Q2 2024 Mettler Toledo International Inc Earnings Call

Speaker Change: Thank you for standing by and welcome to the Mettler-Toledo second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone key. And if you would like to withdraw your question, press the star 1 again. For operator assistance throughout the call, please press star zero.

Speaker Change: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press the star one again.

Operator: And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Adam Uhlman, Head of Investor Relations, to begin the conference. Adam, over to you.

Speaker Change: For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Adam Uhlman, Head of Investor Relations, to begin the conference. Adam, over to you.

Adam Uhlman: Thanks, Paul, and good morning, everyone. Thanks for joining us. On the call with me today are Patrick Kaltenbach, our Chief Executive Officer, and Shawn Vadala, our Chief Financial Officer. Now, let me cover some administrative matters. This call is being webcast and is available for replay on our website at mt.com.

Adam Uhlman: Hey, thanks, Paul, and good morning, everyone. Thanks for joining us.

Speaker Change: On the call with me today is Patrick Kaltenbach, our Chief Executive Officer, and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on our website at mt.com.

Adam Uhlman: A copy of the press release and the presentation that we will refer to today is also available on our website. This call may include forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties, and other factors that may cause our actual results, financial condition, performance, and achievements to be materially different from those expressed or implied by any forward-looking statements.

Speaker Change: A copy of the press release and the presentation that we will refer to today.

Speaker Change: is also available on our website. This call will include forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934.

Speaker Change: These statements involve risks, uncertainties, and other factors that may cause our actual results, financial condition, performance, and achievements to be materially different from those expressed

Adam Uhlman: For discussion of these risks and uncertainties, please see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement except as required by law. On today's call, we may use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8K and is available on our website. I will now turn the call over to Patrick.

Speaker Change: were implied by any forward-looking statements.

Speaker Change: For a discussion of these risks and uncertainties, please see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC.

Speaker Change: The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement.

Speaker Change: Except as required by law. On today's call, we may use non-GAAP financial measures.

Speaker Change: A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8K and is available on our website. Let me now turn the call over to Patrick.

Patrick Kaltenbach: Thanks, Adam, and good morning, everyone. We appreciate you joining us on our call today. Last night, we reported our second quarter financial results, the details of which are outlined for you on page 3 of our presentation. Our team continued to execute well and deliver better than expected results in the second quarter, including good growth in laboratory sales in Europe and America. As expected, market conditions in China remained weak in both our laboratory and industrial businesses, who continue to benefit from our productivity and marketing initiatives, which help mitigate the impact of foreign exchange headwinds and protect our earnings. Looking to the remainder of 2024, market conditions are soft, particularly in China.

Patrick Kaltenbach: Thanks, Adam, and good morning, everyone. We appreciate you joining our call today.

Patrick Kaltenbach: Last night we reported our second quarter financial results, the details of which are outlined for you on page 3 of our presentation.

Patrick Kaltenbach: Our team continued to execute well and deliver better than expected results in the second quarter, including good growth in laboratory sales in Europe and the Americas.

Patrick Kaltenbach: As expected, market conditions in China remained weak in both our laboratory and industrial businesses.

Patrick Kaltenbach: We continue to benefit from our productivity and marketing initiatives.

Patrick Kaltenbach: which helped mitigate the impact of foreign exchange headwinds and protect our earnings.

Patrick Kaltenbach: Looking to the remainder of 2024, market conditions are soft, particularly in China.

Speaker Change: Hope it'll work

Patrick Kaltenbach: We expect our local currency sales to return to growth in the second half of the year.

Speaker Change: of the year, primarily due to easier comparisons, as well as execution of our spinnaker sales and marketing program and leveraging our innovative product portfolio.

Shawn Vadala: However, we expect our low concurrency sales to return to growth in the second half of the year, primarily due to easier comparisons, as well as execution of our spinnaker sales and marketing program and leveraging our innovative product portfolio. We remain focused on strengthening our company for the future and believe we are in an excellent position to continue to gain market share and deliver future growth. Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I'll be back with some additional commentary on the business and our outlook. Shawn?

Speaker Change: We remain focused on continuing to strengthen our company for the future and believe we are in an excellent position to continue to gain market share and deliver future growth.

Speaker Change: Let me now turn the call over to Shawn to cover the financial results and our guidance and then I will be back with some additional commentary on the business and our outlook. Shawn? Thanks Patrick and good morning everyone.

Shawn Vadala: Thanks, Patrick, and good morning, everyone. Sales in the quarter were at $943.8 million, which represented a decrease in local currency of 2%. On a U.S. dollar basis, sales declined 4%. Is currency-reduced sales growth by 2%? On slide number four, we show sales growth by region. Local currency sales grew 6% in Europe, 2% in the Americas, and declined 13% in Asia and the rest of the world. Local currency sales decreased by 23% in China in the quarter.

Shawn Vadala: Sales in the quarter were $943.8 million, which represented a decrease in local currency of 2%. On a U.S. dollar basis, sales declined 4%, as currency reduced sales growth by 2%.

Shawn Vadala: On slide number 4, we show sales growth by region. Local currency sales grew 6% in Europe , 2% in the Americas, and declined 13% in Asia and the rest of the world. Local currency sales decreased 23% in China in the quarter.

Shawn Vadala: On slide number five, we show sales growth by region for the first half of the year. Local currency sales declined 1% for the first six months, with 6% growth in Europe, 2% growth in the Americas, and an 11% decline in Asia and the Rest of the World. Local currency sales decreased 21% in China on a year-to-date basis.

Shawn Vadala: On slide number five, we show sales growth by region for the first half of the year. Local currency sales declined 1% for the first six months, with 6% growth in Europe , 2% growth in the Americas, and an 11% decline in Asia and the rest of the world.

Shawn Vadala: Local currency sales decreased 21% in China on a year-to-date basis.

Shawn Vadala: As a reminder, our first quarter sales benefited by 6% from recovering delayed product shipments, which is a 3% benefit to our year-to-date results. Excluding this, our local currency sales declined 4% on a year-to-date basis. On slide number six, we summarize local currency sales growth by product area. For the quarter, laboratory sales increased 1% and industrial sales decreased 5%, with core industrial down 9% and product inspection up 3%. Food retail declined 12% in the quarter against significant project activity last year.

Shawn Vadala: As a reminder, our first quarter sales benefited by 6% from recovering delayed product shipments, which is a 3% benefit to our year-to-date results.

Shawn Vadala: Excluding this, our local currency sales declined 4% on a year-to-date basis.

Shawn Vadala: On slide number six, we summarize local currency sales growth by product area.

Shawn Vadala: For the quarter, laboratory sales increased 1% and industrial decreased 5%, with core industrial down 9% and product inspection up 3%. Food retail declined 12% in the quarter against significant project activity last year.

Shawn Vadala: The next slide shows local currency sales growth by product area for the first half. Laboratory sales increased 1% and industrial sales decreased 3%, with core industrial down 5% and product inspection up 1%. Food retail decreased 10%. Let me now move to the rest of the P&L, which is summarized on slide number 8. Gross margin was 59.7%, an increase of 30 basis points on positive price realization, as positive price realization was partially offset by lower volume.

Shawn Vadala: The next slide shows local currency sales growth by product area for the first half. Laboratory sales increased 1% and industrial decreased 3%, with core industrial down 5% and product inspection up 1%.

Shawn Vadala: R&D amounted to $45.8 million in the quarter, which is a 2% decrease in local currency over the prior period. SG&A amounted to $235.8 million, a 4% increase in local currency over the prior year and includes higher variable compensation. Adjusted operating profit amounted to $284.1 million in the quarter, an 8% decrease.

Shawn Vadala: Food retail decreased 10%.

Shawn Vadala: Let me now move to the rest of the P&L, which is summarized on slide number 8. Gross margin was 59.7%, an increase of 30 basis points on positive price realization, as positive price realization was partially offset by lower volume.

Shawn Vadala: R&D amounted to $45.8 million in the quarter, which is a 2% decrease in local currency over the prior period.

Shawn Vadala: SG&A amounted to $235.8 million, a 4% increase in local currency over the prior year and includes higher variable compensation.

Shawn Vadala: Adjusted operating profit amounted to $284.1 million in the quarter, an 8% decrease.

Shawn Vadala: Unfavorable foreign currency was a headwind to adjusted operating profit of approximately 2%. Adjusted operating margin was 30%, which represents a decrease of 130 basis points over the prior year. A couple of final comments on the P&L. Amortization amounted to $18.2 million in the quarter, interest expense was $19 million, and other income amounted to $1.5 million.

Shawn Vadala: Unfavorable foreign currency was a headwind to adjusted operating profit of approximately 2%.

Shawn Vadala: Adjusted operating margin was 30%, which represents a decrease of 130 basis points over the prior year.

Shawn Vadala: A couple of final comments on the P&L.

Shawn Vadala: Amortization amounted to $18.2 million in the quarter, interest expense was $19 million, and other income amounted to $1.5 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises.

Shawn Vadala: Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises. This also excludes a $23 million one-time non-cash discrete tax benefit relating to the favorable settlement of a tax audit.

Shawn Vadala: This also excludes a $23 million one-time non-cash discrete tax benefit relating to the favorable settlement of a tax audit.

Shawn Vadala: Fully diluted shares amounted to 24. $21.4 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $9.65, a 5% decrease over the prior year, or a 3% decrease excluding unfavorable foreign currency. On a reported basis, EPS was $10.37 in the quarter as compared to $9.69 in the prior year. Reported EPS in the quarter included 24 cents of purchase intangible amortization, 20 cents of restructuring costs, a nine cent tax benefit from the timing of option exercises that was screwed up in Q4, and a one-time non-cash discrete tax benefit of $1.07. The next slide illustrates our year-to-date results. Local currency sales declined by 1% for the six-month period.

Shawn Vadala: Fully diluted shares amounted to 24 point...

Shawn Vadala: $21.4 million, which is approximately a 3% decline from the prior year.

Shawn Vadala: Adjusted EPS for the quarter was $9.65, a 5% decrease over the prior year, or a 3% decrease excluding unfavorable foreign currencies.

Shawn Vadala: On a reported basis in the quarter, EPS was $10.37 as compared to $9.69 in the prior year.

Shawn Vadala: Reported EPS in the quarter included $0.24 of purchased intangible amortization.

Shawn Vadala: 20 cents of restructuring costs, a 9 cent tax benefit from the timing of option exercises that is screwed up in Q4, and the one-time non-cash discrete tax benefit of $1.07.

Shawn Vadala: The next slide illustrates our year-to-date results. Local currency sales declined 1% for the six-month period. Adjusted operating income decreased 4%, or 1%, excluding unfavorable foreign currency. And our operating margin contracted 60 basis points.

Shawn Vadala: Adjusted operating income decreased 4% or 1%, excluding unfavorable foreign currency, and our operating margin contracted 60 basis points. Adjusted EPS declined 2% on a year-to-date basis or grew 1% excluding unfavorable currency. That covers the P&L, and now I will comment on cash flow. Adjusted free cash flow amounted to $433.4 million on a year-to-date basis, a 13% increase on a per share basis from prior year levels due to favorable working capital. DSO was 37 days, while ITO was four times.

Shawn Vadala: Adjusted EPS declined 2% on a year-to-date basis or grew 1% excluding unfavorable currency.

Shawn Vadala: That covers the P&L, and let me now comment on cash flow.

Shawn Vadala: Adjusted free cash flow amounted to $433.4 million on a year-to-date basis.

Shawn Vadala: A 13% increase on a per share basis from prior year levels due to favorable working capital. DSO is 37 days while ITO is 4 times.

