, during the life cycle of the products. Most of us will start by trying to connect with our devices.
As we do that early in the journey, we, as vendors, will figure out that when we're connected, we may not need to send our people to help our customers with certain things. We can do it over the phone or over the internet. More of the benefit is for us. Over time, as we gain more insights into our equipment is used, we gain more of this data that's coming back, we're going to start to be able to predict whether things might go wrong next week unless you do XYZ. We can start advising our customers on what to do, or we can more planfully send our own people. When it's done more planfully, usually the cost is a little lower. Now we're starting to really help our customers avoid issues in the first place.
Of course, the Holy Grail here is to get to a point where we can go to customers and say, hey, we can guarantee you, under certain circumstances, that you are not going to have a downtime event. That's what we're moving towards here. But what you learn on this journey is that you really have to, first of all, build a critical mass of connected devices, because you just need data to be able to understand what's going on so you can run analytics on that. You start to realize that, you know what, you actually have to redesign your devices as well. You have to put more sensors in there. You have to put more software in there so that you can achieve these goals that you strive for. We are making really good progress on this journey.
By being now close to these 10,000 connected printers, I believe we are, in our industry, never mind just our direct competitors, but in the packaging industry, we are the company that has the most connected devices at all. We're starting to become really a bit of a thought leader here in our industry in terms of how you can leverage connectivity, data analytics to run factories, packaging plants more efficiently. Having all this insight then, what does that mean? This is probably something I'm going to come back and talk to you about next year. It gives us insights into, well, you know what, should we continue selling printers or do we start thinking about selling hours of use or uptime? This gives us opportunities to think about alternative business models here in the future.
I'll come back and talk to you about that some other time. This is really exciting. We're on the forefront. We're well ahead of the industry here. Finally, M&A. We haven't been contributing to the big headlines, if you will, here over the last two years. Under the radar, and you've heard some of them mentioned here, we continue to do acquisitions. You can see we've spent up to $400 million here over the recent time period, and we continue to do this. We have several good examples of that. In some cases, we expand into adjacencies and leverage the positions that we already have. Here we have a couple of examples in product identification. How we bridged out from printing into track and trace with Laetus.
How we bridged out from the various things that Esko and X-Rite does for the people who manufacture the packaging materials. We added AVT, that sort of checks. It's an automatic inspection approach. Checks what Esko and X-Rite helped prepare the manufacturer and helped set up the manufacturing for, which allows us to offer a unique closed loop, setting up the manufacturing as well as checking that everything went right. A number of really exciting, smaller, but highly additive and accretive acquisitions for us here. Obviously, because we are direct businesses, we use acquisitions also to gain more reach, in particular in high growth markets. Hopefully I was able to give you a little update or glimpse into our world here. I think we're well-positioned in attractive end markets. You think back to the example I started with here.
We're in mission critical applications, we have a strong recurring revenue base here with an incredibly powerful installed base. Opening up, in some ways, new flanks to compete on, which of course contributes to our outperformance here. From an acquisition point of view, we are bigger things to go do here over time. Thank you for your attention.
Thanks, Joakim. Some phenomenal businesses in those platforms. We talk a lot about Videojet, we talk a lot about Hach. Both great businesses that have led the way across so many dimensions of the Danaher Business System for so long. Under Joakim's leadership, Lance Bates at our Water Quality platform, they've continued to evolve those platforms into stronger, better businesses, and more extensive businesses cutting across the entire workflows for those professional end users. I think what's also neat about what you just heard was that as you saw Joakim and these two platforms, Water Quality and PID, are very much leading the way at Danaher in terms of the digital world. You saw what we've done in terms of advance the management of Water Quality utilities around the world.
These are important digital initiatives. Our other businesses at Danaher are earlier on in their digital initiatives, but learning quite a bit from these businesses. I think as the years go on, we'll start to see innovation be represented not just by instrumentation and associated consumables, but by connectivity and the impact of the digital world on creating higher value for our customers. Another platform working on those same initiatives, but one that has a lot of other exciting things going on, is our diagnostic platform. With that, Dan Daniel's going to come up and share with you the exciting things going on across the diagnostic world. Dan?
Thank you, Tom. Good morning, everyone, and thank you all for being here and your ongoing engagement in our company. My colleagues are tough acts to follow. Certainly, last but not least, share with you progress we're making in our Diagnostics platform. As some of you know, I've had the good fortune to be on this stage talking about the other platforms with the exception of Water Quality as well as some of the Fortive businesses in my Danaher career. I can honestly tell you today, I have never been more excited to be on this stage giving you a progress report and talking about the future about this platform, Diagnostics. There's really three reasons for that. Number one is we have a portfolio today that is second to none. We have a game-changing franchise with Cepheid.
