Good afternoon, everyone. This is Rachel Vatnsdal from the Life Science Tools and Diagnostics team here at J.P. Morgan. Thank you for coming to the Danaher presentation. This will be a 40-minute session, as we typically do, roughly 20 minutes of a presentation, followed by 20 minutes of Q&A. If you do have questions, feel free to either submit them via the app or you can ping me directly. And with that, I will pass it off to Rainer.
Well, thank you, Rachel, and thank you to J.P. Morgan for having us. Good morning, everybody, and thank you for joining us today. Before I jump into my presentation, just a quick look at our forward-looking statement advisory here, which you can peruse along with our non-GAAP reconciliation schedule at your own leisure. Now, let me get started with just a brief update as to our preliminary results for the Q4 of 2023. Our core growth came in better than expected, and that's really through the base business core revenue having declined mid-single digits, but all of our segments being modestly above our expectations, especially respiratory, with over $600 million at Cepheid exceeded our expectations.
Now, at the same time, you can expect our Q4 2023 adjusted operating profit margin to be in line or above with our prior guidance of approximately 28%. And then lastly, and I couldn't be more pleased to talk about the fact that we closed the Abcam acquisition here in early December, well ahead of our expectations. This is a fantastic team. It's a fantastic company. It's the gold standard in proteomic research, and all of you know, that proteomic research is going to continue to gain in importance as our understanding of the protein and its importance to therapeutics and diagnostics continues to expand. So a better-than-anticipated Q4 in what has been a challenging operating environment. Now, before I jump into the body of my comments today, perhaps just a brief overview of what I'll talk about.
It starts with the fact that Danaher is a very different company today than it was just a few years back. I'll talk about how our portfolio transformation is driving structurally higher revenue growth, higher profitability, and importantly, higher cash flow. I'll also talk about how we've dialed in our portfolio into differentiated positions in many of the most attractive areas of biotechnology, life sciences, and diagnostics. Lastly, with our ability to deploy capital organically, the strength of our balance sheet, the power of execution through the Danaher Business System, I'll show you how we're well-poised for long-term shareholder value generation.
Now, to really appreciate how profound the portfolio transformation of Danaher over the last few years has been and its impact, both on our positioning in attractive end markets as well as our financial profile, it's helpful to start with the year 2018 as a baseline and then walk through that portfolio change. 2018, we're a $20 billion company, 65% of our revenues in the attractive life science and diagnostic end markets, 45% in the dental and the Environmental and Applied Solutions business. About a mid-single-digit grower, mid-50s gross margins, operating margins just over 20% with $4 billion of operating cash flow. Now let's have a look at how we have fundamentally changed this profile to who we are today. It starts with our portfolio exits.
We have exited here since 2018, over $7.5 billion of revenue, which was dilutive to both our growth and our earnings. That started with the IPO of Envista, our dental business, which was a low single-digit grower, mid-50s gross margins, mid-teens adjusted operating margins, but also Veralto, which we just completed the spin of here in the Q4 of 2023, with $4.8 billion of revenue. Once again, mid-50s gross margins and adjusted operating margins below 25%. Now, these are great independent public companies today that generate their own cash flow and are creating value for their shareholders. But after having exited and Danaher's growth and earnings profile has improved. Now, as we continue that story, we've nearly replaced that revenue with capital that we've deployed to acquisitions.
Acquisitions which further improve our positioning in the attractive end markets that I talk about with those long-term secular growth, drivers, as well as with an improved financial profile. So let's have a look. Cytiva, we acquired over $5 billion of revenue with high single digits growth, over 60% gross margins, and over 40% adjusted operating margins, which together with the Pall Life Science businesses, are now the premier company for bioprocessing in the industry. At the same time, we took the one-time cash, windfall that the pandemic period generated for us, and we've turned that into a highly profitable annuity for the long term through the acquisition of Aldevron and Abcam, $1 billion of, annualized revenue there, plus high single-digit+ growth, gross margins around 60%, with over 35% adjusted operating margins....
