Q2 2025 Waters Corp Earnings Call
Welcome to the Waters Corporation second quarter 2025 financial results conference call. All participants will be in listen-only mode until the question-and-answer session begins. This call is being recorded. If anyone has objections, please disconnect at this time.
It is now my pleasure to turn the call over to Mr. Caspar Tudor, Head of Investor Relations. Please go ahead, sir.
Thank you, Leila, and good morning, everyone. Welcome to Waters Corporation's second quarter earnings call. Joining me is Dr. Udit Batra, our President and Chief Executive Officer, and Amol Chaubal, our Senior Vice President and Chief Financial Officer. Before we begin, I will cover the cautionary language.
In this conference call, we will make forward-looking statements regarding future events or future financial performance of the company. We will provide guidance regarding possible future results, as well as commentary on potential market and business conditions that may impact Waters Corporation during 2025 and beyond. Additionally, we'll comment on the expected timing for completion of the pending combination with the Biosciences and Diagnostic Solutions business of Becton Dickinson and Company, as well as the expected financial and operational impacts of this combination on Waters.
These statements are only our present expectations based on information available to us as of today, as well as forecasts and assumptions of what is management and are subject to risks and uncertainties, many of which are outside Waters' control. Actual events or results may differ materially from the statements made on today's call.
Please see the risk factors included within our Form 10-K, our Form 10-Qs, our other SEC filings, and the cautionary language included in this morning's earnings release.
During today's call, we will refer to certain non-GAAP financial measures reconciliations to the most directly comparable GAAP measures, which are attached to our earnings release and in the appendix of the slide presentation. Accompanying today's call, both are available on the Investor Relations section of our website.
Unless stated otherwise, references to quarterly results are in comparison to the second quarter of fiscal year 2024.
Stated otherwise, all year-over-year revenue growth rates and ranges given on today's call are on a comparable constant currency basis.
Finally, we do not intend to update our guidance predictions or projections, except as part of a regularly scheduled earnings release or as otherwise required by law.
On today's call, we will begin by covering our key messages for the quarter. Amol will then take you through our results and updated guidance in more detail. After that, Caspar will share facts on key topics related to our pending combination with the BD Biosciences and Diagnostic Solutions business. Then, we'll open the phone line up for questions.
With that, I would now like to turn the call over to Yudith.
Thank you, Caspar, and good morning, everyone.
We're pleased to report another strong quarter, with sales again about the high end of our guidance. This performance reflects strong execution, revitalized innovation, and our successful expansion into higher growth areas—three strategic pillars we set in motion five years ago and continue to deliver with strength and resilience.
Sales grew 9% as reported and 8% in constant currency instruments grew mid single digits led by a high single-digit growth in our LC and mass spec. Portfolio regarding Revenue grew, 11% driven by 9% service growth and double digit, chemistry growth.
Non-GAAP earnings per share were $2.95, up 12% year on year and above the midpoint of our guidance. GAAP EPS was $2.47.
Sales growth was led by Waters division, which grew in the high single digits of better across America's Europe and Asia in the Americas. This growth was partially offset by weakness in Ted, in the TA division, in macro sensitive polymer and materials, testing applications.
By end market, farmer grew low, double digits.
Led by strong instrument replacement activity and new product adoption, particularly among large pharma and CDMO customers.
In our non-farmer segments, industrial grew 6%, and academic and government performed better than expected, declining low single digits.
Within recurring revenue, Chemistry benefited from approximately $8 million of sales pulled forward in the second quarter related to tariff dynamics. Excluding this, our overall constant currency growth rate was 7%, with Chemistry up 10%.
These results reflect solid progress against our strategy, which has remained anchored in 3. Core principles first commercial execution,
We have driven consistent and strong commercial execution across our organization in a highly systematized, KPI-oriented approach so far in 2025. Each of our key initiatives is ahead of expectations towards our 2030 targets. In the first half of 2025, the service plan attachment has risen 200 basis points to 52%, which already more than doubles our 100 basis point expansion objective for the year.
E-commerce adoption continues to advance and is now comfortably above 40% of our chemistry revenue.
We have also increased our CDMO penetration with contract organizations. Now, at 27% of our farmer revenue,
Second, revitalizing our innovation, our recent product launches continue to gain strong traction.
Alliance sales grew 300% year-over-year in the quarter, while Zero TQ absolute platforms grew 40% and continue to lead the market with exceptional robustness and sensitivity.
Customer response to the Zeo TQ has been outstanding, with Q2 orders more than double our expectations.
Its robustness was recently demonstrated by one of our leading customers, who was able to complete over 30,000 uninterrupted plasma injections.
MaxPeak Premier columns, which represent high-performance chemistry for complex separations, again grew north of 30% in Q2.
We recently launched our bio-resolved protein, an affinity column marking the first set of affinity columns we have brought to market in bioseparations. Additionally, we implemented light scattering on Empower ahead of target, and customer sales are already coming in.