Shawn Vadala: Let me now turn to our guidance for the third quarter and the full year. As you review our guidance, please keep in mind the following factors. Market conditions are soft, especially in China. While we are not seeing a negative change in market conditions, we're also not seeing a significant improvement. We believe we are well positioned to capture growth opportunities through our Spinnaker sales and marketing program, as well as our innovation, which includes several product launches, which we discussed last quarter.

Shawn Vadala: Let me now turn to our guidance for the third quarter and the full year. As you review our guidance, please keep in mind the following factors. Market conditions are soft, especially in China.

Speaker Change: While we are not seeing a negative change in market conditions, we are also not seeing a significant improvement.

Speaker Change: We believe we are well positioned to capture growth opportunities through our Spinnaker sales and marketing program, as well as our innovation, which includes several product launches, which we discussed last quarter.

Shawn Vadala: We continue to execute very well on our margin expansion, productivity, and cost savings initiatives. And, as previously mentioned, we will start to benefit from easier prior-year comparisons during the second half of the year. Lastly, as you update your models, keep in mind our 2025 results will face a sales headwind of approximately one and a half percent as we recapture delayed shipments in 2024 from 2023. Now, turning to our guidance. For the third quarter of 2024, we expect local currency sales to grow by approximately 1%. We expect adjusted EPS to be in the range of $9.90 to $10.05.

Speaker Change: We continue to execute very well on our margin expansion, productivity, and cost savings initiatives.

Speaker Change: And as previously mentioned, we will start to benefit from easier prior year comparisons during the second half of the year.

Speaker Change: Lastly, as you update your models, keep in mind our 2025 results will face a sales headwind of approximately 1.5% as we recapture delayed shipments in 2024 from 2023.

Speaker Change: Now turning to our guidance. For the third quarter of 2024, we expect local currency sales to grow by approximately 1%. We expect adjusted EPS to be in the range of $9.90 to $10.05.

Shawn Vadala: Currency for the quarter at recent spot rates would be an approximate 1% headwind to third-quarter sales and adjusted EPS. For the full year of 2024, we expect local currency sales to grow approximately 2%, unchanged from our previous guidance. We expect full-year adjusted EPS to be in the range of $40.20 to $40.50, which compares to our prior guidance of $39.90 to $40.40. This includes an expected headwind of sales of 1% and adjusted EPS growth of approximately 2% from unfavorable foreign exchange.

Speaker Change: Currency for the quarter at recent spot rates would be an approximate 1% headwind to the third quarter sales and adjusted EPS.

Speaker Change: For the full year of 2024, we expect local currency sales to grow approximately 2%, unchanged from our previous guidance.

Speaker Change: We expect full year adjusted EPS to be in the range of $40.20 to $40.50, which compares to our prior guidance of $39.90 to $40.40.

Speaker Change: This includes an expected headwind of sales of 1% and adjusted EPS growth of approximately 2% from unfavorable foreign exchange.

Shawn Vadala: Lastly, I'd like to share a few other details on our 2024 guidance to help you as you update your models. We expect total amortization, including purchased intangible amortization, to be approximately $73 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $26 million on a pre-tax basis or $0.95 per share.

Speaker Change: Lastly, I'd like to share a few other details on our 2024 guidance to help you as you update your models.

Speaker Change: We expect total amortization, including purchased intangible amortization, to be approximately $73 million.

Speaker Change: Purchased intangible amortization is excluded from adjusted EPS and is estimated at $26 million on a pre-tax basis or $0.95 per share.

Patrick Kaltenbach: Interest expenses are forecast at $78 million for the year, and other income is estimated at approximately $4 million. We expect our tax rate before discrete items will remain at 19% in 2024. We expect adjusted free cash flow of approximately $850 million, representing a conversion of approximately 100% of adjusted net income. We continue to expect share repurchases of approximately $850 million in 2024. That's it for my side, and I'll turn it back to Patrick.

Speaker Change: Interest expenses forecast at $78 million for the year and other income is estimated at approximately $4 million.

Speaker Change: We expect our tax rate before discrete items will remain at 19% in 2024.

Speaker Change: We expect adjusted free cash flow of approximately $850 million, representing a conversion of approximately 100% of adjusted net income.

Speaker Change: We continue to expect share repurchases of approximately $850 million in 2024. That's it for my side, and I'll turn it back to Patrick.

Patrick Kaltenbach: Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, which grew approximately 1% compared to last year. We had good growth across most of the portfolio, especially in Europe, and we also had good growth in the Americas. We continue to benefit from our refreshed portfolio of innovative solutions in our Spinnaker sales and marketing program, as well as our diversity across end markets and applications. Our industrial sales for the quarter were in line with our expectations and were down 5%, with sales growth in Europe offset by a significant sales decline in China.

Patrick Kaltenbach: Thanks, Shawn.

Patrick Kaltenbach: Let me start with some comments on our operating businesses, starting with Lab, which grew approximately 1% compared to last year. We had good growth across most of the portfolio, especially in Europe , and we also had good growth in the Americas.

Speaker Change: We continue to benefit from our refreshed portfolio of innovative solutions in our Spindacle sales and marketing program, as well as our diversity across end markets and applications.

Speaker Change: Our industrial sales for the quarter were in line with our expectations and were down 5% with sales growth in Europe offset by a significant sales decline in China.

Patrick Kaltenbach: Product inspection sales were up 3% on good results in both Europe and the Americas, although market conditions with food manufacturing customers are still challenging. We have also seen very good demand for our x-ray inspection technologies, which have benefited from recent innovation. Lastly, fruit retail sales declined in line with our expectations against significant project-driven sales growth in the second quarter last year.

Speaker Change: Product inspection sales were up 3% on good results in both Europe and the Americas, although market conditions with food manufacturing customers are still challenging.

Speaker Change: We have also seen very good demand for our x-ray inspection technologies, which has benefited from recent innovations.

Speaker Change: Lastly, food retail sales declined in line with our expectations against significant project-driven sales growth in the second quarter last year.

Patrick Kaltenbach: Now, let me make some additional comments about geography. Starting in the Americas, our sales grew 2% in the quarter with good growth across lab and product inspection, while retail declined against significant growth in the prior year. Our results were a bit better than expected, and while we observed longer customer purchasing cycles, we see good customer engagement and feel that our team is competing very well. Safe in Europe, we were better than expected and grew about 6% in the quarter.

Speaker Change: Now, let me make some additional comments about geography.

Speaker Change: Starting in the Americas, our sales grew 2% in the quarter with good growth across lab and product inspection, while retail declined against significant growth in the U.S.

Speaker Change: in the prior years.

Speaker Change: Our results were a bit better than expected, and while we observed longer customer purchasing cycles, we see good customer engagement and feel that our team is competing very well.

Speaker Change: Sales in Europe were better than expected.

Patrick Kaltenbach: Our results included very good growth from both laboratory and industrial. Our teams continue to compete extremely well, considering challenging economic conditions, and they're doing an excellent job leveraging our updated portfolio of innovative products. Additionally, in Europe, we have the highest proportion of sales through our own direct sales force.

Speaker Change: and grew about 6% in the quarter.

Speaker Change: Our results included very good growth from both laboratory and industrial.

Speaker Change: Our teams continue to compete extremely well considering challenging economic conditions and are doing an excellent job leveraging our updated portfolio of innovative products.

Speaker Change: Additionally, in Europe we have the highest proportion of sales through our own direct sales force.

Patrick Kaltenbach: And they have shown excellent execution in leveraging our spinning of sales and marketing program to achieve these results. Lastly, our Asia and rest of the world results were in line with our expectations and included the significant sales decline in China as expected. We continue to see soft demand from most end markets in China, but we still expect to return to sales growth in the second half due to much easier year-ago comparisons.

Speaker Change: And they have shown excellent execution in leveraging our spinning of sales and marketing program to achieve these results.

Speaker Change: Lastly, our Asia and rest of the world results were in line with our expectations and included a significant sales decline in China as expected.

Speaker Change: We continue to see soft demand from most end markets in China, but we still expect to return to sales growth in the second half due to much easier year-ago comparisons.

Patrick Kaltenbach: Our China team remains agile and has implemented advanced customer mapping and database enrichment to identify potential sales opportunities as they arise. As we have mentioned in the past, trends in China can change quickly, and our team remains ready to take advantage of growth opportunities. One final comment on our quarterly results. We continue to see very good growth in service across most business areas and regions. Our service business grew 6% this quarter, which was on top of double-digit growth in the previous year.

Speaker Change: Our China team remains agile and has implemented advanced customer mapping and database enrichment.

Speaker Change: to identify potential sales opportunities as they arise.

Speaker Change: As we have mentioned in the past, trends in China can change quickly, and our team remains ready to take advantage of growth opportunities.

Speaker Change: One final comment on our quarterly results.

Speaker Change: We continue to see very good growth with service across most business areas and regions.

Speaker Change: Our service business grew 6% this quarter, which was on top of double-digit growth in the previous year.

Patrick Kaltenbach: Those are all my comments on the business for the quarter, and now I would like to share a few additional insights on how we are strengthening our business to continue to gain market share and emerge from the market downturn in an even stronger position. Fellas, it's you.

Speaker Change: Those are all my comments on the business for the quarter, and now I would like to share a few additional insights on how we are strengthening our business to continue to gain market share and emerge from the market downturn in an even stronger position.

Patrick Kaltenbach: We shared with you how we are rolling out the next wave of various corporate programs, such as our sales and marketing excellence program, Spinnacle Six, and the sophisticated data analytics being implemented to support our enhanced program. An important enabler of this initiative is our Blue Ocean Program, which is our global process harmonization initiative, all built on a single instance of SAP. We have invested in this initiative for over 15 years, harmonizing and centralizing processes that touch all aspects of our business.

Speaker Change: Hello this year.

Speaker Change: We shared with you how we are rolling out the next wave of various corporate programs such as our sales and marketing excellence program, Spinnaker 6.

Speaker Change: and the sophisticated data analytics being implemented to support our enhanced program.

Speaker Change: An important enabler of this initiative is our Blue Ocean Program, which is our global process harmonization initiative, all built on a single instance of SAP.

Speaker Change: We have invested in this initiative for over 15 years, harmonizing and centralizing processes that touch all elements of our business.

Patrick Kaltenbach: From sales and marketing to service, our supply chain, product development, and our finance, HR, and other administration functions. With Blue Ocean, we have been able to harness the significant diversity and complexity of our business and turn it into a very powerful competitive advantage that many smaller private companies in our industry cannot match. Blue Ocean provides us with valuable real-time business intelligence insights, allowing us to react quickly to changes in the business and operating environment.

Speaker Change: From sales and marketing to service, our supply chain, product development, and our finance, HR, and other administration functions.

Speaker Change: With Blue Ocean, we have been able to harness the significant diversity and complexity of our business and turn it into a very powerful competitive advantage that many smaller private companies in our industry cannot match.

Speaker Change: Blue Ocean provides us with valuable real-time business intelligence insights, allowing us to react quickly to changes in the business and operating environment.

Patrick Kaltenbach: We have implemented advanced dashboards to ensure real-time reporting of KPIs across our business, and are leveraging advanced software solutions to make better decisions faster. Our digitalization efforts have been a source of productivity improvements, with much more ahead of us that will allow us to automate many manual activities, creating seamless end-to-end processes with meaningful productivity benefits. Blue Ocean has also enabled global shared service centers that drive process excellence, quality, and productivity. In recent years, we have improved our Blue Ocean template to add new features and functionality, including adding e-Shops, advanced procurement solutions, and sophisticated service pricing analytics.

Speaker Change: We have implemented advanced dashboards to ensure real-time reporting of KPIs across our business and are leveraging advanced software solutions to make better decisions faster.