So once again, positioning ourselves in highly attractive end markets, Aldevron, the gold standard for delivering nucleic acid in the highly attractive genomic medicines end market, and Abcam, as we just spoke of, the gold standard for proteomic research and analysis in the world. So once again, improved end market positioning, while at the same time improving the financial profile of the business. We also expanded our end markets. The respiratory market that Cepheid serves is much larger today than it was prior to the pandemic. In fact, Cepheid's business was only $250 million in respiratory prior to the pandemic, and today is an incremental, so on top of the $250 billion plus of respiratory business, which we believe is sustained for the long term. And why is that?
Because we have more than doubled the installed base of the GeneXpert at the point of care where you can have an impact with patients, and launched a unique respiratory panel, which we call the four-in-one, allows you to test for RSV, flu A, flu B, and for COVID. And it allows those doctors to get, in a short period of time, the right answer, an easy-to-use workflow, so they can make a call on the spot to prescribe the right therapeutic for that patient. Very, very sticky, highly competitive, and we believe sustained for the long term. Now, you put all of this together, and what do you have? Well, you have a more focused, stronger, and better company that is better, has better exposure to these attractive end markets in diagnostics, life sciences, and bioprocessing.
And if you then do the left to right here, you look at the re-rating of the growth profile from mid- to high-single digits, gross margins from the mid-50s to now the 60s, adjusted operating margin from low 20s to nearly 30%, and then look at the cash flow generation, 50% higher operating cash flow since that time through structural improvement of the portfolio, both in terms of its end market positioning, attractive end markets, as well as its financial profile. Now, we've built a powerful business here, and I've talked about those leading positions here in attractive and fast-growing end markets, but there's more. These business models are incredibly attractive.
If we look at the fast-growing end markets here on the left side, you see those long-term secular growth drivers that support them, as well as the regulatory requirements which underpin the uses of our solutions. Just to mention a few, biopharma, we have molecular diagnostics, clinical diagnostics, just to call those out. At the same time, they are united by a common business model. We have a razor, razor blade business model and mission-critical applications with spec'd-in consumables. And that allows our scientists, our technicians, yes, also our salespeople, to feed, through that frequent customer contact, to feed our innovation flywheel and inform the next innovations that we launch, which are proprietary and allow us to further drive growth and margin expansion. And look, we're here at 80% recurring revenue, so a very, very strong business model.
Now, if you bring all this together, outstanding end markets, great business models, the power of innovation in the Danaher Business System, you really bring lasting leverage to your growth and earnings trajectory. Now, let's spend a minute on M&A. At Danaher, we want to invest that extraordinary cash flow that I spoke to you about back into the business, invest it back into the business, and our bias is to do that through M&A. And our disciplined approach in M&A differentiates us from the perspective of how we create long-term value. And you see here that we always use the three dimensions of market, where we develop a proprietary perspective on an end market, looking for long-term secular growth drivers that are sustained.
We look at companies, of course, in that market, and once again, develop a proprietary perspective on the defensiveness, defensibility of their competitive advantage or our ability to create one. And then, of course, we look at the financial model, the valuation of that. And when all of those three dimensions intersect, not one, not two, but all three intersect, that's when we execute on a transaction and drive the power of compounding returns over the long term. That is how we create, in a differentiated way, value, and a reflection of that is the strong cash flow that you see.
Now, if you look to the right side, you see our net debt to EBITDA ratio, which is very, very strong, and together with that cash flow I spoke to you about, shows you that we are well-poised, even after deploying capital to the acquisitions that I just spoke to, to further deploy capital looking forward. So great businesses, great end markets, Rainer, but how do you run the business? Well, when you talk about running the business or execution, at Danaher, that's synonymous with the Danaher Business System. It's really on the foundation of our core values, which you see in the black font here, and starts with, "Customers talk, we listen." It's on that foundation that Danaher has built its competitive advantage. It's another one of the pillars that differentiates us in the market. And this is much more than an assembly of tools.