We have two very strong historical Danaher businesses that plays a really important role in hospital core labs. The second reason I'm so enthusiastic here today is we're making very good progress on growth. 2018 has been a good year. We are at or above market growth rates for the first time in a long time. No more apologies about our growth and catching up to the market in Diagnostics. Last, and perhaps most significantly, is the innovation pipeline that's been underway for a number of years in Diagnostics under Tom's leadership. I stood on this stage a year ago and said 2018 will be a year that we begin to bear fruit from this pipeline, and that's certainly been the case. We feel like we're making very good progress, and we're excited about the opportunities ahead. Maybe a couple of words about the Diagnostics market overall.
This is a very important market around the world. As we know, growth has come in many ways from high growth markets around the world, but the Diagnostics market is important, and our 20,000 associates around the world in Diagnostics know that it matters what they do. Major diagnostic markets around the world, including the U.S. and China. Some of those trends are continued cost pressure and a desire to take costs out of the entire system. Certainly, scarcity of labor is a dynamic that plays true in China, the U.S., and other major markets around the world. Both of those trends play very well with what has been a historical strength of our businesses, and that's automation and workflow management. Certainly, the healthcare markets around the world are changing as well. No longer does everybody just go to the hospital.
More and more today, healthcare and Diagnostics capabilities are coming to us. Governments and organizations are pushing healthcare out closer to patients, and there's a bit of a decentralization. We think having a strong core lab business, as well as a very strong point of care business, is essential for the market of the future. Last, technology is changing the game very rapidly. Diagnostics has historically been a slow-moving market with lots of regulation, and while that's certainly still the case today, technology is changing very fast. We have 4 important businesses with great brands in our Diagnostics portfolio. Each of them, like all Danaher companies, are at a different stage of their development of DBS. In 2019, we'll celebrate a 15-year anniversary of Radiometer. On this stage over the years, it's one of our best companies in terms of DBS.
Opportunities for continuous improvement exist very much in Radiometer as they do in other businesses as well. Leica Biosystems came out of our acquisition of Leica in 2005, and through organic growth, capital deployment, we've built the most complete workflow in the anatomical pathology lab. Beckman Coulter, and its strong franchise in hospital core labs, came into the portfolio seven years ago. We just celebrated a two-year anniversary a few weeks back of Cepheid joining Danaher. Again, all these businesses are at different stages of their journey. We often say progress is measured over several years, in some cases, decades, although we do drive for significant progress every single year. DBS progress really comes down to two things, clarity of priorities and leadership. I can tell you today in Diagnostics, our priorities are clear, and I believe our leadership is as strong as it's ever been.
2018, as I said, has been a year of progress, 6.5% core growth on a year-to-date basis, again, at or above market and our peers. The great thing about that is every single operating company in the platform has improved its core growth in 2018, and we feel like we're just getting started in a number of ways. Obviously, Cepheid's been a wonderful addition to the portfolio. We continue to have very strong mid-teens growth with Cepheid here, and it's a double-digit business growing in the future. I'll talk more about that in a little bit. Again, as I said, 2018, we're beginning to see this innovation pipeline that's been in the works for many years put new products on the market that we can launch and execute commercially. Radiometer, with blood gas enhancements to its instrument portfolio, menu enhancements as well.
Leica Biosystems updating its advanced staining BOND instrumentation line, as well as new histology and staining instruments across the Leica Biosystems workflow have really helped drive growth. A third of our business comes from high growth markets, including over a billion-dollar business in China, and we've been growing that business double digits for the last several years and expect to be able to do that in the future as well. 2018 has definitely been a year of progress, and we think even more to come in the future. As we look at the historical evolution over the last five years in Diagnostics, there's been a number of significant changes. Historically, this was a business that was built on roughly $13 billion of capital deployment around four major acquisitions and a number of bolt-ons that go with that.
As you can see, recurring revenue, selling high-end instrumentation, and a strong menu of recurring revenue. We're roughly about 75% direct. Diagnostics fits the Danaher playbook well. It's a very strong margin profile that has helped us to invest and support this innovation pipeline in the future. We're very pleased with where the Diagnostics platform is today and are confident that the growth profile of the businesses today is in a much better place for that sustained mid-single-digit growth moving into high single digits over time. How do we do that? Well, I think it's important to just take a slight look back on the growth. On the right-hand side of the screen, you can see the last three years of growth as if we would've had Cepheid in pro forma, if you will.