Third.
Half of 2025.
GLP testing revenue grew 70% year-over-year, while testing revenue grew over 50% year-over-year. In India, revenues grew in the high teens.
We also delivered 200 basis points of price contribution, both in the quarter and for the first half of the year.
We're proud of waters, progress and are continuing to see robust momentum in our business. With that, in mind, we're raising our full year 2025 constant, currency sales, growth, guidance to 5 and a half percent to 7 and a half percent and raising our full year 2025, non-gaap EPS, guidance to 12.95 to $135. I will now turn the call over to amold to cover our financial results in more detail and provide further details on our guidance.
Thank you, and good morning everyone. In the second quarter, we delivered sales of $771 million, up 9% as reported and 8% in constant currency.
Orders outpace sales, reflecting solid momentum and setting us up well for further strength in the second half of the year.
By end market performance, we were led by Pharma, which grew 11%, and Industrial, which grew 6%.
Academic and government declined, 3%.
In Pharma, the Americas, Europe, and Asia each grew double digits.
In the Industrial Waters division, we grew in the mid-teens, with strong growth in food and environmental testing. Facilitated applications again grew significantly, up more than 30% in the quarter. However, TA declined 6% due to softness in America and Europe.
for macro sensitive segments, such as materials and polymer testing,
In Q2, we executed well and stayed close to our customers, delivering a resilient outcome.
The Americas' decline was in the low single digits, which was better than reflected in our assumptions.
China grew high single digits as we leveraged our local presence and new product innovations to win stimulus standard opportunities.
My region, Europe, grew 8%; the Asia group grew 14%, driven by double-digit growth in China, India, and Japan. The Americas grew 2%, which is low. Double-digit Palma growth was partially offset by softness in TA and academic and government.
My product line, instrument sales, grew 4%, led by high single-digit growth in Elsie and Masse systems as new product demand and replacement plans remain robust.
Recurring revenue grew low double digits, with service up 9% and chemistry up 16%.
In the quarter chemistry benefited from approximately 8, million of sales, pull forward, adjusted earnings per share, were 2 dollars and 95 cents representing 12%, growth or 11% growth on a constant currency basis.
Gap earnings per share were $2.47.
Gross margin for the quarter was 58.3%, and adjusted operating margin was 29.1%, reflecting the impact of regional sales mix and margin dilution from tariffs.
Our operating tax rate came in at 17.9% due to jurisdictional mix and discrete items specific to the quarter, creating a 5-cent headwind to adjust the DPS.
We expect this to normalize in the second half of the year.
Cash flow was $159 million.
After funding $23 million of capital expenditures.
In the quarter, we made.
120 million of us, tax reform payment and paid other items, totaling $20 million.
Our net debt position at the end of the quarter was $1.1 billion.
Looking ahead, we plan to use our free cash flow to pay down $100 million of debt and add to our cash position in the second half of the year.
Now, I will share further commentary on our full year outlook and provide our third quarter guidance.
We are executing well across our commercial priorities, and momentum remains robust.
Even with these dynamics, we are raising our full-year constant currency sales growth guidance.
To 5.5% to 7.5%.
We are also raising our reported sales growth guidance, now to the range of 5% to 7%.
We expect full-year 2025 gross margin to be approximately 59% and adjusted operating margin to be approximately 31%.
Expect $40 million of net interest expense, a $59.7 million average diluted share count, and a 16.7% tax rate.
With a strong sales momentum, we are also raising our EPS guidance. We now expect full-year 2025 adjusted earnings per fully diluted share to be in the range of $12.95 to $135.
This is approximately 9 to 10% growth.
While the current tariff landscape has improved versus our prior guidance assumptions, given the continued variability of tariffs and the trade policy environment, our tariff impact outlook for the second half of 2025 is unchanged.
Freight's World 2 remains only at current levels. There is approximately $0.06 of upside to our full-year adjusted EPS guidance.
Turning to the third quarter of 2025, we expect constant currency sales growth of 5% to 7%.
Net of currency translations, reported sales growth is expected to be in the range of 4.5% to 6.5%.
For EPS, we anticipate our third quarter adjusted earnings per fully diluted share to be in the range of $3.15 and $3.25. This represents approximately 8 to 11% growth. With that, I will now hand it back to Udit.
Thank you, Amal. The momentum in our core business remains strong; this strength provides the foundation for the next phase of growth as we combine with Biddies Biosciences and Diagnostic Solutions business.
Consistent with our strategy, the transaction accelerates our entry into multiple high-growth adjacencies. It also extends the reach of our proven execution model into other attractive, high-volume segments. The combined company, anchored by Leading Brands, generating 80% of the revenue and a 70% annual recurring base, creates a powerful engine for consistent growth and will drive resilience across future capex cycles paired with highly attained cost and revenue synergies. This positions the company for an impressive financial trajectory with 7% top-line and mid-teens, adjusted EPS, annualized, CAGR growth on a combined company basis.