Speaker Change: Our digitalization efforts have been a source of productivity improvements.

Speaker Change: with much more ahead of us that will allow us to automate many manual activities, creating seamless end-to-end processes with meaningful productivity benefits.

Speaker Change: Blue Ocean has also enabled global shared service centers that drive process excellence, quality, and productivity.

Speaker Change: In recent years, we have improved our Blue Ocean template to add new features and functionality, including adding eShops, advanced procurement solutions, and sophisticated service pricing analytics.

Patrick Kaltenbach: A great example of this enhanced functionality is service technician scheduling, which can be a very complicated manual task. There are several factors to be taken into consideration when scheduling the assignments, such as customer location, number of devices, age of the devices, and type of service. By using advanced analytics and machine learning models to predict durations, we have been able to automate or semi-automate this process and then also apply enhanced real-time traffic imaging to outline the best route.

Speaker Change: A great example of this enhanced functionality is service technician scheduling, which can be a very complicated manual task.

Speaker Change: There are several factors to be taken into consideration when scheduling the assignments, such as customer location, number of devices, age of the devices, and the type of service.

Speaker Change: By using advanced analytics and machine learning models to predict durations, we have been able to automate or semi-automate this process and then also apply enhanced real-time traffic imaging to outline the best routes.

Patrick Kaltenbach: Now that we have rolled out Blue Ocean to nearly all of our entire organization, we have a strong foundation to push new capabilities out into the entire organization at a rapid pace. Blue Ocean is the backbone, supporting the next wave of several corporate programs, including our new Spinnaker 6 sales and marketing initiative. This includes the rollout of an advanced version of our Top-K program, which are targeted investment alerts we create by using sophisticated data analytics to scan our internal CRM and external databases to identify new growth opportunities. In the past, these alerts were manually qualified, and static reports were generated for our sales team in one or two releases per year.

Speaker Change: Now that we have rolled out BlueOcean to nearly all of our entire organization,

Speaker Change: We have a strong foundation to push new capabilities out into the entire organization at a rapid pace.

Speaker Change: Blue Ocean is the backbone supporting the next wave of several corporate programs, including our new Spinnaker 6 sales and marketing initiative.

Speaker Change: This includes the rollout of an advanced version of our Top-K program, which are targeted investment alerts we create by using sophisticated data analytics to scan our internal CRM and external databases to identify new growth opportunities.

Speaker Change: In the past, these alerts were manually qualified, and static reports were generated for our sales team in one or two releases per year.

Patrick Kaltenbach: Today, our team is integrating advanced software solutions to automatically qualify and feed these leads real-time into our CRM for much quicker response by our sales team. This also enables faster generation of cross-lead opportunities across our business units. Additionally, customers utilizing our customer portal today are offered standardized purchase recommendations based on items in their cart.

Speaker Change: Today, our team is integrating advanced software solutions to automatically qualify and feed these leads real-time into our CRM for much quicker response by our sales teams.

Speaker Change: This also enables faster generation of cross-lead opportunities across our business units.

Speaker Change: Additionally, customers utilizing our customer portal today are offered standardized purchase recommendations based on items in their cart.

Patrick Kaltenbach: In the near future, these recommendations will be tailored to an individual customer's current installed base and application requirements, enabling more personalized suggestions. We are also expanding our capability for self-service, which today includes the ability to access calibration certificates, or request service, or remote diagnostics and remote service. And in the future, our platform will support new business models around consumables reordering and preventative maintenance and support the rollout of our advanced cloud-based software solution. Overall, Blue Ocean has been a long journey, starting from a goal to consolidate roughly 70 different ERP systems into one standardized global business system.

Speaker Change: In the near future, these recommendations will be tailored to an individual customer's current install base and application requirements, enabling more personalized suggestions.

Speaker Change: We are also expanding our capability for self-service, which today includes the ability to access calibration certificates or request service, or remote diagnostics and remote service.

Speaker Change: And in the future, our platform will support new business models around consumables reordering and preventative maintenance and supports the rollout of our advanced cloud-based software solutions.

Speaker Change: Overall, Blue Ocean has been a long journey, starting from a goal to consolidate roughly 70 different ERP systems into one standardized global business system.

Patrick Kaltenbach: From there, we have expanded the project to support new features, business models, and advanced productivity initiatives around automation across the company. As we look to the future, Blue Ocean is at the core of enabling new sales growth and margin expansion opportunities we have today. It makes us more agile and supports fast digital innovation as our central implementation allows new ideas and digital business models to be scaled globally at a rapid pace.

Speaker Change: From there, we have expanded the project to support new features, business models, and advanced productivity initiatives around automation across the company.

Speaker Change: As we look to the future, Blue Ocean is at the core of enabling new sales growth and margin expansion opportunities we have today.

Speaker Change: It makes us more agile and supports fast digital innovation as our central implementation allows new ideas and digital business models to be scaled globally at a rapid pace.

Patrick Kaltenbach: It provides real-time visibility across the entire value chain and our business units globally to support data-driven decision-making and reallocation of resources. Significant productivity gains are enabled with bots and AI-supported automation, and it allows for optimization of our global IT footprint with scaled cybersecurity, global applications, and lifecycle management.

Speaker Change: It provides real-time visibility across the entire value chain and our business units globally to support data-driven decision-making and reallocation of resources.

Speaker Change: Significant productivity gains are enabled with bots and AI-supported automation, and it allows for optimization of our global IT footprint with scaled cybersecurity, global applications, and lifecycle management.

Operator: Finally, it is a platform to provide value to our customers, which includes connecting to our digital products and service offering while enhancing their MT experience. And as I mentioned earlier, these capabilities are a powerful competitive advantage that many in our industry do not have the ability or resources available to replicate. Now this concludes our prepared remarks. Operator, I'd now like to open the line for questions. Thank you for the presentation. And at this time, I would like to remind everyone that in order to ask a question, please press star, then the number one on your telephone keypad to raise your hand and join the conversation. So please ensure you unmute your device when you are called upon to ask your question. Your first question comes from the line of Dan Arias from STIFO.

Speaker Change: Finally, it is a platform to provide value to our customers, which includes connecting to our digital products and service offering while enhancing their MT experience.

Speaker Change: And as I mentioned earlier, these capabilities are a powerful competitive advantage that many in our industry do not have the ability or resources available to replicate.

Speaker Change: Now this concludes our prepared remarks.

Speaker Change: Operator, I'd now like to open the line for questions.

Speaker Change: Thank you for the presentation. And at this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad to raise your hand and join the queue. To please ensure you unmute your device when called upon to ask your questions.

Speaker Change: And your first question comes from the line of Dan Arias from STIFO. Please go ahead.

Dan Arias: Please go ahead. Good morning, guys. Thanks for the questions. Donner, Patrick, Europe seems to be doing pretty nicely right now, especially given some of the macro conditions that exist in some of those countries. What do you think is driving that, and what do you think is making the biggest difference between that region and the Americas when it comes to revenue performance and growth? Thanks, and good morning again.

Dan Arias: Good morning, guys. Thanks for the questions here. Dawn or Patrick, Europe seems to be doing pretty nicely right now, especially given some of the macro conditions that exist in some of those countries. What do you think is driving that and what do you think is making the biggest difference between that region and the Americas when it comes to revenue performance and growth?

Patrick Kaltenbach: Yes, we are very happy with our position in Europe and how well our team competes there. I mean, a lot of the success is based, as we also may have said in our earlier remarks, that a lot of our sales in Europe are through our direct sales channel. And we are competing very effectively with our spinnaker sales and marketing tools and how we direct our sales force. On top of that, we have launched a lot of new products over the last two years, and with these platforms, we compete very effectively in Europe.

Speaker Change: Yeah, that's healthy. Thanks, and good morning, Jane.

Speaker Change: Yes, we are very happy with our position in Europe and how well our team competes there. I mean, a lot of the success is based, as the ultimate said in our earlier remarks, that a lot of our...

Speaker Change: Sales team in Europe is through our direct sales channel, and we are competing very effectively with our spinnaker sales and marketing tools on how we direct our sales force.

Speaker Change: On top of that...

Speaker Change: We have launched a lot of new products over the last two years and with these platforms we compete very effectively in Europe . I would say the customers in Europe really appreciate the innovation. We see that also in comparison to many other players in the market and we are really happy with the results.

Patrick Kaltenbach: I would say the customers in Europe really appreciate the innovation. We see that also in comparison to many other players in the market, and we are really happy with where we are with these results. As you know, at the beginning of the year, we were more concerned about Europe given the impact of the Ukraine War, etc.

Speaker Change: where we are with these results. As you know, in the beginning of the year, we were more concerned about Europe given the impact of...

Speaker Change: of the Ukraine War, etc., but we are now seeing that...

Patrick Kaltenbach: But we are now seeing that we are competing well, especially with our lab portfolio. And as we highlighted also in the last quarter before the release of our new Lab Adamses portfolio, that is really responding extremely well with our customers. Okay, helpful.

Speaker Change: that we are competing well, especially with our lab portfolio. And as we highlighted also in the last quarter before the release of our new Lab Adamses portfolio, that is really resonating extremely well with our customers.

Patrick Kaltenbach: And then maybe on China, the message here sounds pretty similar to last quarter's demand still weak, hope for growth in the back half, but mostly just because of the year over year comparisons and how those. Can you just expand on the extent to which business conditions have changed at all? And if they have, what do you think that might mean for the year? I assume the outlook is still for a decline in hot singles, but curious if the potential for something slightly different one way or another has increased. And then it would just be great to get your updated thoughts on. Yes, correct. Yeah. Thanks, Daniel.

Speaker Change: Okay, helpful. And then maybe on China, the message here sounds pretty similar to last quarter demand still weak hope for growth in the back half, but mostly just because of the year over year compares and how those change.

Speaker Change: Can you just expand on the extent to which business conditions have changed at all? And if they have, what do you think that might mean for the year? I assume the outlook is still for a high singles decline, but curious if the...

Speaker Change: If the potential for something slightly different one way or another has increased and then it would just be great to get your updated thoughts on on stimulus from here just

Patrick Kaltenbach: And yeah, I mean, China is unfolding as we expected in Q2. That said, you also have, I want to remind you that we still had positive growth in the second quarter last year. When we look at the end markets, demand has been soft across all of our end markets. There's not a single market I would point out here at this point in time. And given that softness, we also think we want to maintain our guidance for the rest of the year. As rightfully said, we expect high single interest decline for the full year.

Speaker Change: and Health.

Speaker Change: Yes, correct. Yeah.

Speaker Change: Thanks, Daniel. And yeah, I mean, China is, as you said, unfolded as we expected in Q2. That said, I want to remind you that we still had positive growth in the second quarter last year. When you look at the end markets, it has been soft across

Speaker Change: All of the land markets. There's not a single market I would point out here at this point in time.

Speaker Change: And given that softness, we also think we want to maintain our guidance for the rest of the year. As you rightfully said, we expect high single digits decline for the full year. That said, it means also that we will see positive growth in the second half.

Patrick Kaltenbach: That said, it also means that we will see positive growth in the second half, and it's based on easier comparisons. I would say, when you asked about the stimulus program, we have not yet seen the impact of the stimulus. I mean, what we hear is that the stimulus this time is different from the stimulus that was launched probably last year or the years before. This one seems to be much more focused. I think the Chinese government called it focused on high quality segments, aiming at segments of AI, new energy, biopharma, and new materials.

Speaker Change: That's based on easier compares.

Speaker Change: I would say, when you asked about the stimulus program, we have not yet seen the impact of the stimulus. I mean, what we hear is...