Obviously, Cepheid's only been part of the portfolio for two years, but I think it gives an indication of what's possible going forward. Over the last three years with Cepheid, we've been outgrowing the market, and that's a very different picture than it was through the 2013 and 2015 time period. Cepheid, obviously at the top of the growth chart, I'll spend more time on that. Cepheid has a market-leading menu of tests, a leading installed base, and an architecture that is simple. Very different picture than it was through the 2013 and 2015 time period. Cepheid, obviously at the top of the growth chart, I'll spend more time on that, but Cepheid has a market-leading menu of tests, a leading installed base, and an architecture that is simple and flexible with multiple opportunities in the future with that Cepheid cartridge.
Leica, Radiometer, both billion-dollar businesses in focused, attractive growth markets, very strong OP profile to support investment both in sales and marketing and R&D to continue a high single-digit growth rate. Beckman Coulter, we know we're on a growth journey. We're making nice progress. I'll spend some more time on that here in a minute. One thing I have learned very clearly from interacting with lab managers and customers of Beckman Coulter over the last 18 months is they want Beckman to succeed. They are loyal. Many of them grew their careers using Coulter counters or Beckman analyzers. They want Beckman to win. We don't intend to let them down. How are we going to do that? I think it's important to remind a bit of the history of Beckman.
When we acquired Beckman Coulter seven years ago, troubled company, regulatory challenges, obviously financial challenges that we had to address early on. After that, sort of the second phase was about raising the commercial execution and beginning major investments over a long period of time in this innovation pipeline. Today, looking to continue to execute commercially even better and realize the fruits of that pipeline. At the top of the list is hematology, and it's been a challenged business for a long time, but we are changing that, and we're turning that around. In 2018, we've had a number of very important product launches in our hematology business. The DxH900 replaces the DxH 800, available around the world, both in the U.S. and Europe today. Very strong early adoption and success with the DxH900.
The DxH520 for smaller, more low volume environments, cleared in Europe, also off to a strong start. Most significantly is the launch of Early Sepsis Indicator. Basically, software that goes on the instrumentation to help clinicians diagnose sepsis earlier and more effectively. Approved in Europe now, we're very excited about the potential for this to change what is one of healthcare's most significant unmet needs. I mentioned automation earlier. One of our longest development project over the years has been our automation refurbishment and have launched the DxA automation line in Europe and had very strong initial response. In addition, a number of test menu enhancements, including high-sensitivity troponin, more sensitive estradiol, and AMH fertility menu enhancement in 2018 as well. We have a long list of menu enhancements coming forward over the next couple of years.
In today's world, very much as important as instrumentation is the menu with which it runs across the instrumentation. Joakim talked about digital and some of the progress and leading experiences that we have at Videojet. Beckman Coulter has a strong position in labs digitally as well. Our DxONE Workflow Manager and REMISOL middleware helps provide lab analytics and productivity enhancement for all of our instrumentation. Where we have those in place in our growing installed base, retention is extremely high. This is an area that we'll continue to grow and develop our Beckman Coulter business. High growth markets really important to Beckman Coulter. We have a strong business in China continuing to grow double digits. Commercial execution, I haven't spent a lot of time on that today, have in the past.
We continue to raise the game with strong leadership, this is how we will continue the growth journey at Beckman Coulter, from where we are today to where we want to be and will be in the future. Cepheid has been such a wonderful addition to our portfolio. It's not just game-changing technology, but it is a leadership team that has been leaders in innovation over the years, they have embraced DBS. Sure, we've enhanced the leadership team with a couple of experienced Danaher folks, but for the most part, the Cepheid leadership team is intact. They have embraced DBS across commercial execution as well as innovation, we're seeing the results across the business. Commercially, a number of important IDNs and strategic account wins in 2018. Flu has been a market share where we've added a number of distributors. The flu market's always a wild card.
What that will be, we will see, but we're confident we'll gain market share from all the good work that Cepheid team has done with commercial execution in 2018. Tycho, you asked about innovation. Tom appropriately described it about culture, but it's also about process, and that's what we've brought to the equation. One of the opportunities is to always balance the creativity and the innovation around process. One of the ways we do that is to focus the innovation efforts. That means putting a couple of projects on the back burner, not killing them, but putting them on the back burner so that we can accelerate the development of a critical few.
We've been able to do that with some of our CLIA-waived flu, RSV, Group A strep menu additions in 2018 and continue to launch instrumentation, including the GeneXpert Edge, which has helped accelerate growth in developing markets where portability and extreme temperature conditions are a challenge. This has been helpful, and Omni is still on our drawing board. We're progressing very well and expect to be launching that in 2019. Cepheid innovation has continued with the help of good focus and DBS process. This is a business that we are very confident over time can continue to grow at a double-digit rate and generate returns and profitability that's today 20%, that I'm sure some of you in this room several years ago didn't think that would ever be possible with Cepheid, and we see more runway ahead for that. In summary, we love this portfolio.