I will now share some facts that address several key questions we've been getting from the investor community. This covers first, our growth assumptions for BD Biosciences and Diagnostic Solutions on a standalone basis.
Second, our assumptions behind the cost and revenue synergies.
Third, the fit and quality of the microbiology business, and the value creation upside opportunity that it holds, and fourth, integration leadership.
Beginning with our growth assumptions for the BD Bioscience and Diagnostic Solutions on a standalone basis.
From fiscal year 2019 to 2024, the Biosciences and Diagnostics businesses grew at a combined 5% CAGR, driven by approximately 5.5% growth in Biosciences.
And 4.5% in Diagnostics.
The biosciences figure includes the recent slowdown in drug discovery.
which has reduced kager growth by 150 basis points over this time frame.
Adjusting for this, the underlying growth potential of the BD business is between 5.5% and 6%, backed by long-term historical trends.
In recent quarters, the business has experienced three temporary growth headwinds: softness in Pharma drug discovery and U.S. academic and government funding.
A short-term supply disruption is affecting the Pactech microbiology platform.
And 3, a U.S. export ban on flow cytometry products to China.
We believe that.
Affect supply. Constraints have been alleviated with utilization. We are ramping back up across the site at the same time as export licenses have been reinstated.
Across High parameter flow cytometry access to China. Resolving this issue.
For farmer research and academic and government, we've taken a conservative approach in our growth rate assumptions to reflect ongoing industry headwinds. Our model prudently assumes a 40% decline in US ANG funding through 2027.
2025.
Importantly, we use bioscience and diagnostic solutions. Exposure to U.S. Aang and pharma drug discovery is limited at a low team's percentage of revenue.
Putting these facts together, the estimate is that the underlying BD Biosciences and Diagnostic Solutions business will gradually return to growth through the rest of calendar year 2025. We expect a slight decline in the quarter ending June 30.
With further sequential growth rate improvement and a return to positive growth in the second half of the calendar year, all of which is reflected in our model.
We then expected to reach 4.5% growth in 2026 and 5% growth in 2027.
before then progressing back to its historical growth rate of mid-single digits plus in 2028 and beyond.
When combined with the risk-adjusted $290 million in revenue synergies, we've laid out the expected growth. The total growth profile of BD Biosciences and Diagnostic Solutions is 7% on a CAGR basis.
These synergies are evenly phased over the 5 years, as commercial execution will kick into gear quickly by cross-selling, and high-growth adjacencies will progressively phase in over time.
Also see further upside to this growth as our model does not include growth contributions from much-anticipated new product launches, which are expected to positively impact growth in the underlying business in 2026.
This includes launches across the Clarity portfolio, the Autometry portfolio, and the Next Generation BACTEC launch in microbiology, along with other launches across the portfolio, all expected in 2026.
I recently visited BD San Jose site to see the new facts and discover the FACSFlow cytometer in action.
It impressively combines spectral and real-time imaging technologies to analyze over 50 cell characteristics, with exceptional resolution and sensitivity.
Many customers had delayed flow purchases in anticipation of the significant innovation.
With availability now in market, orders are running well ahead of target, just 2 months post-launch.
Now.
On to cost synergies and revenue synergies from this transaction.
We expect to deliver $345 million in adjusted EBITDA. Synergies by year 3 are driven by $200 million in cost reductions and $290 million in revenue. By year 5, the structure and execution plan behind these numbers give us confidence in how actionable and achievable they are.
On the cross side, the $200 million we outlined represents just under 5% of the combined company's cost base.
In my prior role integrating EMD, Millipore, and Sigma, we delivered synergies equal to approximately 8% of the total cost base.
If we simply match that outcome here, it would fully backstop our entire $345 million adjusted EBITDA synergy target with cost alone.
And remember.
More recently, in 2023, Waters executed a 5% headcount reduction in Q1 when demand softened, reducing spans and layers and aligning our cost base to match the changing realities of the market without compromising performance and growth. That same discipline underpins our Synergy plan.
The $200 million in model cost synergies will come from three main areas, split across manufacturing and supply chain, commercial infrastructure, and indirect procurement savings.
In manufacturing and supply chain, we expect to generate approximately $80 million in savings, with $40 million driven by sight rationalization.
A further $30 million comes from direct procurement savings, which amounts to just 2.5% of our direct materials spend compared to a market benchmark of 5%.
The remaining $10 million comes from Freight Lane optimization, which does not include upside potential from additional sourcing leverage.
Commercial infrastructure, service, and technology streamlining are expected to contribute $75 million.
Nearly half of these savings come from consolidating central functions, inside sales, and sales operations, and do not impact quote or carrying reps or field service engineers.
The other half reflects duplicative digital infrastructure and central service oversight, as there is no need for multiple CRM systems, e-commerce tax, or service oversight organizations.
In India, we've taken a deliberately conservative approach. Assuming indirect procurement contributes just $20 million, or less than 2% of the combined direct and indirect spend.