Speaker Change: [inaudible]

Speaker Change: [inaudible]

Patrick Kaltenbach: And our teams are working very closely with our customers to also help them prepare for the applications. We have prepared the bundles that they can basically also apply to these applications. We have not built in any effect of the stimulus in our guidance for Q3 and Q4.

Speaker Change: to these applications. We have not built in any effect of the stimulus in our guidance for Q3 and Q4. We think that will be mainly a 2025 topic.

Patrick Kaltenbach: We think that will be mainly a 2025 topic. Okay, thanks a bunch. Your next question comes from the line of Rachel Vattenstahl from JP Morgan. Please go ahead.

Speaker Change: Got it. Okay. Thanks, Patrick.

Speaker Change: Your next question comes from the line of Rachel Vattenstahl from JP Morgan, please go ahead.

Rachel Olson: Perfect, thanks. I just want to dig first into core industrial, which was down 9% in the quarter. I think you guys have pointed us towards high single-digit declines. So can you just unpack that for us a little bit?

Rachel Vattenstahl: Perfect. Thanks. I just want to dig first in core industrial. That was down 9% in the quarter. I think you guys have pointed us towards high single-digit declines.

Shawn Vadala: How did that trend, were exit rates into June and July any better than kind of what you started off in the quarter? And then also, can you just walk us through segment expectations for core industrial for the rest of the year? How should we think about 3Q and then the full year as, Yeah, hey, Rachel, this is Shawn. I'll take that one.

Rachel Vattenstahl: So can you just unpack that for us a little bit? How did that trend, were exit rates into June and July any better than kind of what you started off in the quarter? And then also, can you just walk us through segment expectations for core industrial for the rest of the year? How should we think about 3Q and then the full year as well?

Shawn Vadala: So, like you said, I think the division can't kind of came in pretty much similar to how we expected, being down 9%. I think a key thing to remember in industrial is that it's very disproportionately weighted by China versus our other product categories. So we did see the industrial business down very significantly in the quarter, kind of similar to the lab business.

Rachel Vattenstahl: Yeah, hey Rachel, this is Shawn, I'll take that one. So, like you said, I think the, you know, the division kind of came in pretty much...

Speaker Change: Similar to how we expected being down 9%. I think a key thing to remember in industrial is that it's...

Speaker Change: very disproportionately weighted by China versus our other product categories.

Speaker Change: So we did see the industrial business down very significantly in the quarter.

Speaker Change: It's kind of similar to the lab business, as Patrick mentioned, we saw the downturn in China in the quarter, pretty similar across both.

Shawn Vadala: As Patrick mentioned, we saw the downturn in China in the quarter pretty similar across both product categories. When we kind of look outside of China, you know, we did see, you know, of course, better activity; we see, you know, sometimes differentiated performance, depending on, as you said, the segments of the market. Certainly, where we see companies that focus on automation and digitalization and process control, we, we clearly are seeing better opportunities in those segments. You know, there are other aspects of the economy that I think are a little softer at the moment. But I think our teams have been very resilient here.

Speaker Change: Product Categories.

Speaker Change: When we kind of look outside of China, you know, we did see, you know, of course, better activity. We see, you know, sometimes differentiated performance, depending on, like you said, the segments of the market, you know, certainly where we see companies that focus on automation and digitalization and process control, we clearly are seeing better opportunities in those segments.

Speaker Change: You know, there are other aspects of the economy that I think are a little softer at the moment. But I think our teams have been very resilient here. I think our portfolio is very strong and robust.

Shawn Vadala: I think our portfolio is very strong and robust. And I think our go-to-market strategy with our Spinnaker program continues to be really a differentiator in the industrial areas. We've been able to target, you know, specific opportunities in the market. And as we kind of, step back from the business, one of the things I think is most exciting is that I think a lot of the discussions around reshoring and nearshoring opportunities are still yet to come. And so I think, you know, as we kind of look to the future, we're a little bit more optimistic here. Perfect.

Speaker Change: And I think our go-to-market strategy with our Spinnaker program continues to be really a differentiator in the industrial areas we've been able to target.

Speaker Change: Um, you know, specific opportunities in the market. And this we kind of like

Speaker Change: Step back from the business. One of the things I think is most exciting is I think a lot of the discussions around reshoring and nearshoring opportunities are still yet to come. And so I think as we kind of look to the future, we're a little bit more optimistic here.

Shawn Vadala: And then just my follow-up question, can you just walk us through segment level and geography expectations for 3Q and the full year as well? Yeah, sure. So hey, maybe I'll, I'll kind of run it down from the top here with the products. So our laboratory business, our guidance for Q3 is up low single digit. And for the full year, it would be up low single digit to up mid single digit.

Speaker Change: Perfect and then just my follow-up can you just walk us through segment level and geography expectations for 3Q in the full year as well?

Speaker Change: Yeah, sure. So, hey, maybe I'll, uh, I'll kind of run it down from the top here with the products.

Speaker Change: So, our laboratory business, our guidance for Q3 is up low single digit, and for the full year it would be up low single digit to up mid-single digit.

Shawn Vadala: Our product inspection business would be up mid single digit for the third quarter and for the full year up low single digit. Our core industrial business would be up low single digit for Q3 and flat for the full year. And our retail business would be down in the mid 20s for Q3 and down double digits, which is a little bit of a decline from how we were thinking last quarter for the full year. By geography, we expect the Americas to be flat in Q3 and up a low single digit for the full year.

Speaker Change: Our product inspection business would be up mid-single-digit for the third quarter and for the full year up low-single-digit. Our core industrial business would be up low-single-digit for Q3.

Speaker Change: flat for the full year. And our retail business would be down in the mid 20s for Q3 and down double digit, which is a little bit of a decline from how we were thinking last quarter for the full year.

Speaker Change: By geography, we expect the Americas to be flat in Q3.

Speaker Change: and up low single-digit for the full year.

Shawn Vadala: We expect Europe to be down slightly in Q3 and up mid single digits for the full year. And we expect China to be up low single digits in Q3. And as we said before, down high single digits for the full year. Your next question is from the line of Vijay Kumar from EFICOL. Please go ahead. Hey guys, congrats on this execution here. I had two guidance-related questions. One on that third quarter.

Speaker Change: We expect Europe to be down slightly in Q3 and up mid-single-digit for the full year. And we expect China to be up low-single-digit in Q3 and, as we said before, down high-single-digit for the full year.

Speaker Change: Your next question is from the line of Vijay Kumar from Epicor, please go ahead.

Vijay Kumar: Maybe, Shawn, for you, your comps get 700 basis points easier, right? The 1% seems a little light. Curious on the thought process for 3Q. Yeah, hey, Vijay.

Vijay Kumar: Hey guys, uh, congrats on the MESA execution here.

Vijay Kumar: I had two guidance-related questions. One, on that third quarter, maybe, Shawn, for you, your comps get 700 basis points easier, right? The 1% seems a little light. Curious on the thought process for 3Q.

Shawn Vadala: You know, hey, we felt very good about our performance in the second quarter. We did, we did better than expected. And, you know, we're not necessarily, we're not seeing any negative changes in the business. But I acknowledge that we continue to be a little cautious here because there still are a lot of uncertainties in the macro. You know, we also saw the PMI numbers the other day.

Speaker Change: Yeah, hey, Vijay, um, you know, hey, we, we felt very good about our performance in the second quarter, you know, we did, we did do better than expected.

Speaker Change: And, you know, we're not seeing any negative changes in the business, but I acknowledge we continue to be a little cautious here. There still are a lot of uncertainties in the macro. You know, we also saw the PMI numbers the other day, you know, in our end markets, you know, we still see longer sales cycles. But you know, the other side of that is we do feel like we're competing really well.

Shawn Vadala: You know, in our end markets, we still see longer sales cycles. But the other side of that is, we do feel like we're competing really well. You know, and I think we are continuing to take a little bit of market share each quarter; these new products have been very well received in the market, from what we can see from some initial results. But, you know, nonetheless, there's still some uncertainty.

Speaker Change: You know, and I think, you know, we are continuing to take a little bit of market share each quarter. These new products have been very well-received in the market from what we can...

Speaker Change: See from some initial results, but you know, but nonetheless, there's still some uncertainty and you know, we, as you know, we typically only have about one and a half months of backlog. So, you know, we'd like to just kind of get through another quarter here and then and then have a little bit more visibility as we kind of get into the end of the year.

Shawn Vadala: And, you know, we typically only have about one and a half months of backlog. So, you know, we'd like to just kind of get through another quarter here, and then we can have a little bit more visibility as we kind of get into the end of the year. Okay. And Patrick, maybe one for you on if you look at second order performance, pretty impressive on the operational side, you know, BPS by 60 cents. I think the guide raise was at the midpoint, maybe 20 cents.

Patrick Kaltenbach: Patrick, maybe one for you on, if you look at second quarter performance, you know, pretty impressive on the operational side, you know, beat EPS by 60 cents. I think guide raise was at the midpoint maybe 20 cents.

Patrick Kaltenbach: So, Juan, was the guide, you know, back half assumptions, did it temper down a little bit? I know Shawn mentioned PMI, but, you know, your business changes us quite a bit, your exposure to PMI is far less. So maybe just comment on your back half, how you're looking at it, any change versus, you know, three months. Okay, very good question.

Juan: So Warren, was the guide in the back half assumptions, did it temper down a little bit? I know Shawn mentioned PMIs.

Patrick Kaltenbach: But, you know, your business makes us change quite a bit, you know, your exposure to PMI is far lesser. So maybe just comment on your back half, how you're looking at it, any change versus, you know, three months ago.

Patrick Kaltenbach: And I think we try to say it also in prepared remarks, we don't see a change from what we told you in Q2, to be honest. I mean, the markets, and the performance of the end markets have almost rolled out as we expected them. And we also seeded for the remainder of the year.

Warren: Go look at

Warren: It's a very good question and I think we've...

Speaker Change: If you try to say it also in a prepared remarks, we don't see a change from what we have told you in Q2, to be honest. I mean, the markets...

Speaker Change: The performance of the end market is the foremost role.

Patrick Kaltenbach: Yes, we're very proud of the fact that we beat Q2, both on the top and even more on the bottom line. You're right, I mean, our exposure to the PMI and markets is probably a little less, but we also need to see, again, more momentum in pharma and biopharma moving forward to really benefit even stronger from our strong portfolio. We're taking, as Shawn said, we're taking, of course, a bit of a cautious stance here to make sure that we also can live up to what we told you for the full year.

Speaker Change: [inaudible]

Speaker Change: BeatQ2

Speaker Change: [inaudible]

Speaker Change: There's probably a little less, but we also need to see, again, more momentum in pharma and biopharma moving forward to really benefit.

Speaker Change: Uh even stronger from our strong portfolio. We are taking as Shawn said

Speaker Change: We're taking, of course, a bit of a cautious stance here to make sure that we also can live up to what we told you for the full year. We've been maintaining the outlook for the full year. We are pretty confident in 2% growth for the full year, but we need a little bit more visibility moving forward, to be honest.

Patrick Kaltenbach: We've been maintaining the outlook for the full year. We are pretty confident in 2% growth for the full year, but we need a little bit more visibility moving forward, to be honest. Our sales team and the engagement we are seeing from our sales team with customers is excellent. We have a lot of good leads, but sales cycles still take longer. And customers are still also living through an uncertain market environment, especially in China, where customers are really cautious about spending until they have better guidance also from the government on the path forward.

Speaker Change: Our sales team and the engagement we are seeing of our sales team with customers is excellent.

Speaker Change: We have a lot of good leads, but sales cycles still take longer, and customers are still also living through an uncertain market environment, especially in China, where customers are really

Speaker Change: Cautious with spending until they have better guidance from the government.