This is our culture. It's who we are, it's how we think, it's how we do what we do, and it's how we drive the execution that you all are familiar with across all the operating companies in our portfolio. And we have been refining the Danaher Business System for 40 years. This is the 40th year of Danaher since the founding, for 40 years, and we do that execution at scale. So in closing, and to summarize, the structural transformation of our portfolio, recall the exiting of over $7.5 billion of revenue that was dilutive, the acquisition of better-positioned companies in attractive end markets that nearly replaces that revenue to improve our revenue growth. Recall the better margins that increase our profit margins and the improved, significantly improved cash flow.
That's how we have structurally changed Danaher's positioning here in just a very short period of time, and positions us so well here going forward. We've also dialed in our portfolio into those differentiated positions in many of the most attractive markets, whether that's in biotechnology, whether that's in life sciences, or whether that's in diagnostics. Then coming back to our ability to invest organically and execute with the Danaher Business System or the power of our cash flow, combined with a healthy balance sheet, that's how we combine all of this to create long-term shareholder value. With that, thank you, and I'm gonna pass it over to Rachel to go to Q&A.
Perfect.
Ready?
Perfect. Yes, thank you. So, you know, I wanted to kick it off by talking about just the market and some of these underlying market assumptions. You've talked a lot about how you've transformed the portfolio, but I think one of the key questions that investors are facing is that, has something shifted in the underlying market on the long term? So can you spend a minute talking about that, given the myriad of issues that we've seen the sector facing in the last 18 months?
So let me start with the answer. We don't believe that there has been a structural change here that impairs the long-term growth thesis of this market or our business and portfolio. If we think about bioprocessing, to start with that, but also the life science research business, which ultimately supports the development of therapeutics, we continue to see an enormous need for the development of therapeutics and plenty of opportunity to do so. If you just reflect on the size of the drug development pipeline, that it continues to grow. We had 34 approvals in the U.S. last year from the FDA, which is a very high number from a historical perspective, and there continues to be an enormous amount of development going on.
When you look at the relatively low penetration of biologic drugs in the marketplace, less than 10% of the world and the patients that could use these biologic drugs, for various reasons, doesn't have access to that. So we continue to see that from a need and from a funding perspective, that the long-term drivers remain intact and support that absolutely. If you think from a diagnostics perspective, diagnostics are, from our perspective, a catalyst to ultimately driving value-based healthcare, identifying the right patient at the right time for the right treatment, and the right treatment meaning that you know that that particular patient is going to respond to the therapeutic that ultimately gets prescribed.
So we see that the secular growth drivers, not just here in the U.S., but elsewhere in Europe, and in China, remain firmly intact.
Perfect. That's helpful. Maybe shifting over to 2024. I appreciate that we're going to get formal guidance here in a few weeks, but I was wondering if you could just walk us through, at a high level, the potential range of outcomes for the year. A lot of your peers have kind of given commentary around this being a much more back-half-weighted year. So specifically, how are you thinking about the pace of the recovery, whether that's within the biotechnology business or life sciences, primarily instruments?
So first of all, I would say that 2024 is going to be a transition year, but that as it relates to the bioprocessing business, that 2023 represented the bottom. I do think that we have a little bit more to go here in the first half of 2024 to digest the various pandemic-related dislocations, which we've discussed at length, but that certainly the second half is likely to show improvement. So without getting into a quantitative discussion, which we'll do later this month at earnings, we do think that 2024 is going to be a better year than 2023, bioprocessing.
Now, as it relates to life sciences, we've been talking about the normalization of the life science instrument markets since October's Analyst Day 2022, and that's in fact what has happened here. Now, as a reminder, life science instruments represents only. It's actually under 10% of the sales in our portfolio. So I'm not sure we're a great read across for that. But what we believe is that that still has some time to play out here, well into 2024 before it finds its long-term growth rate, which we believe to be about mid-single digits.