The remainder comes from insourcing outsourced services to our Global Capability Center, where we already deliver equivalent output at a fraction of the cost. Beyond that, we see meaningful potential upside through rebalancing roles currently concentrated in high-cost geographies across the globe into more cost-efficient hubs and regional low-cost centers, offering additional flexibility and long-term scalability to the cost base.
On the revenue side, net of risk adjustment, we have mapped out a $290 million opportunity over five years that spans three clearly defined and execution-ready areas.
This includes $150 million from commercial excellence.
115 million.
From high-growth adjacencies and $60 million from cross-selling.
Commercial Excellence is built on the same model that transformed Waters over the past five years.
The BD business we are acquiring closely resembles where Waters stood in 2020.
30% of the installed Waves is due for replacement.
70% of revenue comes from the agents, yet only a limited percentage flows through e-commerce.
And only 40% of the installed base is covered under a service plan.
These are all levers. We pulled at Waters with dramatic impact by applying the same playbook to BD. We believe that $115 million is fully within reach.
For example.
Increasing e-commerce attachment by 20% on biddies, $1.8 billion, reagents business. Like we have achieved with Waters, this unlocks an estimated $75 million in additional revenue alone.
This math is based on what we have seen firsthand at Waters, where an incremental dollar is generated for every $5 shifted to digital.
The next $115 million comes from three high-growth adjacencies: bioanalytical characterization, bio separations, and mass spec in diagnostics, each contributing $35 to $40 million.
In bioanalytical characterization, flow cytometry and PCR are playing a growing role in large molecule QA/QC testing.
Bringing these technologies onto Empower will immediately enhance their capabilities and utility in regulated labs, similar to how we integrated Wyatt earlier this year. For Prudence, our $40 million revenue synergy estimate only reflects adoption in process development labs and does not include the larger QA/QC opportunity.
Meanwhile, we know firsthand that a leading cell therapy manufacturer is actively looking to deploy flow cytometry in QA/QC for production.
But it has been held back by the lack of compliance enabling informatics. Like empower.
In BIO separations, traditional chemistry is reaching its limits, particularly for large molecule applications where biological specificity is needed and requires antibodies.
In response, we recently launched our Bio Resolve protein affinity columns.
Biddies deep antibody library will accelerate our product roadmap, unlocking multiple projects with joint innovation that we could not advance alone, and creating an estimated $35 million in new opportunities.
In diagnostics, upstream proteomics is identifying new biomarkers for early disease detection and residual disease monitoring as the field advances.
Mspec is becoming an essential tool for multiplex diagnostics. This trend is validated by a leading diagnostics company integrating Mspec into its high-throughput platform.
Through BD.
We gain immediate access to a global network of specialty diagnostic labs supported by a service infrastructure of the 24-hour premium plans.
This channel and service capability alone.
Supports a $40 million revenue opportunity for us.
Beyond this BD strength and regulatory asset development and automation, provide a platform to scale and expand our mass spec diagnostics menu.
None of this upside is reflected in our base case assumptions.
Finally, Crossing is another significant revenue opportunity. Biddies' strong presence in pharma clinical labs gives Waters access to customers we have historically struggled to reach.
But has lacked penetration due to limited channel access.
We estimate this opportunity at $60 million in Pharma, DMPK alone, and have not counted.
Cross-selling opportunities in other lab settings.
Further across selling assumptions. Do not include any contribution from Mass Spec ident mass spec for identification in microbiology Labs or Farmers to reality testing in qaqc applications which are 2 areas. I will cover in a moment.
These revenue energies, combined with the return of BD business to more normalized growth, give us a strong level of conviction in delivering on the financial plan presented at the announcement of the transaction, with a 7% revenue CAGR and a mid-teens adjusted EPS growth CAGR between 2025 and 2030.
Now.
I will cover the fit and quality of the microbiology business and the value creation upside opportunity that it holds.
First, the quality of the assets we are bringing from BD into Waters are exceptional, especially in flow cytometry and microbiology.
VD is a pioneer in flow cytometry and has consistently driven innovation and enabled critical advances across oncology, rare disease, and immune health.
It has a well-adopted presence in midstream farmer settings, such as clinical labs, and is increasingly moving downstream into manufacturing.
Considering a premier position in downstream, the logic for this part of the business is very apparent.
What is less apparent at first glance, though, is the incredible strategic fit of the microbiology business, which is equally as compelling and holds significant value creation opportunity.
BD is a leader in microbiology with a legacy of first in infectious disease. Diagnostics and is an Innovative provider of total. Workflow solutions for clinical Labs, approximately 2/3, of biddies, 1.8 billion, diagnostic Solutions, business comes from microbiology,
It benefits from consistent growth trends tied to infectious disease testing.
Antimicrobial resistance monitoring and increasing demand for lab automation.
With its large installed base and strong brand recognition, we see a clear opportunity to enhance the performance of the microbiology business by uplifting its commercial execution and operational performance.