It's getting a bit of a re-energized opportunity across a number of businesses. Our growth journey and acceleration is still in its early stages. We've made nice progress, but there's more ahead. Cepheid is just a wonderful platform for growth and expansion in the future. Thank you all for your attention and the opportunity to share our progress with you. With that, I'll invite Joakim back up, and we'll entertain your questions.
Just over here. Just the first question really for Joakim around the recurring piece of your business.
Yeah. That term can be quite elastic. You gave some good examples of what it means. I guess if you could maybe parse out within that 55% recurring, any sort of rough weightings around the razor blade piece, the software piece, how much is service? Then any color within the software and services piece, how much of service is real multi-year contracts versus ad hoc? Within software, is your mix changing license versus subscription basis?
Yeah. Roughly of the 55%, between 10 and 15 are services. The majority of those are multi-year, and the rest are the consumables that I talked to you about, which are recurring. Excuse me, there's a good chunk of software maintenance and SaaS subscription, which are also multi-year revenue. I look at that whole 55% as there's no difference in stickiness, if that's your question.
Thanks. Then just my follow-up around the municipal market.
Yes.
It's one of the largest for you. Talk a little bit about the growth rates you've seen there historically. It can be a challenging market with very low growth.
Right.
How optimistic are you about future growth prospects in municipal? How do you treat that segment differently from private sector ones?
Well, we've always considered that to be a market that's attractive, that has good growth dynamics in the parts of that market that we play in, which are mission-critical things around Water Quality and with increasing regulations, not just in China and high growth markets and so on. We continue to see that market as not a low growth market. That's an attractive space for what we do. Then obviously, we try and augment what we do and create new markets, and that was the digital example that I tried to give you, and we create new opportunities that weren't there before.
We're going to go to the back there.
Hi, thanks. Erin Wright, Credit Suisse. You mentioned the regulatory environment and Diagnostics a couple of times, but are you seeing any implications from PAMA or a more onerous reimbursement environment amongst your customers? Then also more broadly, how would you characterize your overall exposure there and the potential offsets? Thanks.
We really haven't seen that much impact from PAMA in the last year when we first came out. It's something we monitor very closely. There's a lot of dialogue that's going on in the various agencies about potential changes in the future. We monitor those closely. It's been a negligible impact on our business thus far, and actually don't really expect that to change much in the future. Continue to monitor it very closely.
Hey, Dan, over here. Just on the Beckman business, obviously, to that point, the lab industry is facing pretty significant headwinds, both on PAMA end volumes. We saw the two national labs both pre-announce negative results a couple of weeks ago. Can you just talk about accelerating growth given that backdrop, just of that end market seeming a bit challenged?
Yeah. Well, as I've said before, cost management is not going away in this market. From a guy who spent 20 years in the automotive industry, that's just part of the game, and that's part of the reason why we feel so confident in our automation and workflow solutions. We feel like that plays very well to those trends, and we've actually had a lot of important discussions with clients over the last year about what's in our pipeline and what that can do for their cost management. Yeah, the commercial players both had an active week of announcements last week. I'll let you do the analysis of that and commentary. That's an important market segment. Cost management and cost pressure is here to stay. It's not going away, and it's part of the reason that our innovation solutions are what they are.
Maybe just a quick follow-up. Just on the competitive landscape, it seems like competitors in the high throughput Diagnostics core side have introduced a few new products over the last couple of years. Maybe just talk through your investments on that front, what you're seeing on the competitive landscape. Is it getting more price sensitive given what you just covered there?
Really haven't seen a significant change in the pricing environment in the last couple of years. To your question around our innovation pipeline, as I said, it's been around menu, it's been around automation and workflow. I did not mention, but some of our platforms around immunoassay and clinical chemistry certainly are important parts of the drawing board that are coming out in the not-too-distant future as well. We feel very good about our competitive position, both what we have today and what's on the near-term horizon to deal with the market and the competitive dynamics.
Okay. Hey, Doug Schenkel from Cowen. Thanks for taking my question. One clear theme earlier in the day, and I think in Dan's presentation, has been improvement in core growth in terms of what's been achieved and the opportunity moving forward. To me, that seemed a little less pronounced during the PID and Water Quality discussion. This could just be a function of the maturity of the business, the stage of where you are in advancing that business within Danaher. That being said, I think everybody in this room knows DBS knows no bounds. With that in mind, could you just talk about the ability from here to accelerate growth in PID and Water Quality over the next few years and maybe what's a little bit different there than in some other businesses?
I'm going to try and be really humble here now, but I think these two businesses, if any, have demonstrated over the last six to seven years that we have picked up the pace. Many of the growth-oriented tools within DBS that you hear referenced to here were developed in these businesses. When we look at having a good year, obviously, as I mentioned here, we had healthy end markets here, but every year, we find a new gear to kick into, whether it's digital marketing, I called it out rather briefly in Water, or whether it's figuring out how to get a higher attach rate of multi-year service contracts when we sell printers or instruments from Hach up front.