Perfect. That's helpful. Then maybe shifting over to bioprocessing. You know, as you mentioned, you expect 2023 to really be the bottom as it relates to some of these bioprocessing headwinds that the sector's been facing. You've also recently noted that you start to see some green shoots, customers doing things like submitting rush orders, signaling that maybe they've gotten over-torqued and have too lean of inventory levels. So can you walk through some of these dynamics? And then specifically, have you seen an inflection in orders during Q4 and over the last several weeks? So can we officially, you know, call the end to bioprocessing in your view?
Well, so in the Q4 , we continued to have constructive dialogue with our customers. More anecdotes of customers coming back to, more regular, ordering patterns, from a sequential perspective, and, in dollars, we did see an increase sequentially from Q3 to Q4. Not unexpected, because Q3 tends to be the lowest quarter of the year in terms of its activity levels, but nonetheless, an improvement there. From a book-to-bill perspective, we would say it was similar to the Q3 . And since many of these constructive dialogues are yet to show up in, data points of regular order submissions, we would say that, we're not yet at the inflection point. For 2023, the bottom? Sure, but we did not see an inflection point in the Q4 .
Got it. That's helpful. And then, you know, maybe just in terms of bioprocessing as we head into 2024, given you haven't seen that order inflection in some of your book-to-bill comments there, how should we think about the potential for bioprocessing growth in 2024? At which point would you need to see those orders more meaningfully inflect to see some more meaningful growth in Q4, for example?
We would have to start seeing those in the first half of the year.
Okay. Helpful. Then maybe just on pricing and bioprocessing. Pricing's been a bright spot the last few years, as I think across the industry, many players have realized they have much more pricing power than maybe historically thought. So can you spend a minute talking about how we should think about pricing going forward? You saw 500 basis points of pricing contribution-
Right.
- in bioprocessing in 3Q. How should that trend into 4Q and then beyond?
Pricing, as you suggested, was around 500 basis points for the bioprocessing business, and we believe that that is going to moderate here going forward, including in the Q4 . We believe ultimately that pricing will remain higher than the historical average, which has been around 75, 100 basis points per year, but not at the level of, you know, 400-500 basis points that we've seen here more recently on the back of some of the inflationary trends. Over the historical average, but not what we've seen here the last 18 months.
Helpful. Maybe stepping back just on bioprocessing from an end market perspective, can you spend a minute talking about how you view that long-term market growth? What are you hearing from customers in terms of their long-term views on some of this volume inflection? And then what data would you really point to, to convey confidence in the underlying health of the overall bioprocessing market?
So our customers who are working on biologic drugs are as bullish on those as they ever have been, and this is validated by the continued growth of the drug development pipeline that we see, and we also see it in the production numbers. We know that production volumes of biologic drugs, whether you're looking at five-year, three-year stacks, or even currently, are growing in the high single digits to 10% range. So that has remained unchanged, and we continue to see the opportunity for upsides beyond that. But even without sort of the larger drugs that might ultimately be launched, we believe that the bioprocessing market is a high single-digit growing market in the long term.
Great. And then maybe more specifically, you've been vocal about GLP-1 and Alzheimer's being two opportunities, maybe at different sizes and, you know, different makeups there. But can you talk about how meaningful can either of those opportunities be in the medium to long term? And really, what do we need to see before we start to see contribution from either of those applications?
So let's start with the GLP-1s. GLP-1s, of course, the headlines are very exciting, undoubtedly, and the patient impact they, they can have does look incredibly positive. We'll have to ultimately see how quick the uptake is. One, they're relatively new. Long-term effects are, are not yet fully understood. There's some expense associated with GLP-1s as well. So ultimately, the question is not whether the potential is there, but how quickly the drug is able to penetrate and reach very attractive volumes. Now, from a bioprocessing perspective, GLP-1s to date, and this continues to change over time as there are different ways to get at these drugs, are either made synthetically or through biologic processes.