This is particularly relevant because its revenue growth rate has trailed the competition by 180 basis points on a keel basis.
Between 2019 and 2024, according to publicly available information,
We faced a similar situation at Waters five years ago.
To focused and disciplined execution, we have since delivered outperformance versus the industry.
Now, based on our extensive diligence, we are confident we can repeat the success here.
And the timing of this opportunity is particularly relevant, with the launch of the Next Generation back tech system next year in 2026.
Together with our execution, this will offer an added innovation catalyst for system replacements and microbiology labs.
At the same time, the microbiology business has a highly actionable 700 basis points gross margin expansion opportunity.
This clearly presents clear potential to add further value creation by applying Waters' operational rigor, and is not included in our underwriting model.
Additionally, we see 2 potential growth. Vectors that are uniquely suited to Waters in microbiology that are not included in our Revenue. Synergy assumptions first is mass spec for microbial identification which is an attractive 500 million Tam growing High single digits that Waters does not serve today.
By combining water strength and mass spec with biddies significant installed base and sales Channel across over 10,000, clinical Labs, we are well positioned to attach our Mass specs to BD systems and enter the space.
This is similar. So, we have successfully attached our LCS to wires, multi-angle light scattering detectors.
Microbiology is a critical QA/QC tool in pharmaceutical manufacturing for sterility testing. Yet neither BD nor Waters currently serves this segment. BD has the right product portfolio, but has lacked channel access or expertise in manufacturing environments.
Attractive qaqc segment.
Finally.
I will discuss integration.
Over the last 5 years, we have assembled a leadership team with deep experience in transformation and large Integrations. I am pleased to announce that Chris Ross.
Currently senior vice president of global operations at Waters will lead the integration office of our combined, of our combination, with biddies, bioscience and diagnostic Solutions business. This brings extensive experience in large scale Integrations. Having worked with me on the EMD Millipore, Sigma alric merger.
Which was the largest merger in life science tools at the time and delivered record, sales growth and margin development.
His proven ability to unify teams, integrate complex organizations, and deliver outstanding results makes him exceptionally well-suited to lead this critical task.
I will turn the call back to Casper.
Thanks, Susan. That concludes our prepared remarks. We are now happy to open the lines and take your questions.
We will now begin Q&A day. If you would like to ask a question, please use the raise hand feature at the bottom of your screen. If you are dialed in by phone, press *9 to raise your hand and *6 to unmute. Please accept the prompt and unmute your audio when called upon.
As a reminder, we are allowing 1, question and 1 follow-up.
We will wait a moment to allow the queue to form.
Our first question will come from Jackman with nephron. Please go ahead.
Thank you. Good morning, and I appreciate all the color on the quarter and the deal here.
Um,
first question is on the quarter, just the high single digit growth in water segment instruments that you put up. Could you unpack for us what, you're seeing just an update in terms of the replacement cycle and Elsie and then also competitive Dynamics. Um, seems like Alliance is doing well, but any color on what you're seeing in terms of new winds would be helpful.
But uh, Jack, good morning, and thank you. Thank you for your question, look. Um, lcms continue to go high single digits and uh, it grew both across Pharma and the industrial segments in Pharma the replacement cycle is going just as planned. Um, we're seeing excellent replacement across large Pharma customers, especially in the US and Europe, uh, as well, uh, as uh, as increasing growth in the cdmo, customer base, and the genetics customer base. Right? So Elsie is growing very nicely and of course, it's aided by Alliance is which grew 300% versus the same quarter last year. So really, really great progress on that front. On the mspec side, um, be fast testing continues to continues to augment the growth and
More importantly, we recently introduced the RTQ Absolute XR instrument. This basically takes the highest level of sensitivity in the market that is available with a TQ Absolute and extends its robustness. A customer recently took plasma samples and was able to inject 30,000 injections without having to service the instrument. That number has gone from 3,000 to 30,000, right? So, really significant improvement in robustness, and it allowed us to enter the DMPK laboratories for this customer. So, we are really pleased with LCMS progress, aided by the...
Uh, the new product introductions.
Great. And then 1 on the deal, I feel like over the last few weeks this, you know, trying to unpack this up, you know, these areas where 1 plus 1 is greater than 2 and the mass spec and maldi has been for microbiology has been getting a ton of attention. Can you just talk about?
Like, I don't know if there's any color you can share on rough timeline to bring a new product, to Market what you can do today in advance of a deal closing. Um and then just kind of the importance of the FDA strategy. Um, any color on all those points would be great. Yeah, I'd say it's a it's a great question Jack. Look, I mean
I first, I remind you that none of what we talked about on microbiology is included in the deal, Mark, right? Neither the operational turnaround. Uh nor the gross margin expansion and not the multitask opportunity that you just mentioned. Now, when we started looking at this business, our team got super excited because we have a whole bunch of mass spec experts sitting in sitting, in the UK, who actually looked at this close to a decade ago.