Maybe I'm just so used to talking to you guys about that I didn't emphasize that, and I talked more about innovation and opening up new markets with digital. We are as excited as ever and see as many opportunities as ever to continue kicking up the growth rate here.
Great. Thanks. Derik de Bruin from Bank of America. Two questions again, one short-term, one long-term. Short-term, can you remind us what the flu contribution was to 4Q and 1Q last year, since obviously, those are pretty some tough comps you're coming up against?
I think we said Q1 of this year, our core growth was a bit north of 40% in Cepheid, with flu being a big contributor to that. Still early in the season this year, your guess is as good as mine.
Looking at the anatomical molecular pathology space, there's been some interesting moves lately. Agilent has bought a next-gen sequencing business. Roche has gone in with Foundation. Thermo's talking about exiting their anatomical pathology business, if you believe the press reports. How do you see the combination molecular and anatomic pathology going forward? Do you need to have a bigger footprint in the sequencing space to compete here?
Well, we really like our position in the anatomical pathology workflow today. There are obviously a couple of dynamics that have our attention. One is imaging and an artificial intelligence around that, certainly sequencing as well. Cepheid and LBS have a number of collaboration opportunities they're working on, and I see that as only strengthening our franchise in that marketplace in the future. LBS has been a share gainer in that market for a long time, and that's accelerated in 2018, and we think that can continue for the foreseeable future. Cepheid and LBS definitely have a role to play together in this space, and it's underway.
Thank you.
Thank you, guys, and thank you all for those questions. Before I turn to a few closing remarks, I just want to take a couple minutes and talk about what's been a really important dimension of the team at Danaher. You heard me talk about the importance of leadership in my opening remarks. You heard me talk about one of our core values, the best team wins. Well, as I think many of you know, we're about to see the transition of one of the critical members of that best team, Dan Comas. For the last 14 years, Dan has been our Chief Financial Officer, as well as an Executive Vice President of the corporation. Come the end of this month, Dan will turn that mantle of leadership over to Matt McGrew. Many of you know Matt. We're supremely confident in Matt as our incoming Chief Financial Officer.
Dan's not going anywhere. We're fortunate he will very much still be on the Danaher payroll. He will continue to guide us in many respects from an M&A and a capital allocation perspective. I know he's annoyed with me right here at this very moment because he's like, why is he up there talking about me? This is off script. You all know the recognition, I think, that Dan deserves as such a critical member of the Danaher team for the better part of the last decade, and really quite beyond that in his earlier days at Danaher. We just wouldn't be the Danaher that we are today without Dan's leadership, his financial stewardship, his guidance, thoughtful guidance in so many respects in our business, not to mention his long-term friendships.
I think all of you certainly have valued the insights that he's brought, the transparency that he's brought, and the exceptional team that he's built over a long period of time. I know you'll join me in taking just a minute to recognize the tremendous contributions that Dan Comas has made over such a long period of time. Dan, thank you. I hope you recover from that interlude. Let me just close with a few remarks. What you heard today, I think, was a recap on really what has been an outstanding year in 2018 for Danaher. I think what's really encouraging about that is the broad-based nature of that strength. Life science, Diagnostics, our PID and Water Platforms, all delivering strong mid-single-digit growth and continuing to strengthen their positions. Increasing stabilization and performance improvement coming in our dental platform.
Great margin enhancement during the course of the year, tremendous free cash flow, and a continued level of progress in deploying that free cash in a really strategic way towards enhancing a number of our platforms throughout the course of the year. We've made a lot of progress in the last three, four, five years in strategically building a better and stronger Danaher on the back of the tools and the power of the Danaher Business System and building an exceptional team, thereby accelerating our core revenue growth, enhancing our profitability, and continuing to provide a balance sheet that allows us to continue to grow inorganically over time. Finally, DBS remains the cornerstone of everything we do. The tools and the processes, the sustainability of the Danaher Business System is ultimately our competitive advantage.
It is what differentiates us in every one of our markets horizontally across the portfolio, and it's the essence of how we create long-term shareholder value by using the tools of DBS to drive the Danaher playbook that we talked to you about today. The outlook, I think you all saw the release that we put out earlier today, which had core revenue growth outlook for 2019 of 4%. We continue to see 35%-40% fall through off of that 4% core growth, admittedly with some headwinds embedded in that guidance, specifically around currencies and around tariffs together that represent about $0.15. Out of that, FX or the impact that you see here, about $425 million and 25% fall through, that's about $0.12 of that $0.15. A slightly lower tax rate for next year, 19.5%, down a few ticks.