Patrick Kaltenbach: But also in the rest of the world, in some of the areas where we see, for example, larger pharma accounts with a bit better momentum, we see that smaller pharmaceutical accounts and biotech accounts are still under pressure given the high interest rates.

Speaker Change: on the path forward.

Speaker Change: But also in the rest of the world, in some of the areas where we see, for example, larger pharma accounts, a bit better momentum, we see that, you know, smaller pharmaceutical accounts and biotech accounts are still under pressure given the high interest rates.

Patrick Kaltenbach: So if you sum all of that up, I think we're still where we were about a quarter ago in terms of market dynamics. We think it didn't get worse, but we are still looking forward to seeing better momentum, to be honest, to change our guidance. And at the moment, I think we are really well positioned with the 2% guidance for the full year on this trip. Thank you guys. Your next question is from the line of Jack Meehan from Nefron. Please go ahead, you, and good morning.

Speaker Change: So if you sum all of that up, I think we are...

Speaker Change: We're still where we have been about a quarter ago in terms of market dynamics.

Speaker Change: We think it didn't get worse, but we also...

Speaker Change: We still are looking forward to see better momentum, to be honest, to change our guidance. At the moment, I think we are really well positioned with the 2% guidance for the full year.

Speaker Change: Thank you, guys.

Speaker Change: Your next question is from the line of Jack Meehan from Nefron. Please go ahead.

Jack Meehan: Wanted to start asking about China again. I was wondering if you could provide color about what you're seeing across customer classes like pharma, biotech, academic, and industrial, and whether any of the regional dynamics are different across Yeah, well, I mean, especially in Q2, again, we haven't seen a huge difference between the different market segments or end customers. They all have been pretty much at the same level, with a few percent up and down. I want to remind you that, again, our end markets or end customers in China are, about 60% or more than 60% are local companies, about 15% are multinationals, and about 25% are government-owned companies.

Jack Meehan: Thank you and good morning.

Jack Meehan: Wanted to start, ask about China again. I was wondering if you could provide color about what you're seeing across customer classes like pharma biotech, academic versus industrial, and whether any of the regional dynamics are different across those.

Speaker Change: Yeah, well, I mean, especially on Q2, again...

Speaker Change: We have seen not a huge difference between the different market segments or end customers. They all have been pretty much down the same level with a few percent up and down. I want to remind you that again our end markets or end customers in China, about 60% or more than 60% are local companies.

Speaker Change: About 15% are multinationals and about 25% is government state-owned companies.

Patrick Kaltenbach: But within that segment and also the underlying end markets, whether it's industrial or pharma, there isn't a big difference. As I said in my earlier remark here, there is, again, a lot of cautiousness in the end market. The customers really want to see how the government stimulus plays out, and they need to have more confidence before they invest more. I think we are competing very effectively with our portfolio in China. Our local China team is very well connected to our customers. As I said, they are preparing or helping our customers prepare for the stimulus application, et cetera. We set up specific bundles.

Speaker Change: [inaudible]

Speaker Change: A lot of big difference, as I said in my earlier remark here is

Speaker Change: There is, again, a lot of cautiousness in the end market. The customers really want to see how, you know, the government stimulus...

Speaker Change: plays out and they need to have more confidence.

Speaker Change: uh, before they invest more. I think we're competing very effectively with our portfolio in China. Our local China team is

Speaker Change: Very well connected to our customers, as I said, yeah.

Speaker Change: Preparing, you know, uh...

Speaker Change: We're helping our customers prepare for the application for the stimulus, etc. We set up specific bundles. We have a lot of localized solutions for China.

Patrick Kaltenbach: We have a lot of localized solutions for China, so we are not concerned about the local competition when you look at the end market. It's really, I would say, the overall mood in the market and the readiness to increase investment. Great.

Speaker Change: So, we are not concerned about the local competition when you look at the end market, it's really the, I would say, the overall mood in the market and the readiness to increase investment.

Shawn Vadala: And two follow-ups on China and stimulus. Just want to understand the dynamic in the quarter. Is it possible that the discussion around stimulus actually led to some pause from some customers kind of waiting for when the funding shows up? And then, on the pharma and biotech side, have you seen any impact from the Biosecure Act? Thanks. Yeah, hey, Jack, maybe I'll take that one.

Speaker Change: Great. And two follow-ups on China. On stimulus, I just want to understand the dynamic in the quarter. Is it possible that the discussion around stimulus actually led to some pause from some customers, kind of to wait for when the funding shows up? And then.

Speaker Change: Second is, on the pharma and biotech side, have you seen any impact from the Biosecure Act? Thanks.

Shawn Vadala: So hey, in terms of like this air pocket, you know, topic, we're not hearing that from our teams. You know, not to say that maybe there's some psychology out there, but we're not hearing that at the moment. And then in terms of biosecure, we're not necessarily hearing any impacts of that, you know, maybe maybe a little small. But of course, when you look at the bigger topic, you know, ultimately, we would expect to see opportunities in other parts of the world with other customers as well, too. That makes sense. Thanks, Shawn. Your next question comes from the line of Matt Sykes from Goldman Sachs. Hi, good morning.

Speaker Change: Yeah, hey, Jack, maybe I'll take that one. So hey, in terms of like this air pocket, you know, topic, we're not hearing that from our teams. You know, not to say that maybe there's some psychology out there, but but we're, we're not hearing that at the moment. And then in terms of bio secure, we're not we're not necessarily hearing

Speaker Change: Any impacts of that may be a little small, but of course, when you look at the bigger topic, ultimately we would expect to see opportunities in other parts of the world with other customers as well too.

Jack Meehan: That makes sense. Thanks, Shawn.

Speaker Change: Your next question comes from the line of Matt Sykes from Goldman Sachs. Please go ahead.

Matthew Sykes: Thanks for taking my questions. Patrick, I just want to touch on something you mentioned when you were discussing the strength you've seen in Europe, which is higher exposure from your direct sales force in that region. I'm not entirely clear about direct sales force exposure across, you know, regions outside of Europe. But I'm just wondering, given the success that that team has had in executing Spinnaker and in the quarter, does that make you want to reinvest in a direct sales force where you might have gaps versus indirect? Or do you feel pretty good about where you are in terms of direct sales force exposure globally? Thank you for that.

Matt Sykes: Hi, good morning. Thanks for taking my questions. Patrick, I just want to touch on something you mentioned when you were discussing the strengths you've seen in Europe , which is...

Speaker Change: Unknown Speaker ...a higher exposure from your direct sales force in that region. I'm not entirely clear about direct sales force exposure across, you know, regions outside of Europe. But I'm just wondering, given the success that team has had in executing Spinnaker and...

Speaker Change: And in the quarter, does that make you want to reinvest in a direct sales force where you might have gaps versus indirect, or do you feel pretty good about where you are in terms of direct sales force exposure globally?

Patrick Kaltenbach: Look, I mean, we are constantly evaluating where we stand in terms of go-to-market strategies and channels that we have in the end markets and what is the best fit for the end markets. And that's true, by the way, for both – that's true, of course, for our sales, and, as I said, in Europe, we have a lot of direct sales flows to our end customers. They are using the Spinnaker sales tool sets very well. We also have a strong direct sales team in the U.S. In other parts of the world, we sometimes use indirect sales channels, but we're constantly evaluating that.

Speaker Change: It's a very good question. Thank you for that. Look, I mean, we're constantly evaluating of where we stand in terms of go-to-market strategies and channels that we have in the end markets and what are the best fit for the end markets.

Speaker Change: And that's true, by the way, for both, that's true, of course, for sales and, as I said, in Europe .

Speaker Change: We have a lot of...

Speaker Change: direct salesforce to our end customers. They are using the Spinnaker sales.

Speaker Change: We also have a strong direct sales team in the U.S.

Speaker Change: In other parts of the world, we're using sometimes...

Patrick Kaltenbach: When it comes to investment and sales channels, we are looking at it from a coverage perspective. Do we really cover all the important end markets around the world? Do we also cover what we call the hot segments well enough, either direct or indirect?

Speaker Change: Indirect Sales Channel, but we are constantly evaluating that.

Speaker Change: When it comes to...

Speaker Change: Investment and Sales Channel. We are looking at it from a coverage perspective. Do we really cover all the important end markets around the world?

Speaker Change: Do we also cover what we call the hot segments well enough, either direct or indirect? So it's a very differentiated approach we take worldwide of how we look at this.

Patrick Kaltenbach: And if we are thinking about investment, it's first and foremost dependent on whether or not there is underlying market momentum there to increase our sales force, which we also look at the same way, for example, services and services. We see very healthy growth in services. I would say in the last quarters, we have continued to invest in services, building out our service capabilities and also strengthening our services team. And that's also a good opportunity for us to move forward. Thank you.

Speaker Change: And if we are thinking about investment, it's first and foremost dependent on the underlying market momentum there to increase our sales force.

Speaker Change: We also look at the same way, for example, services, and services we see very healthy growth. I would say in the last quarters we have continued to invest in services, building out our service capabilities.

Speaker Change: and also strengthening our social services team and that's also a good opportunity for us to move forward.

Patrick Kaltenbach: And if I could just follow up on that services growth you mentioned, I think up 6% in the quarter, you've consistently driven sort of mid to high single-digit growth in services, or sometimes higher. Can you just give a mark to the market? I remember at the investor day you had a few years ago, that was a key initiative of yours. Can you maybe just talk about how that exposure to services has grown and where you think, you know, there still is room to continue to drive that services growth higher as a proportion of overall sales?

Speaker Change: Thank you. And if I could just follow up on that services growth.

Speaker Change: You mentioned, I think, up 6% in the quarter. You've consistently driven sort of mid to high single-digit growth in services, or sometimes higher. Can you just give a mark to market? I remember at the Investor Day you had a few years ago, that was a key initiative of yours. Can you maybe just talk about how that exposure to services has grown?

Speaker Change: and where you think you know there still is room to continue to drive that services growth higher as a proportion of overall sales.

Patrick Kaltenbach: Yeah, absolutely. Look, I mean, services, again, is a really stronghold of Mettler-Toledo. It's also one of the key differentiators we have against many other companies out there. We probably have the strongest services organization out there compared to other competitors of our size. We continue to invest, not only in the size of the service team but also in the portfolio of the services we are offering to make sure that we have unique and differentiated offerings for our customers. We have a large installed base of instruments out there, and a good part of that is still untouched by our services.

Speaker Change: Yeah, absolutely. Look, I mean, services, again, is a really stronghold of Mettler-Toledo. It's also one of the key differentiators we have against many other companies out there. We have probably the strongest...

Speaker Change: [inaudible]

Speaker Change: We continue to invest, not only in the size of the service team, but also in the portfolio of the services we are offering to make sure that we have unique and differentiated offerings for our customers.

Patrick Kaltenbach: So, what we're also investing in at the moment is to go after the installed base with a stronger inside sales and tele-sales force to make sure that we get in touch with these customers, tell them about our updated service opportunities, and then move forward to, hopefully, also increase the amount of products that we have on the service contracts. So, I think it's an excellent opportunity. Again, it's definitely something we keep a close eye on and also invest in.

Speaker Change: We have a large installed base of instruments out there, and a good part of that is still untouched with our services, so what we're also investing in at the moment is...

Speaker Change: to go off of the installed base with the stronger inside sales and tele-sales force to make sure that we get in touch with these customers.

Speaker Change: Tell them about our updated service opportunities and then moving forward to hopefully also increase the amount of products that we have on the service contracts.

Speaker Change: So I think it's an excellent opportunity, again it's definitely something we keep a strong eye on and also invest in, even through the downturn that we have seen last year we continue to invest in services and I think it's paying back now.