2 years, right? Say 3 to 5 years to reach fruition. Um, at the earliest 1 could introduce a product say, 2 to 3 years at the, at the latest, probably 4 to 5 years, but super exciting opportunity. I think the time is what roughly around 4 to 500 million. Um, so I won't get excited that something comes tomorrow, but our teams I can tell you are very excited with the opportunity and just to add to that, right? I mean we shouldn't discount, the biologics, stability opportunity, that's pretty meaningful. It's a channel that we completely owned in manufacturing qaqc and their timing could be even earlier.
Your next question will come from Tau Peterson with Jeff.
Great, thanks. Um, I want to probe a little more into the lcms. Uh, you know, growth High single digits Europe, mid teens in the first quarter. It sounds like you're not calling any kind of slowdown in the replace replacement cycle, given at the center tariffs, but, you know, as you head into more difficult comps in the back half of the year. I'm just curious. If you could kind of lay out what you're expecting, uh, and then anything we should, you know, uh, assume from zivo XR from the asms launch and then separately. Can you also touch on tha down? 20% in the Americas? Uh, and maybe just give us a backstory there. Sure, sure. So I'll start and I'll let them all. Talk about the assumptions for the back half of the year. Uh, psycho really pleased with the replacement cycle. I mean, our Downstream presence in Pharma uh, in qaqc and later stage development,
Uh, in cdmos and genetics really allows us to leverage the replacement cycle. Um, and it's generally insulated with any discussions from M mfn or any other. Uh any other Trends. We're not seeing any slowdown across genetics or large Pharma and in fact cdmos are picking up uh, quite uh, quite nicely second. You asked about the TQ XR um, growing super, super well. I mean customers are. I mean, it's it's exceeded all our expectations in fact, over the last 5 years, this has been the fastest launch of a new product. Uh, and we've had really terrific launches, uh, in The Last 5 Years. And as I mentioned, um, customers especially in dmpk who use rather dirty samples for plasma, have been able to go from 3,000 in injections to about 30,000, for the first time, it allowed us to displace a competitor in a farmer. Dmpk laboratory with that sort of performance, so very pleased and let me just comment on tha for a minute. And then I'm going to hand it over to Amal, to talk about the back half of the year and the assumption
And the TA side look. I mean the.
Macroeconomic conditions and the Tariff uh the Tariff challenges have impacted especially in the US and some parts of Europe, the Material Science and polymers and they slowed down spending in ta and that led to specially in the US a decline of roughly 20% in RTA business long term. This is a fantastic business with great, great margins. I think, in the short term, there is a, there is a challenge, especially with this customer segment, which
Which happens to be the largest one in the US.
I'm all, yeah. And so for the back of your not expecting things to slow down, right? I mean on the recurring Revenue,
Our overall assumption is slightly under 7% growth, and that's driven by 2 things. 1 is there is 1 extra day in the second half of the year. That's about $5 million less. The crew up of the 8 million dollars of pulled forward from the first half.
On instrument just like we've done throughout the year. We we go in with a 5% assumption knowing well that our momentum is well about that. And so we sort of de-risk our assumption for the remainder of the year. So we haven't carried forward the momentum that we are seeing in the first half into our second half guide. And there you will see our Q3 to Q4 ramp is also consistent with what we achieved last year.
Yeah, and just one other comment as we look ahead. I mean, the funnels, especially in large pharma, in CDMOs, and in genetics, are extremely strong, right? And so, we're very confident that this trend of replacement and growth in downstream, QA/QC segments continues.
Okay, that's helpful. And then for the follow-up. Can you comment on China? Uh, you know, you had a nice acceleration on a harder comp, uh, house sustainable. Is that you talked about some new initiatives, maybe just highlight and I didn't hear you call out stimulus. So it doesn't sound like that, that contributed
And had terrific growth, especially in cdmos. In fact, Taiko, we had, uh, 8 of our top Chinese customers here at our headquarters, for 4 days of workshops and, uh, this range from cdmo customers from customers, who are in large Pharma, um, in uh, in in China. And they really wanted to study our new product portfolio, especially our chemistry, our column chemistries, and how they, how they're relevant for for large molecules. Uh, as the Biotech Industry, picks up in China. Uh, and equally, uh, looking at our revitalized instrument portfolio across Alliance is as well as as well as mspec boards really well for what we expect going forward in China. But that said, we've still been as usual. We've been a bit prudent for the back half of the year in in our assumptions, we're still assuming low to mid single-digit growth um for China for the back off of the year and very modest stimulus impact. While we know there's another similar coming uh especially for the custom segment. Yeah. Just to I mean look
Angie was up 8% in China. Uh the only weak spot in China by far, is branded generics LC replacement that hasn't kicked in.
Which is what we've said throughout the year, and we expect it to slowly ramp in, uh, and we'll sort of phase out in the next few quarters.