If you look at the seasonality that we guide you to today, you'd see a little bit of a softer position here in Q1. Obviously, currency has a bit more of an acute impact there, as does some of the challenges we'll seek to overcome in terms of a really wonderful comp that we'll be up against, given the strength of Cepheid and the diagnostic platform in the first quarter. Overall, we see a very good level of performance throughout the course of 2019, and we have a lot of confidence in that. If we just take you through the bridge to give you a little bit of math, jumping off of the 2018 adjusted EPS number of $4.51 or about the midpoint of the guidance. We've got that 15% downdraft that I mentioned from currency and tariffs.
There will be a little bit less interest expense during the course of the year and that slightly lower tax rate. We've got some growth investments, obviously, that we're going to continue to make and a bit higher share count together. You put all that all in, and it nets out to about $0.02 on the positive side. $0.02 positive from what was admittedly a bit of a lighter year from an M&A perspective. Normally, that bar in past years on the back of higher capital deployment might be a bigger number. We'll see $0.02 coming from M&A contributions. Again, that's primarily IDT and Blue. An incremental improvement, a lift from productivity benefits that we drive throughout the course of the year, and advantages of some things that we'll do here in the fourth quarter as well.
Take that, add that to the $0.30-$0.40 that we see as a contribution from that 4% core growth that drops through at 35%-40%, and that's how we get to our 2019 view of $4.75-$4.85. If we step back from that for just a minute, and we look at the body of work over the last three, four years and incorporate 2019 into that view, 2015-2019. You see a low teens adjusted EPS compounded annual growth rate over that period.
As I talked to you about in my opening, obviously the benefit of not only driving the organic side through enhanced innovation and commercialization of new products, advancing the tools of DBS from a growth perspective, combined with a balance sheet capability to continue to drive our businesses both strategically and financially, we think we set ourselves very well for continuing performance, obviously in 2019 and beyond. Our long-term framework remains the same. We're driving a mid-single-digit growth rate across the portfolio, looking for 50 to 75 basis points of core OMX on an average annual basis, continuing to drive our free cash flow on a ratio to net income in excess of 100%, and combine that with deploying capital consistently towards M&A is really the formula that we continue to believe will deliver the attractive EPS compounded annual growth rate that you've seen for many years.
That's the focus we have on how we create long-term shareholder value, again, with the power of the Danaher Business System and a great team behind us. With that, I will be happy to open things up and take questions for a few minutes. The team stands ready if you have some for other folks. We'll open things up.
We'll start with Cliff.
Hey, Cliff.
Thank you. Cliff Ransom. Tom, my understanding is that when you became CEO, there were a couple of changes in the CEO compensation system, and one of your mandates was to excel, because the composition of the business was changing, to accelerate innovation. I just wondered how you feel about what were your biggest lessons learned, both positive and negative?
Well, Cliff, I think, given I'm in my 30th year and our businesses be more innovative in terms of opening up the top of the funnel from an ideation perspective and understanding unmet needs in the marketplace, then being able to execute more effectively to bring products to market on time and then commercialize them effectively. I think one of the things that I've been really pleased with is not only the development of the tools to help our businesses drive innovation, but the adoption of those tools at rates, frankly, that didn't really involve a lot of pushing and shoving to get folks on that beam. In fact, we could almost not meet the demand for DBS support to help us with innovation. Yes, that was a priority that I had.
I think the Danaher board shared that priority, that we could do better, that we could make innovation more of a contributor to our core growth rate over time. I think we've made great progress. I think using the tools of DBS to get there is what gives me encouragement that we can drive sustainability over a long period of time.
Tom, I'm wondering if you can talk a little bit on the work behind the scenes for the dental spin, based on your experience with Fortive, is there a chance that could get pulled forward a little bit? Maybe a better question for Amir if he's around, but I'm just curious on, he talked about a $1.5 billion TAM for Spark. Just curious how you think about pushing into that market, given you've got a big entrenched competitor.
For DBS support to help us with innovation. Yes, that was a priority that I had. I think the Danaher board shared that priority, that we could do better, that we could make innovation more of a contributor to our core growth rate over time. I think we've made great progress. I think using the tools of DBS to get there is what gives me encouragement that we can drive sustainability over a long period of time.
Tom, I'm wondering if you can talk a little bit on the work behind the scenes for the dental spin, based on your experience with Fortive, is there a chance that could get pulled forward a little bit? Maybe a better question for Amir if he's around, but I'm just curious on, he talked about a $1.5 billion TAM for Spark. Just curious how you think about pushing into that market, given you've got a big entrenched competitor.