Patrick Kaltenbach: Even through the downturn that we saw last year, we continued to invest in services, and I think it's paying back now. As I said, we had double-digit growth last year, and even this year, based on the top comparison, we're still seeing very good growth with 6% VC. And as a final reminder, you know that services are the most popular part of our business. Thank you. The next question is from Dan Leonard of UBS. Your line is open.

Speaker Change: As I said, we had double-digit growth last year, and even this year, based on the top compares, we're still seeing very good growth with 6% we see, and as a final reminder, you know that services is the most popular part of our business.

Speaker Change: Thank you.

Speaker Change: Next question is from Dan Leonard of UBS. Your line is open.

Daniel Leonard: Thank you. My first question, Patrick, is on share gain and your prepared remarks. Is it your view that share gain for Mettler is accelerating? Or are you highlighting these efforts as supportive of that historical one point of share gain? It's a good question, but it's really hard to say about how much share you gain per quarter.

Dan Leonard: Thank you. My first question, Patrick, you zoomed in on ShareGain and your prepared remarks. Is it your view that ShareGain for Mettler is accelerating or are you highlighting these efforts as supportive of that historical one point of ShareGain?

Speaker Change: It's a good question, but it's really hard to think about how much share you gain per quarter. I wouldn't look at it as a quarter-over-quarter topic.

Patrick Kaltenbach: I wouldn't look at it as a quarter over quarter topic. Of course, we compare ourselves to what we're hearing from our competitors, and we are very pleased with how we perform even in this difficult environment. But as we also make clear, for example, on investor day, on average, we own probably about 25% of the market share, so there's plenty of room for us to gain additional share. And that's why we're also investing in innovation and driving more innovation to market, because that's what customers are looking for. They're looking for products that help them to become more productive, to help them with data integrity, and to help them on the automation side.

Speaker Change: Of course we compare ourselves to what we're hearing from our competitors and we are very pleased of how we perform even in this difficult environment.

Speaker Change: But as we also make clear, for example, in the rest of the day,

Speaker Change: On average, we own probably about 25% of the market share, so there's ample of room for us to gain.

Speaker Change: gain additional share.

Speaker Change: And that's why we're also investing into innovation and driving more innovation to market.

Speaker Change: Because that's what customers are looking for. They're looking for...

Speaker Change: [inaudible]

Shawn Vadala: And that will be a path for us to continue our market share gains. We don't make big market share gains per year, but we do make small chunks every year. Whether it's currently accelerating or not, hard to tell. I would say, given the performance of the products compared to many competitors, we are happy with the performance, and we're seeing market share gains. I appreciate that. And then as a follow-up, you know, this earnings season, a few of your diversified peers have announced upsized share repurchase programs and specifically flagged that the M&A target environment is still incredibly richly valued. I'm curious about your thoughts on that environment. And this is Shawn. Maybe I'll take that one.

Speaker Change: Small chunks every year, whether it's currently accelerating or not, hard to tell, I would say, given the performance of the products, compared to many competitors, be happy with the performance and we're seeing market share gains.

Speaker Change: Appreciate that. And then as a follow up, you know, this earning season, a few of your diversified peers have announced upsized share repurchase programs and specifically flagging that the M&A target environment is still incredibly richly valued. I'm curious your thoughts on that environment.

Shawn Vadala: I mean, as you know, we were, you know, very, we think we're a great platform for acquisitions when something strategic and makes sense. We usually can move pretty quickly, but we're also very selective. And, you know, but absentiary purchases; we use our free cash flow to buy back shares. We feel good about how that program has worked over the years. And I think part of the success is our consistency and how we execute it.

Shawn Vadala: And this is Shawn, maybe I'll take that one. I mean, as you know, we were, you know, very, you know, we think we're a great platform for acquisitions when something strategic and makes sense. You know, we usually can move pretty quickly, but we're also very selective.

Shawn Vadala: And, you know, but absentiary purchases, we use our free cash flow to buy back shares.

Shawn Vadala: We feel good about how that program has worked over the years, and I think part of the success.

Shawn Vadala: And so we continue to look at it the same way we've looked at it in the past. And I think you'll see us be consistent with our share repurchase program. As a reminder, this year, I think our estimate is about $850 million, which approximates our free cash flow estimate for the year and, you know, absent if we did identify an acquisition opportunity. Thank you. Your next question comes from the line of Michael Kyskin from Bank of America. Please go ahead.

Shawn Vadala: is our consistency and how we execute it and so we continue to look at it the same as we've looked at it in the past and I think you'll

Shawn Vadala: You'll see us be consistent with our share repurchase program. As a reminder, this year I think our estimate is about $850 million, which approximates our free cash flow estimate for the year, and absent if we did identify an acquisition opportunity.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Michael Kyskin from Bank of America. Please go ahead.

Michael Ryskin: Great, thanks for taking the questions guys. Shawn, maybe one for you, just looking at the EPS guide through the rest of the year and the quarterly progression, it seems like you're implying a little bit of a step up in margins in the third quarter and a bigger jump in 4Q, that's pretty... I'm just wondering if you could dive into the nuances of that margin expansion, though. You know, how much are we seeing on the gross margin line? Yeah, thanks, Mike.

Michael Koskin: Great. Thanks for taking the question, guys.

Michael Koskin: Shawn, maybe one for you, just looking at the EPS guide through the rest of the year and the quarterly progression, seems like you're implying a little bit of a step up in margins in the third quarter and a bigger jump in 4Q.

Speaker Change: That's pretty consistent with what you've done historically. There's a lot of volume leverage in the fourth quarter. Just wondering if you could dive into the nuances of that margin expansion, though. You know, how much are we seeing on the gross margin line versus SG&A? Is there any additional core you can...

Shawn Vadala: Yeah, no, I think you got a spot on. It's going to be very much about the leverage on volume. You know, if we look at our gross margin estimates for the second half of the year, I'd say they're probably, on a full year basis, we're probably up a little bit from what we were thinking last quarter. As you can see, we did pretty well in the third quarter versus our expectations. And, of course, a part of that was also doing a little bit better on the volume.

Speaker Change: you can give us on quarterly basis.

Speaker Change: Confirming that.

Speaker Change: Yeah, thanks, Mike. Yeah, no, I think you got it spot on. It's going to be very much about the leverage on volume. You know, if we look at our gross margin estimates for the second half of the year, I'd say they're probably on a full year basis. We're probably up a little bit from what we were thinking last quarter. As you could see, we did pretty well in the third quarter versus our expectations. And of course, a part of that was also doing a little bit better on the volume. For Q3, we're kind of estimating gross margin expansion and like the 60 bps kind of a range. And for the full year, and that would be maybe 50 bps excluding currency. So currencies are a little bit higher.

Shawn Vadala: For Q3, we're kind of estimating gross margin expansion in like the 60 bps kind of a range and for the full year, and that would be maybe 50 bps excluding currency. So currencies are a little bit the inverse of what we would have seen in terms of how they affect the margins, at least the moving pieces versus Q2. And then for the full year, our gross margin estimate is about 70 basis points, which again is up a little bit from what we were thinking last quarter. And then in terms of the operating margin, the operating margin for the third quarter is down about 50 bits. And then For the full year, it would be up about 40 basis points.

Speaker Change: of what we would have seen in terms of how they affect the margins at least, the moving

Speaker Change: And then for the full year, our gross margin estimate is about 70 basis points, which again is up a little bit from what we were thinking last quarter. And then in terms of the operating margin, the operating margin for the third quarter estimate is down about 50 bps.

Speaker Change: And then for the full year, it would be up about 40 basis points. And again, these numbers are also at the midpoint of our guidance, too, so things could be a little bit better or worse depending on how we...

Shawn Vadala: And again, these numbers are also at the midpoint of our guidance, too, so things could be a little bit better or worse depending on how we do. But otherwise, I'd say that the teams are executing really well. You know, the pricing program continues to be very effective.

Speaker Change: How we do, but otherwise I'd say that the teams are...

Speaker Change: Executing really well, you know, the pricing program continues to be very effective. Pricing...

Shawn Vadala: Pricing came in at 2% in the quarter, which is, you know, in line with our expectations. We continue to expect 2% for the full year. And then our teams are doing a really fantastic job working on our various productivity and cost savings initiatives. And then, you know, maybe also to comment on our Stern Drive program is driving some nice efficiencies and cost savings in the margin line. Okay, that's all really helpful.

Speaker Change: came in at 2% in the quarter, which is, you know, in line with our expectations. We continue to...

Speaker Change: Expect 2% for the full year, and then our teams are doing a really fantastic job working on our various productivity and cost savings initiatives. And then, you know, maybe also to comment on our Stern Drive program is driving some nice efficiencies and cost savings in the margin line.

Shawn Vadala: Thanks, Shawn. And then one more to the guide, a number of other tools peers talked about. Transcripts provided by Transcription Outsourcing, LLC, and then maybe a little bit of an end-of-year bounce. That's implied in your guide as well, but you've also got the weird comps last year from the shipping delays. So if you could just walk us through, like, what are you?

Speaker Change: Okay. That's all really helpful. Thanks, Shawn. And then one more to the guide. A number of other tools Pierce talked about.

Speaker Change: Expecting a return to more traditional seasonality as the year goes on and referring both to a little bit of a low in 3Q in Europe and then maybe a little bit of an end-of-year bounce.

Speaker Change: That's implied in your guide as well, but you've also got the weird comps last year from the shipping delays. So, if you could just walk us through, like, what are you expecting from a seasonality perspective? Is there any view on budget flush at this point? I know that's not a huge driver for you, but still, just what are you thinking about there? Thanks.

Shawn Vadala: Transcription by Trans-Expert at Fiverr.com. Is there any of you on a budget flush at this point? I know it's a huge driver. Yeah, yeah, probably the best. Yeah, we are expecting things to start looking a little bit more like seasonal, typical seasonality, if you adjust for the shipping delay topic. Probably the best way. But you know, maybe not 100% back, you know, but if you kind of I think the best way to look at that is to kind of take our sales guidance and look at the sequentials.

Shawn Vadala: And then you can see the sequentials are, I think, pretty reasonable versus, you know, historical results, depending on how far back you go adjusting for the shipping delay topic. So that gives us some confidence for the back half of the year. In terms of budget flush, as you say, we're typically not a budget flush story. But, nonetheless, I think we all did feel this, you know, feel Q4 last year. I'd say it's still a bit early to judge, as Patrick mentioned, we still see longer sales cycles with customers. But at the same time, we're typically sitting on one and a half months worth of backlog.

Speaker Change: Probably the best. Yeah, we are expecting things to start looking a little bit more like seasonal, typical seasonality, if you adjust for the shifting delay topic, probably the best way. But you know, maybe not 100% back, you know, but if you kind of, I think the best way to look at that is to kind of take our

Speaker Change: Our sales guidance and look at the sequentials.

Speaker Change: And then you can see the sequentials are, I think, pretty reasonable versus, you know, historical results, depending on how far back you go, adjusting for the shipping delay topic. So that gives us some confidence for the back half of the year. In terms of budget flush, as you say, we're typically not a

Patrick Kaltenbach: A budget-flush story, but nonetheless, I think we all did feel Q4 last year. I'd say it's still a bit early to judge. As Patrick mentioned, we still see longer.

Patrick Kaltenbach: Sales cycles with the customers, but at the same time, we're only typically sitting on one and a half months worth of backlog.

Joshua Waldman: And, but, otherwise, I think we feel like there probably should be something this year versus, you know, relative to last year. But the magnitude is obviously difficult to judge, but we, we do feel good about how we're positioned here for the second half of the year from a sequential basis. Awesome. Thanks so much.