Your next question will come from Rachel vat install with JP Morgan. Your line is open, please go ahead and unmute
you guys. So I want to dig into a little bit on the margin side, it looks like recurring revenues were solid in the quarter, but that operating margin was a little bit lighter than what street was expecting. So can you unpack some of the drivers there for us? Was there anything in terms of some of the terrorist Dynamic that we should be aware of? And does that also make it where you're seeing this? Operating margin be a little bit lighter in that low 30% range in the third quarter. And then, how should we think about that margin evolving into fourth quarter? Because it looks like there's a decent sized step up there. Thank you.
Yeah, so look. I mean, Rachel, most of the margin impact was on the gross margin line.
And it was combination of 2 things. Uh 1 is just the geographical mix. Uh and the other is uh you we incurred some cost associated with tariff, remediation that sets us up really well for the second half of the year.
Uh but if you look at it from a EPS point of view, most of the EPS headwind really came in from the tax rate and that was almost 5 Cent headwind on the EPS during the quarter. And that's very specific to the quarter, in terms of uh discrete items that are specific and we think over the second half of the year that will even out.
In terms of the margin, we'll see progressive improvement in margin as we go through Q3 and Q4 versus last year. And again, in Q4, as you know, volume leverage kicks in.
Perfect. And then, for my follow-up, I just wanted to ask about some of the poll for comments that you made. So you called out that there was roughly $8 million in pull forward in the quarter. Can you walk us through your conviction that it was just that level, and some of the moving pieces on that front? And then, should we fully take that out of the third quarter, or is that coming out of the back half overall for a net neutral impact for the year?
Yeah, so, I mean, look, you know, we’ve looked into the order patterns we’ve discussed with customers. That gives us great sense of conviction that $8 million is the level of full forward in these numbers. It’s hard to predict whether it will come out of Q3 or Q4, or may not even come out of this year at all because some of it was associated with things people have produced, while other is sort of people proactively building their safety stocks, right? So, prudently in our guide we assume that it comes out evenly out of.
Q3 and Q4, um, but it remains to be seen whether it does.
Your next question will come from Punnett Essay with lying.
It's been quite conservative for the back half of the year and assumed that the decline continues at the high single-digit issue, sort of range uh, for the balance of the year. And that's for the for the global for the, for, for, for globally. And in AMG in the US a bit bit stronger. Aang, in particular, in China did extremely well, uh, high single-digit growth and some of that had to do with the localization of our portfolio. And uh, there was a modest stimulus impact, but not assuming any sort of funding return in our Baseline for the second half of the year in in academic and government. And yes, we've been reading the same headlines you have. It's gone from 40% reduction to 10%, maybe flat, but we have not assumed any sort of funding that would come back at this stage.
Got it. Okay. Um, and then, um, as we think about, uh, 26, you gave the 4 and a half, uh, Point growth number for the year. Um, as you think about the 290 million Synergy plan, could you talk about, um, the sequence of, um, you know, an order or sequence of, uh, events that you want to focus on e-commerce service attachment, uh, instrumentation replacement? Um, you know, sort of how should we think about, um, you know, all that contributing? Uh, after the acquisition does close in, um, in early 2026.
Yeah, so so we need the beauty of this. This transaction is that we can immediately apply what we've been working on at Waters for The Last 5 Years, right? I mean, you will see, on day 1 an impact of instrument replacement, as new products have come across flow as well as microbiology, right? So, you'll see immediate impact of basically taking our instrument replacement discipline occurring in sort of the first couple of months. Second, you'll start to see an immediate impact on the Service attached, right? I mean this is stuff that we do now day in day out at Waters uh and we're starting at a 40% service, attach rate for a pretty nicely installed instrument, uh, instrument based and third on e-commerce. There's a very significant potential, right? And we've gone from less than 20% to over 40% at Waters. And uh, there we expect to again, uh, immediately see impact, right? So, these are 3 operational things that should provide.
Provide help us hit the ground running. And then, when you look at the other categories, for LCMS and diagnostics, all we've assumed is that we have access to a larger service team and a larger commercial team that allows us to get into every laboratory, every specialty diagnostics laboratory where Mass Tech belongs. This is something that we don't have today that should hit the ground running quickly. Second, we've assumed that flow and PCR belong in every process development lab globally and where we have access as Waters. But we really don’t. And again, this is something that should impact us.
Really quickly. And then finally uh on the microbiology segment, we feel that the the imminent opportunity to um to take microbiology into qaqc into sterile Testing Laboratories is also immanent, right? So several of these things, we will be able to implement on day 1 and take just a discipline that we have had have had Waters and apply it. I let a more comment on the sort of reconciling it with the um, the assumptions that we made from a revenue perspective and how much upside there is? Yeah, I mean, look at the end of the day, as with the outline, there's just a couple of things in there that will take a little bit time. Like the bio separations columns, and then mobilizing the channel on the dmpk effort. And then keep in mind, there are additional opportunities that we laid out. Uh, so in general, we believe a straight line approach over the 5 years is a reasonable assumption on these synergies.