The synthetic ones that are produced have less impact on the bioproduction industry, although there is some, and it certainly provides a bit of a tailwind, but it wouldn't be the same as, for instance, the biologically produced ones. That once again don't have the same level of impact as other biologic modalities, but certainly provide a bit of a tailwind. Then I think you talked about Alzheimer's as well. That's very exciting. All of you know that this is a disease that is intractable and has all kinds of impact on people and the society at large and will continue to grow as populations age around the world.
There is an immense need for a solution and a treatment for Alzheimer's, and we expect that the positive news that we continue to hear out of the drug development pipeline will, over time, have an impact. Once again, we need to see these drugs launched. We need to see their efficacy and whether they're recommended, then ultimately for reimbursement, and then the uptake associated with them. But most of these drugs to date are monoclonal antibodies. Those do have a high intensity of use of the kinds of solutions in the bioprocessing industry, and particularly our portfolio. And so that would be a very significant tailwind if and when that gets to scale.
But it's important to note that the long-term thesis that we have on the high single-digit growth for this market is not dependent on Alzheimer's drugs ultimately being launched.
Perfect. That's helpful. Maybe shifting over to life sciences then. Life science instruments, as you mentioned, are just under 10% of the portfolio. They declined mid-single digits in 3Q as customer spending really remained weak. So can you talk about the puts and takes there in terms of what do you think is driving some of this instrumentation weakness across the business, and how did that really trend in 4Q as well?
So I think there's two or three drivers that I would mention here. The first one is in China. Many of you know that China, through the end of the Q1 of 2023, but it seeped into the Q2 as well in terms of sales, had a loan subsidy program, especially in the academic markets, that pulled forward the acquisition of many life science research tools. And so it's not unexpected to have seen, then after that pull forward, a softening of that market. And despite the fact that we had a mid-single-digit decline in Q4 in China, our orders were down mid-teens.
So what I would say is that, Q4 was very similar in terms of the actual activity level and order, as, Q3 was, and that we still have some time to work our way through, the various dynamics affecting, China, in particular in life sciences. If we look to the developed markets, there's really, two dimensions here to consider. One, large pharma is, is, you know, taking note of the higher cost of capital and being more careful with capital expenditures, as well as inventories and, and, and, other expenditures, which is only natural as that cost of capital expands. And we would expect that over time to moderate again as R&D budgets, are poised to grow, and we've seen statistics to that effect.
And then lastly, the biotech business, as you recall, contracted quite significantly here as venture capital flows subsided, and that certainly impacted the acquisition of life science tools. But also there, we're starting to see a normalization process of funding levels more akin to the 2019 period. So then, once again, as we come through that, we'll end up getting to that normalization. Once again, we believe ultimately the long-term growth rate of that market is mid-single digits.
Great. That's helpful. Maybe just sticking on instrumentation, but specifically within China. One of your peers recently mentioned that they're seeing stabilization in the region, specifically for China instrumentation. So can you spend a minute? Are you seeing any of that stabilization? What key metrics are you looking for? And then how do we think about the timing perspective in terms of when could we see a rebound within that China instrumentation market?
Well, I would say we see stabilization in the sense that we're seeing reduced orders at roughly the same mid-teens levels now for two quarters in a row. So if that's the stabilization, it's a stable age—stabilization at a lower activity level. As it relates to China specifically, it—we believe it's gonna take some time for China to work through the various topics that are affecting the pull or the demand for life science instrumentation, likely for 2024, but we'll talk more about that in January.
Perfect. That's helpful. During 3Q, you also mentioned that some of your higher-end instrumentation had held up better than some of your less specialized portfolio due to the strength within academic and government, some of the applied markets. So can you talk about, did you see those trends continue into 4Q? And then how resilient do you think that the strength is in some of these higher-end instrumentation portfolios?