Speaker Change: and but but you know otherwise I think we we feel like there probably should be something this year versus you know relative to last year.

Speaker Change: But the magnitude is obviously difficult to judge, but we do feel good about how we're positioned here for the second half of the year from a sequential basis.

Speaker Change: Awesome. Thanks so much. Appreciate it.

Patrick Kaltenbach: I appreciate it. Your next question is from the line of Josh Waldman from Cleveland Research. Please go ahead.

Speaker Change: Your next question is from the line of Josh Waldman from Cleveland Research. Please go ahead.

Joshua Waldman: Hey, morning, guys. Thanks for taking my questions. Two for Patrick. I think first, Patrick, I wondered if you could talk a bit more about how product inspection performs versus your expectations. I'm curious what you're seeing in the business across, How Orders Get Tracked. Yeah, good morning, Josh.

Josh Goldman: Hey, good morning, guys. Thanks for taking my questions. Two for Patrick, I think. First, Patrick, I wondered if you could talk a bit more about how product inspection performs versus your expectations. I'm curious what you're seeing in the business across kind of the major geographies and in markets.

Patrick Kaltenbach: Yeah, product inspection. Actually, we're quite pleased with the result. We know that the markets are still under pressure, customers are cautious with their investments, we know that deal cycles are longer still, but we have launched a lot of new products over the last year, mainly in the x-ray business. And we also broadened our product offering, from high-end to the mid-range portfolio, that opens a lot of doors for us. So I think we have a really good, healthy engagement of our sales teams around the globe with our portfolio. So we have a healthy funnel here.

Josh Goldman: and how orders have tracked over the last couple months.

Patrick Kaltenbach: Yeah, good morning, Josh. Yeah, product inspection, actually, we're quite pleased with the result. I mean, we know that the markets are still under pressure. Customers are cautious with their investments. We know that deal cycles are longest.

Patrick Kaltenbach: Still, we have launched a lot of new products over the last year, mainly in the x-ray business demand and we also broadened our product offering.

Patrick Kaltenbach: from the high-end into the mid-range portfolio that opens also a lot of doors for us now.

Patrick Kaltenbach: So I think we have a really good healthy engagement of our sales teams.

Patrick Kaltenbach: But I would say the caveat is still that sales cycles are longer and customers in some areas are cautious with investments until they also see the underlying market picking up. The upside for us is the new portfolio; you're competing very effectively and again with the broader portfolio also seen. There are probably more customers than you have seen before.

Patrick Kaltenbach: around the globe with our portfolio. So we have a healthy funnel there. But I would say the caveat is still that sales cycles are longer and customers in some areas are cautious with investments until they also see the underlying market picking up.

Patrick Kaltenbach: The upside for us is the new portfolio, we are competing very effectively, and again with the broader portfolio also seen.

Speaker Change: I don't know any more customers than you have seen before.

Patrick Kaltenbach: Okay. And then maybe a question and a half or so on the lab. Any sense on if the upside in the quarter was from better funnel conversion, or did you also see new opportunities coming into the book at a higher rate than you anticipated? And then, maybe a follow-up question.

Speaker Change: Got it. Okay. And then maybe a question and a half or so on lab. Any sense on if the upside in the quarter was from better funnel conversion, or did you also see new opportunities coming into the book at a higher rate than you anticipated? And then,

Patrick Kaltenbach: You get the sense that there's a change in customer buying such that accounts are more willing to work with you directly as opposed to, Well, let's say I mean, this is a pretty broad question. Let's focus on the lab products, right? I mean, we see again that with our portfolio, we are competing very well. We have launched a new platform there as well. We also saw some bigger projects, especially in Europe, converting in the first half and the second quarter of the year.

Speaker Change: Maybe a follow-up question, I think, do you get the sense that there's a change in customer buying such that accounts are more willing to work with you directly as opposed to exclusively through the distribution channels?

Speaker Change: Hold on, let's say, I mean, this is a pretty broad question. Let's focus on the lab products right now.

Speaker Change: I mean, uh...

Speaker Change: We see...

Speaker Change: We see again that with our portfolio we are competing very well, we have launched a...

Speaker Change: New platform there as well, we still also...

Speaker Change: Some bigger projects, and especially in Europe , converting in the first half and the second quarter of the year. So there is, again, I think we have a good position when it comes to our portfolio and competing effectively in the market.

Patrick Kaltenbach: So again, I think we are in a good position when it comes to our portfolio and competing effectively in the market. But on a grand scale of things, it's not like there is a significant change in customer buying behavior right now. The markets, as we lay it out, and the behavior, as we lay it out, are still rather soft, especially in China.

Speaker Change: But on a grand scale of things...

Speaker Change: It's not like there is a significant change in customer buying behavior right now. The end markets, as we lay it out, and the behavior as we lay it out, it's still a

Patrick Kaltenbach: But in Europe, we have seen good momentum. We also saw the lab business in the U.S. picking up in the last quarter. So I think we're in a good position and the faster the market recovers, I mean, the more momentum we can capture in this portfolio, to be honest. Okay, thanks. Your next question is from the line of Patrick Donnelly. Please go ahead.

Speaker Change: [inaudible]

Speaker Change: So, I think we're in a good position and the faster the market recovers, I mean, the more momentum we can capture with this portfolio, to be honest.

Speaker Change: Okay, thanks guys.

Speaker Change: The next question is from the line of Patrick Donnelly from City. Please go ahead.

Patrick Donnelly: Hey guys, thanks for taking the questions. Shawn, this might be one for you. You sounded a little more, Sticker on the Core Industrial Outlook. Anything focused on that piece, just for a second.

Patrick Donnelly: Hey guys, thanks for taking the questions. Shawn, this might be one for you. You sounded a little more, I guess, optimistic on the core industrial outside of China.

Shawn Vadala: The industrial complex, a little softer in terms of commentary. I'm just curious what you're hearing from customers, how you're thinking about that piece again, you know, acknowledging China's pretty soft, but just in the development world here, how are you thinking about that core industrial piece when you hear from customers a little bit about doing the right thing. Yeah, no, thanks, Patrick.

Patrick Donnelly: So maybe you can focus on that piece just for a second. You know, the industrial complex, a little softer in terms of commentary, this earnings piece. I'm just curious what you're hearing from customers, how you're thinking about that piece, again, acknowledging China's pretty soft, but just in the developed.

Speaker Change: World here, how are you thinking about that core industrial piece, what do you hear from customers and

Shawn Vadala: And a good question. I mean, you know, it, I think it depends a lot on what segment of the market we're talking about. And, you know, probably what you picked up on in my voice was just that, you know, we have that, you know, this is a bit, this is the business historically, right? When people would say, Hey, can you talk about your cyclicality, we would say, this is historically the part that's been exposed to the economy more than our other businesses.

Speaker Change: is a little bit about doing the right way to read it.

Speaker Change: Yeah, no, thanks, Patrick. And good question. I mean, you know, it, it, I think it depends a lot on what segment of the market we're talking about. And, you know, probably what you picked up on in my voice was just that, you know, we have that, you know, this is a bit, this is the business historically, right? When people would say, Hey, can you talk about, you know, your cyclicality? You know, we would say, this is historically the part that's been exposed to the economy more than our other businesses. And then, you know, if I look at Europe , I mean, yes, last year, the job did a lot better.

Shawn Vadala: And then, you know, if I look at Europe, I mean, Yes, Lab did a lot better than industrial in the quarter, but we still had growth in industrial, you know, and that's against the backdrop of a relatively weak economy there.

Speaker Change: than than industrial in the quarter, but but we still had

Speaker Change: growth and industrial, you know, and that's against a backdrop of a relatively weak economy there.

Speaker Change: And so, so that's something that we do feel good about is the resiliency there. You know, you know, part of our industrial business, of course, is supporting, you know, the same end markets as lab, like, like pharmaceutical.

Speaker Change: But I think it really gets into what we started to see in the quarter and some of the discussions I've had with colleagues, you hear comments around, hey, if we're talking about customers that are in the business of like automation and end-to-end

Shawn Vadala: And so, so that's something that we do feel good about the resiliency there. You know, part of our industrial business, of course, is supporting the same end markets as labs like, like pharmaceuticals. But I think it really gets into what we started to see in the quarter. And some of the discussions I've had with colleagues, you hear comments around, hey, if we're talking about customers that are in the business of like automation, and end-to-end process control, and digitalization, those customers are actually doing pretty well. If you're talking about customers that are in the business of discrete manufacturing, and those types of segments, you know, much more challenging conditions.

Speaker Change: process control in digitalization. Those customers are actually doing pretty well.

Speaker Change: If you're talking about customers that are in the business of discrete manufacturing and those types of segments, you know, much more challenging conditions. And I understand what you're saying because

Speaker Change: I had a similar question to our team as well, too, because, you know, we certainly see a lot of the headlines from a lot of the industrial companies this past quarter having more challenging results.

Shawn Vadala: And I understand what you're saying because I had a similar question for our team as well, too, because, you know, we certainly see a lot of headlines from a lot of industrial companies this past quarter, having more challenging results. So So I guess it's, it's a little bit of both. You know, I think we're really well positioned for some of these more favorable trends, but it doesn't mean that we're necessarily immune to the economy. But in the meantime, I think, you know, we always try to focus on what we can control.

Speaker Change: So, so I guess it's a little bit of both, you know, I think we're really well positioned on some of these more favorable trends, but it doesn't mean that we're necessarily immune to the economy. But in the meantime, I think, you know, we always try to focus on what we can control. And I think the teams are executing.

Speaker Change: Very well, both on the sales and marketing side, but also on the product development side. And we feel very good about some of the R&D investments that we've accelerated over the last few years in that business to lean into some of these market trends. And, you know, certainly we have a great pipeline of opportunities going forward as well.

Shawn Vadala: And I think the teams are executing very well, both on the sales and marketing side, but also on the product development side. And we feel very good about some of the R&D investments that we've accelerated over the last few years in that business to lean into some of these market trends. And, you know, certainly, we have a great pipeline of opportunities going forward as well. And then just on the 2-H side, obviously, we've got a few questions here, mentioned, kind of the implied, you know, raise a little bit less than a B. I mean, has anything changed in your view in terms of the 2H view? Obviously, you guys of Conservatism a lot of times, and I think people are used to it, but just how you think about 2H relative to a few months ago.

Speaker Change: Okay, that's a really helpful run through. And then just on the 2H guide, obviously we've got a few questions here.

Speaker Change #100: You know, I think someone mentioned kind of the implied, you know, raise is a little bit less than a B. I mean, has anything changed in your view in terms of the 2H view? Obviously, you guys have the standard.

Speaker Change #100: Mettler-Conservatism a lot of times, I think people are used to it, but just how you think about 2H relative to a few months ago.

Shawn Vadala: Again, just giving that a guide change, and Shawn even answers because we're not quite back to normal seasonality just yet. So just how you're thinking about the market, it will. Yeah, I mean, I think we're I think we're always sit on one and a half months of backlog.

Speaker Change #100: Again, just giving that a guide change. And Shawn, even in one of your answers, because we're not quite back to 100%.

Shawn Vadala: So I think that always makes it a little challenging for us when we start going out beyond the current quarter. I think we tried to acknowledge that we're executing well, we did better than expected in the second quarter. But you know, we're not just assuming that we should add that to the second half.

Speaker Change #101: Seasonality just yet. So just how you're thinking about the market relative to a few months from now.

Speaker Change #102: on today.

Shawn Vadala: Yeah, I mean, I think we're, I think we're, you know, we always sit on one and a half months of backlog. So I think that always makes it a little challenging for us when we start going out beyond.