Sure. Happy to take both of those. Relative to the Fortive spin process, we literally pulled the dental spin relative to Fortive. We literally pulled the Fortive playbook out of the files. When we got the question earlier about the Obeya room, we literally set up the exact same room in Washington, the exact same wall, with similar workflows and work streams, albeit with a new team. Process, virtually identical. Dental is a more standalone business. There were less complexities that we had to unwind, if you will, from a variety of different perspectives to set dental up separately. There were a few things that were simpler.
In terms of the time frame, I'm not sure I really see how that time frame might get pulled forward, because much of what we need to do are the long poles in the tent, tend to be associated with regulatory requirements, government filings, et cetera, whose time frames are pretty much fixed. I think we'll probably still be on the same time frame that we established. Relative to Spark, which is a really important product development and now commercial launch for us, our clear aligners growing substantially. It looks right now like in December, the growth rate from November to December is likely to be up well into double digits, as you might expect off a slow base. It's off to a tremendous start.
Obviously, having 510 clearance already in the U.S. is terrific, but we want to be pretty careful about how we move geographically because we have to have sales teams ready. We have to have the market essentially seeded with the brand. Finally, we have to have manufacturing capacity, and we're still in the process of building that manufacturing capacity as well. It'll take some time for us to move out to the next markets, but we're going to do that thoughtfully and carefully. We have a tremendous amount of confidence in the product. The patient acceptance has been really terrific. We'll just take it one day at a time.
Hey, Tom, right here.
Yeah.
Hey, how are you?
Good, thanks.
Dan Brennan, UBS. Two questions on growth for next year. The first is a question we get pretty frequently as we're kind of later in the cycle, and the economy's expected to slow next year. We get questions about how that's going to impact Danaher and other competitors. I'm just wondering, as we look out to 2019, to the extent growth slows, say, 50 basis points on a global basis, how is that incorporated into your guidance for next year? Kind of related to growth next year, certainly you've far exceeded what you initially set out to do this year with growth. If we get to the back half of 2019 and things turn out to be better, could you just talk to the different businesses and where possibly we might see that?
Sure. We think 4% for next year that we've embedded in the guidance is essentially a prudent planning assumption to make. I say that not in the interest of making a macro call, but really in the interest of just simply acknowledging a variety of sources of anxiety in the markets right now. Obviously, we have currency volatility. We have rising rates, both from an interest rate and an inflation rate perspective. You have some equity market volatility that tends to seep down into the psychology of various markets. I think it becomes somewhat of a prudent planning assumption. We do have a couple of headwinds. I mentioned the comp we had out in the first quarter with Cepheid and Diagnostics.
In the back half, we've got a little bit more challenge with some tremendous performance we saw this year in China in our Water Quality platform. Some of that's offset by IDT coming into the core in April. On balance, we just think taking some of those things into account, 4% is a good number. In terms of where the upsides are, I think, if some of this anxiety gets shaken off and psychology hangs together, we think the underlying markets are in great shape, in general. We obviously are very fond of the progress we're making from an execution standpoint. I think each one of the platforms has some opportunity, certainly.
We look at that 4% and say, hey, look, that's 4%+ from life science Diagnostics and environmental applied solutions, and kind of low single digits off the dental platform with things improving over time. I think any one of those has the opportunity to continue to perform slightly better than those assumptions. Hey, Julian.
Hey, Tom. You talked a little bit about the latter two platform presentations, had a push to digital, a bit more software, and you mentioned how that may presage a broader push throughout Danaher in that direction. Maybe just give us some detail, how you think about the organic strength of the company in that direction today. Can you match those aspirations organically, or do you have to do acquisitions, you think, to try and push the company away from simply a consumables focus within your definition of recurring sales?
Sure. Julian, I think the future involves both. We've got some good capabilities today in the digital realm, but I wouldn't necessarily put them at the head of the class relative to other capabilities that we have in the corporation. You saw the leading edge that Videojet's on. I think that's a great example of where we do have those capabilities. Joakim is also, by the way, responsible for a team that we have in Silicon Valley, that helps each one of our businesses horizontally deploy the technologies associated with connectivity, some of the basics relative to artificial intelligence and data analytics. We have work to do in terms of building our internal capabilities. That's happening both in a shared services arena that I just mentioned, but it's also happening in the individual operating companies.
That said, I think this arena is moving too quickly and has too many opportunities for us to be able to catch all of them or take advantage of them purely organically. I think there will be inorganic opportunities. They might be niche-y in their nature. I don't know that there's a big transformational software deal that gives you horizontal digital capabilities across a platform like ours. I do think every one of our platforms has to be on the lookout for where can we take advantage of some inorganic opportunities to supplement what we're doing internally to take that capability up higher. That's largely, I think, going to be probably in the realm of analytics. Yep.
Okay, thanks, Tom. Good morning.
Morning.