So, first of all, we did see the same trend play out in the Q4 to the extent that we have that detail at this stage before closing the books. But I do think as you think about what we call big iron, so those very large instruments and equipment that those are also associated with longer delivery times. So when you're recognizing revenue today, those tend to be rebookings of orders that were made 6, 9 months, and in some cases, even 12 months earlier, and they're not really reflective of the capital expenditure mood of the industry. And so that will play out over time.
We believe that it will take some time for us to see a bit of a downward slope there on sort of the larger capital expenditures, but in the meantime, we would expect the shorter cycle life science instrumentation to pick up again. So you could almost imagine a bit of an offsetting here between, you know, the larger capital expenditures and the mid to small cycle ones.
Perfect. That's helpful. Then maybe shifting over to the diagnostics portfolio.
Sure.
Cepheid on the respiratory side, put up a pretty meaningful beat that you highlighted earlier. I wanted to touch on the endemic run rate. You know, you've pointed to this $1.2 billion as an endemic run rate that was based on 30 million tests annually. Can you walk us through your assumptions, though, in terms of the mix that was embedded into those assumptions for four-in-one versus COVID only? Also, what did you see in terms of that mix throughout 2023, now that we've really closed out the year? And how could that drive potential upside to that endemic run rate as we move forward?
Well, what the endemic run, what rate ultimately becomes is a question that we're working on as we speak. We have now seen two seasons, if you will, with a roughly normal respiratory season. So that continues to be a question that we work on, and we'll talk in more detail on that in January. But it—I think it's fair to say that we view the $1.2 billion of revenues that we've talked about as a floor. And the mix, in fact, is a key question as to whether you end up at, you know, higher revenue levels or not. If we look at 2024, you know, the mix did shift or skew towards the four-in-one test, and it's only logical that it would.
Imagine if you're a doctor, somebody presents to you with flu-like symptoms, and now you're supposed to figure out what that actually is and treat it. If you have the opportunity in essentially 30 minutes to get a molecular diagnostic test that tells you whether it's COVID, flu A, B, or RSV, correctly, because it's a molecular diagnostic test, and you can make a therapeutic decision at that time, you're gonna do that every time. And so we did in fact see a skew towards that with, you know, that skew on some quarters being, you know, above 70%. But if I was to annualize it and estimate here, so, please don't hold me to the final number. You know, it was more likely 70%-30%, 74 and 130% COVID only.
Perfect. That's helpful. Then maybe just in terms of the Cepheid competitive landscape, can you talk about how that market has really played out now that we're on the other side of COVID? Are you starting to see customers consolidate their platforms in using Cepheid more? Can you highlight any of those recent wins there? And then lastly, how should we think about opportunities for menu expansion within Cepheid?
Well, so first of all, we do think and see that we continue to take share. We've more than doubled our installed base of GeneXpert since the beginning of the pandemic, and we continue to see consolidation of testing platforms at the point of care in hospitals. And really, the pandemic was quite an infomercial for Cepheid because our hospital technicians and doctors became so accustomed to getting the right answer at the right time. It was such an easy workflow. So we continue to see share gain there, and we expect that to continue, and we continue to place more instruments. Now, as it relates to the menu expansion, we're seeing that in two ways.
One, in the uptake of the expanded menu, to the extent a given set of menu items will apply to that specific care setting. So if you're in a women's health clinic, that's one thing, but if you're, you know, more at in an emergency department, you might have a slightly different menu. And we see customers now taking other menu items, other assays, onto their GeneXpert platform. So that's one type of growth that we're seeing, and that's represented in that very attractive growth that you've seen over the years. Some years, 30% non-respiratory growth, and 2023, 20%+ in growth.
And then there's the new assays that we've launched, and, you know, Strep A is an example of that, but also our MVP panel for, you know, women's health continues its journey and uptake. So we have a number of growth levers here with Cepheid that allow us to continue to fortify our positioning at the point of care and to take share.