Shawn Vadala: The current quarter, I think we tried to acknowledge like we're

Shawn Vadala: We're executing well, we did better than expected in the second quarter, but we're not just assuming that we should add that to the second half.

Shawn Vadala: We do see...

Shawn Vadala: Soft market conditions out there, but we do benefit also from easier comparisons, we feel good about the sequentials, there is an element of us being a little bit cautious going into the second half, but I think it's prudent to be cautious too, like I think there really are a lot of

Shawn Vadala: We do see soft market conditions out there, but we do benefit from easier comparisons, and we feel good about the sequentials. There is an element of us being a little bit cautious going into the second half, but I think it's prudent to be cautious, like, I think there really are a lot of different aspects to this uncertainty in the environment. I think we're all looking forward to seeing, you know, more robust signs of things turning, and, you know, and no one really can say exactly when that's going to happen. And, of course, we're pretty diverse businesses by product, by end market, and by region of the world.

Shawn Vadala: different aspects to this uncertainty in the environment. I think we're all looking forward to seeing, you know, more robust signs of things turning and, you know, and but no one really can say exactly when that's going to happen. And of course, you know, we're pretty diverse business by product by end market and, and by by region of the world. And so, but I but I think when we kind of step back and look at how we're guiding, we actually feel we feel good about our guidance to everybody. And of course, we're always going to, you know, look to do better, you know, but but right now, we feel like this is an appropriate way to position the forecast.

Shawn Vadala: And so, but I think when we kind of step back and look at how we're guiding, we actually feel good about our guidance to everybody. And, of course, we're always going to, you know, look to do better, you know, but but right now, we feel like this is an appropriate way to position the forecast. Great, thanks. Your next question is from the line of Catherine Schulte from Baird. Your line is open.

Shawn Vadala: Great, thanks y'all.

Speaker Change #103: Your next question is from the line of Catherine Schulte. From Baird, your line is open.

Catherine Schulte: Hey guys, thanks for the, Maybe first for Shawn, just going back to your margin commentary, I think you said gross margin up 70 basis points for the full year versus the 40 you were talking about last quarter, but then operating margins up 40 versus the 50 you talked about last quarter. So, I guess, what's being absorbed on the OPEC side where you aren't passing through that gross margin benefit, and operating margins are actually, you know, down a little bit versus the 50? Yeah, no, a good question, Catherine.

Speaker Change #104: Hey guys, thanks for the questions.

Catherine Schulte: Maybe first for Shawn, just going back to your margin commentary, I think you said gross margin up 70 basis points for the full year versus the 40 you were talking about last quarter. But then op margins up 40 versus the 50 you talked about last quarter. So I guess what's being absorbed on the OPEC side where you aren't passing through that gross margin benefit?

Speaker Change #106: and margins are actually, you know, down a little bit versus your prior guide.

Shawn Vadala: I mean, I think some of this is also noise with how some of the currencies have changed over the last quarter. But, but certainly, we are doing a little bit better on the gross margin side that I talked about earlier. And then, you know, in terms of the OPEX side, we're still investing in the business, too, and, you know, we have such a great pipeline of investment opportunities.

Shawn Vadala: Yeah, no, good question, Catherine. I mean, I think some of this is also noise with how some of the currencies have changed over the last quarter, but certainly we are doing a little bit better on

Shawn Vadala: on the gross margin side that I talked about earlier. And then, you know, in terms of like the OPEC side, you know, we're still investing in the business too, you know, and you know, we have.

Shawn Vadala: such a great pipeline of investment opportunities. And, you know, we're just trying to find the right balance and the right mix between, you know, you know, realizing productivity gains, but also reinvesting in the business at the same time.

Shawn Vadala: And, you know, we're just trying to find the right balance and the right mix between, you know, realizing productivity gains but also reinvesting in the business at the same time. Okay, and then maybe on the lab business, you know, adjusted for the shipping delays recaptured in the first quarter, it looks like revenue increased by high single digits sequentially, which seems very encouraging. Can you just talk through any differences you're seeing between pharma and academia and on pharma?

Speaker Change #107: Okay, and then maybe on the lab business, you know, adjusted for the shipping delays recaptured in the first quarter, it looks like revenue increased high single digits sequentially, which seems very encouraging. Can you just talk through any differences you're seeing between pharma and academia and on pharma? Are you seeing easing in terms of the customer spend caution that we've been seeing? Thanks.

Shawn Vadala: Are you seeing an easing in terms of the customer spend caution that we've been seeing? Thanks. We're still, yeah, hey, we're still seeing caution in pharma. But maybe the one pocket that stood out a little bit more was in Europe. Patrick mentioned it in his, one of his previous responses, when we talked to the team, you do hear that there have been some projects on the sidelines for a bit. And we started to hear some of those projects were converting.

Shawn Vadala: So that was a positive sign. But I would say that, hey, we're not out of the woods. We do hear comments about big pharma performing better than, you know, smaller companies or even getting into small biotech, where I think there's still some challenges there.

Speaker Change #108: We're still yeah, hey, we're still seeing caution and pharma, but maybe the one pocket that was

Speaker Change #109: Stood out a little bit more was in Europe. We Patrick mentioned it in his

Speaker Change #110: One of his previous responses, when we talked to the team, you do hear that there's been some projects on the sidelines for a bit, and we started to hear some of those projects converting, so that was a positive sign. But I would say that, hey, we're not out of the woods.

Speaker Change #110: We do hear comments about Big Pharma.

Shawn Vadala: But when you look at it from a product perspective, what was maybe encouraging to us as we saw pretty good growth throughout the portfolio with the only exception being product inspection, which was still kind of down a little bit from some, I mean not product inspection, process analytics, with process analytics being down a little bit because of our exposure to bioprocessing, but when we look at the second half of the year, we feel a little bit better about that one. And your next question comes from the line of Tyco. Please feel free; your line is open.

Speaker Change #110: performing better than, you know, smaller companies or even, you know, getting into small biotech, where I think there's still some some challenges there. But when you look at it from a product perspective, what was maybe encouraging to us as we saw,

Speaker Change #110: Pretty good growth throughout the portfolio with the only exception being product inspection, which was still

Speaker Change #110: You know, kind of down a little bit from some, I mean, not product inspection, products, process analytics with process analytics being down a little bit because of our exposure to bioprocessing. But when we look at the second half of the year, we feel a little bit better about that one.

Speaker Change #110: And your next question comes from the line of Tycho Peterson of Jeffreys, your line is open.

Tyco: Hey, thanks. Actually, Shawn, I'm going to pick up right where you left off on bioprocess, although I know it's a smaller part of the mix.

Tycho Peterson: Hey, thanks. Actually, Shawn, I'm going to pick up right where you left off on bioprocess. I know it's a smaller part of the mix, but can you maybe just give us a little sense on kind of, you know, upstream versus downstream?

Speaker Change #112: What you're seeing there, your equipment's obviously kind of lower price points than maybe some of your peers, but just curious, as we've kind of gone through a long period of, you know, destock and thinking about restock, where are we in kind of that cycle for you guys?

Shawn Vadala: But can you maybe just give us a little sense of kind of, you know, upstream versus downstream? What you're seeing there, your equipment's obviously kind of lower price points than maybe some of your peers, but just curious, as we've kind of gone through a long period of, you know, destocking and thinking about restocking, where are we in kind of that cycle for you guys? I think we feel pretty good. Maybe I'll start, and Patrick wants to chime in.

Shawn Vadala: But like, I'd say we're I don't know if you'd say eighth inning, Patrick, or so, but we're, we're getting pretty close there. I mean, we definitely feel very encouraged as we kind of go into the second half of the year. If you think upstream and downstream, you know, we were seeing a lot of particular headwinds in our downstream business. For us also, that was where we're more exposed on the single use side. So that could have been part of it as well, too.

Patrick: I think we feel pretty good. Maybe I'll start and Patrick wants to chime in, but like I'd say we're, I don't know if you'd say eighth inning, Patrick, or so, but we're getting pretty close there. I mean, we definitely feel very encouraged as we kind of go in the second half of the year. If you think upstream and downstream, you know, we were seeing a lot of

Patrick: Particular headwinds in our downstream business, you know, for us also that was where we're more exposed on the single-use side. So that could have been part of it as well too. But when we kind of...

Patrick Kaltenbach: But when we kind of look to the second half of the year, all the data and in the, and even just the qualitative discussions we're having with the team, and more importantly, customers, points to a much more favorable situation for the second half. Yes, absolutely. Again, I can confirm that. I mean, again, if you want to differentiate a little bit between the regions in the US and Europe, you asked about the de-stocking issues, I would say in Europe and the US, we have the de-stocking issue behind us.

Patrick: Look to the second half of the year, you know, all the data and the...

Speaker Change #114: And even just the qualitative discussions we're having with the team, and more importantly customers, points to a much more favorable, you know, situation for the second half. Yes, absolutely. I can confirm that. I mean, again, if you want to differentiate a little bit about the regions.

Speaker Change #115: In the U.S. and Europe , you asked about the de-stocking issues, I would say in Europe and the U.S. we have the de-stocking issue behind us. There's some residual stocking issue that we're still facing in China, but what we're hearing from customers there, it should be over in a quarter or so.

Patrick Kaltenbach: There's some residual stocking issue that we're still facing in China, but from what we're hearing from customers there, it also should be over in a quarter. Great. And then, Shawn, a question about pricing. First, I assume the assumption for this year is still about 200 basis points, but then, more importantly, going forward, as inflation starts to pull back, should we think about you guys getting to pre-COVID levels around 250 bps per year?

Speaker Change #116: Great. And then, Shawn, question about pricing. First, I mean, I assume the assumption for this year is still about 200 basis points, but then, more importantly, going forward as inflation starts to pull back, you know, should we think about you guys getting to pre-COVID levels around 250 bps per year?

Patrick Kaltenbach: Yeah, hey, Tycho, I understand the question, but I think it's probably a little bit early for us to kind of think about how we would guide for next year in terms of pricing. And you know, hey, just to also maybe remind you of how we historically guided. We typically were, you know, I don't think we've ever necessarily expected for the last few years, during this inflationary environment, we're never typically guiding more than 200 basis points, even in the more historical inflationary environment. So, hey, if we can do better than that, of course, we will. But I kind of look at 200 basis points as a mid to long-term guide. It is probably a reasonable assumption.

Shawn Vadala: Yeah, hey, Tycho, I understand the question, but I think it's probably a little bit early for us to kind of think about how we would guide for next year on pricing. And, you know, hey, just to also maybe

Speaker Change #117: Remind of like how we historically guided, we typically were, you know, I don't think we've ever necessarily, except for the last few years.

Speaker Change #117: They're in this inflationary environment. We're never typically guiding more than 200 basis points, even in the more historical inflationary environment. So hey, if we can do better than that, of course we will. But I kind of look at 200 basis points as a mid- to long-term guide is probably a reasonable assumption.

Tyco: Okay, thank you. Yeah, thanks. And this concludes our Q&A session for today. I would like to hand the call back over to Adam for closing remarks. Hey, thanks, Paul. And thanks, everybody, for joining our call this morning. Please feel free to reach out to me if you have any further questions. And I hope you all have a great weekend. Take care. Bye.

Speaker Change #118: Okay, thank you.

Speaker Change #119: Yep, thanks.

Speaker Change #119: And this concludes our Q&A session for today. I would like to hand the call back over to Adam for closing remarks.

Adam Uhlman: Hey, thanks, Paul. And thanks, everybody, for joining our call this morning. Please feel free to reach out to me if you have any further questions, and I hope you all have a great weekend. Take care. Bye.

Speaker Change #120: This concludes today's conference call. Enjoy your weekend. You may now disconnect.