I guess a couple of sort of math questions. The first is in your waterfall chart breaking down 2018 to 2019 earnings growth, you indicated that fall through on 4% core growth is 35%-40%. Could you break down what that implies for the company, excluding Dental, and whether or not you think that's a good go-forward target for us to use? I'll pause there.
Sure. I think it's a good number to use across the portfolio. Dental obviously has a piece of that. It's a pretty good number to use platform by platform. I would say that any platform that has more recent acquisitions of scale with more opportunity is likely going to be one that might be closer to the high end of that scale. Perhaps a more mature platform with less newly acquired businesses might be at the lower end of that range. In general, I think most of the businesses, or at least the platforms, would fall across that.
Obviously, if you look back historically at a large acquisition like Pall, for example, and you said, well, what was the fall through on the core growth at Pall immediately following or year following the acquisition? Well, obviously, it would be much higher than that. So together, we sort of blend that out as a function of the drop-through that we'd have for the vast across the portfolio of the businesses.
Okay. That's helpful. The second question is on M&A capacity. Our math gets us to a number of about $15 billion in capacity, at least at some point next year, assuming normal parameters, including staying investment grade, meaning not going meaningfully beyond four times leverage. The first part of this is our math right? The second part of this is, I think, relative to what we're used to with Danaher, you've been a little less active. You've done some really great deals recently. Part of the reason the war chest has built up is you haven't been super active lately. As you talked about guidance, you acknowledge that $0.02 of contribution from M&A is a little bit less than normal.
Right.
In your seat at the board level, how would you describe the sense of urgency to maybe get a little more active in 2019 than you've been recently?
Sure. Well, I'll work the answer back from the last part of the question to the first part of the question. We always have a sense of urgency when it comes to capital deployment, and that comes because we have a very consistent and sustainable set of processes around each one of the platforms, really, each one of the operating companies, looking at market opportunities and company opportunities in their respective markets. The numbers are rough, but we probably have, on average, 200 companies in the pipeline of ongoing cultivations. We talk about those, Dan and I talk about those with the teams on a monthly basis. We live with that sense of urgency sort of as a matter of the daily course of things. That doesn't change.
The board shares that, the board continues to share the passion and the bias towards deploying free cash flow towards M&A going forward. Relative to leverage, when we did the Pall acquisition, I think that was $14 billion or in that neighborhood. I think we took leverage up to about four times at that time. It wouldn't be unprecedented to follow that same math based on how you frame the question. Obviously, the more strategically important that acquisition is, the more opportunity there is either in terms of synergy or cost opportunities, the more we'd be willing to stretch the balance sheet, knowing that the free cash flow is consistently as strong as it is, and we could de-lever, as we have done in the past, on a relatively quick basis.
I think we did IDT early this year, IDT was frankly paid off by the latter part of the summer. The prodigious free cash flow obviously makes a big difference in our willingness to be able to take leverage up and then bring it back down again relatively quickly.
The last question Ross.
Hey, Tom.
Hey, Ross.
Just want to follow up on Doug's question on M&A. To Doug's point, the capacity is obviously substantial. It seems like you guys could certainly execute something of size. How should we think about the current equity market volatility sort of playing into that? When I look back historically, Danaher has taken advantage of market recessions or volatility and been able to acquire high-quality businesses at pretty attractive prices. Does this sort of volatility make any of those discussions easier? Does it make it harder? Do we need to see a stabilization in valuations to get a higher degree of confidence on the seller side so that you can execute? Again, I think of the smaller businesses, there's sort of a regular cadence of that, but larger transactions tend to be more public, tend to be more complex.
How should we just think about the last two months or the last number of weeks in the context of the challenges, then, of executing against something maybe more sizable?
Sure. Well, Ross, I think your understanding of our history, first of all, I think is right on. We've done well in times of market volatility. In fact, kind of as markets have cracked, and people have kind of run for the hills, those have been the times where we've done some of our best deals that now, as we look back over time, we've created some tremendous value in those deals that were done in times of real market downturn. In general, I think we like the volatility in this market today for a couple of different reasons. One, the past is sometimes prologue. Two, this is a rising rate environment, obviously, and being an investment-grade business and having the balance sheet we have and the capabilities we have positions us pretty well relative to others who might seek to do a similar transaction.
In general, we continue to feel good about this kind of market, and we think even in a more substantial downturn, if the volatility turns into a much softer market for an extended period of time, that could very well work in our favor. Matt has given me the hook. I guess before we let you go, let me thank you all one more time for coming today. I know it's an incredibly busy time of year, and we really value the fact that you would spend a few hours with us. We wish you all a very merry Christmas and a joyous and peaceful and safe holiday season. We'll see you all soon. Thanks very much for coming. Bye-bye. Godspeed.