Perfect. Helpful. Then maybe digging deeper into China, just more broadly across the entire portfolio. China is roughly 12% of revenues for Danaher. So can you walk us through how is that exposure split across biotechnology versus life sciences and diagnostics? And then you mentioned you're seeing stabilization in the region, albeit at a lower level in some areas. So are there any parts of the portfolio that have actually gotten worse relative to 3Q? And then conversely, is there any areas of the portfolio that have gotten better, since 3Q within China?
So, as you correctly say, low double digits exposure of Danaher overall in China. And if we then look at the different segments, so let's start with biotechnology, that would be below that low double digits exposure. The life science research tools, including the instruments, would be above that exposure, and then the diagnostics would be right about at that exposure level. Give you a sense of that. And we really, in China, since we have seen starting in the Q2 the deterioration there, we have not seen our businesses deteriorate further, but we've also not seen an improvement.
Okay, that's helpful. Maybe just shifting over then to capital deployment. So could you spend a minute talking about the Abcam acquisition? Walk us through what Abcam really provides Danaher, and why this asset makes sense with the portfolio.
So Abcam, I'm really happy to talk about Abcam because this is an acquisition which is right in the sweet spot of Danaher. One, as we've said before, we're going to run this company as a standalone operating company. It's laser-focused on proteomic research, which you know is a burgeoning segment, which will continue to help us understand biology, and with that, accelerate the development of diagnostics and therapeutics and many other solutions that are so important. It is a company which is known for its quality. It is highly cited in academic work. Its Net Promoter Score is at the top of the industry. So this is just the gold standard for proteomic research, and much like other companies that we have started their journey in the research field and then-...
works in translational application settings, and goes from there, and of course, also has the opportunity to further internationalize their business. So we see a lot of opportunity for Abcam going forward. The end market is outstanding, the positioning of the company is differentiated and leading, and we see a number of levers to continue to improve both growth and earnings for the company.
Perfect. Helpful. And then maybe a more broad capital deployment question. You mentioned a lot of the portfolio transformation during the prepared remarks there. So can you just talk about how should we think about Danaher's M&A engine going forward in the near to medium term? What's your capacity for deals at the current standpoint? Are there any gaps in your portfolio that you'd like to fill? And then also, just can you give us an update on the deal pipeline, especially given interest rates, and kind of how do you think about those hurdle rates as well?
First of all, as you, as you saw in my prepared remarks, our cash flow and our balance sheet are positioned as strongly as ever, and we're well positioned in order to take advantage of capital deployment towards M&A. As it relates to the interest rate environment, that's a reality, and it's one that we account for because it raises the bar in terms of achieving the kind of returns that we're looking for, and those objectives, return objectives, remain unchanged.
So we will have to, as a team, either through improving the performance of the assets even more, or also through valuations, finding a lower level, find that right combination so that all three of those dimensions I love to talk about, market, company, and financial model, intersect so that we can transact and then move along to compounding that. Now, as it relates to the deal pipeline, it is robust, it is active, and once again, this is the kind of marketplace where patience is important, and we will maintain our tried and true discipline, and not compromise on our objectives.
Perfect. And then maybe in the last minute or so, just walk us through, what do you think is the most underappreciated area of Danaher's story, and then where do we really go from here?
Well, the most underappreciated part is what I spoke about today, which is the very, very significant structural changes to our portfolio, which rerate our growth, our earnings profile, and our cash flow. And all of that is based on our strategy of being in the most attractive end markets, driving science forward, and bringing solutions to healthcare. So, that is a different kind of Danaher than we've had. Now, coming out of the turbulence of the pandemic, the dust is settling, and you're starting to see that positioning and the power of that portfolio play out.
Perfect. With that, we are unfortunately out of time. Thank you so much for joining us.
Thank you, Rachel. Thank you.