Your next question will come from Sunjin Nam with Scotia Bank.
Hi, thanks for taking the question. Um, just
About your drug discovery business. Um, outside, you know, for your pharma and market, recognizing that's a very small part of your business, just kind of curious how that's been performing and what the outlook might be. Uh, it's just trying to get a sense of the whole market dynamic for the biotech and pharma spending.
Yeah, so I mean look, broadly speaking.
uh,
the market situation has largely not changed. What we had outlined before farmer drug discovery, which is
In China versus on the other hand, large Farmers cdmos. We seeing healthy replacement cycle, healthy funnel, activity, and healthy order conversion.
Gotcha. Thank you. Um, and then just to follow up uh, in terms of uh, tariffs, you know, it sounds like you guys are building a quite a bit of cushion there. For the second half was curious about tariffs, uh, specifically with India currently, um, just assuming, that's not affecting your generic business or, you know, currently obviously, and then for the foreseeable future, it kind of what what's your outlook there. I know there was a question earlier regarding kind of the Pharma tariff benefits and things like that, but just kind of curious what, you know, should
What? What? The expectations are currently... Thank you. Yeah, I mean, right now, the funnel activity in India is very healthy.
And and customers are ramping up capacity, particularly for the cemig glutide genetic opportunity, as well as for the upcoming patent Cliffs within small molecule, uh, we're not seeing the level of fear with our customer base associated with the tariffs and their General expectation is, uh, payers will cover the impact or if there are Financial incentives offered they will leverage those financial incentives. Yeah, I mean so far since you just to build on that so far, I mean we're very close to customer the genetics customers in India. They visit our sites quite often.
Um, and I know several of the CEOs, very well, right? So look, none of them at this point has heard or seen any impact on their business and they're ramping up, um, like they have in the past. Uh, even if there is a tariff that gets implemented on India, I think the expectation is that it's mostly on the farming community and Janette the genetics Community, which is basically exporting medicines to the United States, are 1 of the big contributors to lowering costs of medicines in the US. So, we don't expect that to be to be hit. The customers have not seen any impact at all so far and they're ramping up nicely.
Your next question will come from Katherine Schultz with beard.
Hey guys, thanks for the questions. Um, maybe first, just on the synergies on the 115 million revenue synergies from the commercial, Excellence initiatives? You know how much of that is from biosciences versus the diagnostic side? And, you know, maybe how does that vary by the 3 years sub areas?
yeah, look I mean instrument replacement is largely on the bio Sciences side versus the e-commerce potential, as well as the Service attached potential spreads across both the businesses
Okay. Got it. And you know when you talk about repeating the success you've had at Waters with the microbiology business, it's what makes you confident that the underperformance issues that they've seen are, are similar in that case and there aren't different Dynamics there in terms of competition or or from a technology platform standpoint.
So, look, I mean, that's that's a great question. But I mean, we've not, I'll remind you. We've not underwritten that in any of the synergies we've outlined. But that said, um, there's 180 basis points difference between the other competitor in the market, uh, versus Dede in the microbiology space, right. In in terms of growth um about 100 is Basis, points comes from pricing, right? BD has been quite conservative just given the portfolio was older. We expect the bactec launch, which again, I've seen personally uh the bactec instrument in operation and the automated platform in operation at the Baltimore site uh of BD. Um, it's fantastic. It's a leap forward in the in the segment and that should allow uh allow us to command better pricing. And that's more than half of the Gap and the remaining 80 basis points. We feel comes from the operational initiatives that you just asked about on the Service attached uh and uh and and equally uh equally on e-commerce, right? So we feel as
Adding those onto the 100s and pricing with a new product you should see additional additional penetration and on the gross margin side. BD has already planned uh that they're already implementing uh to improve the gross margin. The Gap is about 700 basis, points versus the, the key competitor and uh we just plan to accelerate uh that that plan that's already in motion.
Biology for, for micro identification. Is something again, we haven't put into the plan, so feel very good about where we will start and, and see a lot of strategic, uh, merits to, uh, to taking it forward. And I think in general, I mean, you refer to the Last 5 Years of waters. I mean, you, you know, as well, I mean, we're pretty transparent about the kpis we use. I mean, so, the next 5 years will be like the previous 5 years, where we'll State the 5 6 kpis.
And every quarter uh in a boring way, we will show you progress against it so nothing. If you're not fact-based and uh somewhat boring.
From Dan Brennan, with TD, Cowen.
Great. Thank you. Uh, thanks for the questions here. Maybe just 1, just back to lcms. Yule. I know we've talked about earlier. So,
What what kind of assumed in the back half of the Year there any any color? I know you talked about book to Bill ahead of 1 there anything on the The Funnel to support that because you know voila high school, digital growth is impressive. It is you know, off a higher growth than the first quarter. So just trying to just understand the trends there.
Yep. The funnels are exceptional then. Um, and it's especially across large farmer. Uh cdmos which are picking up activity across us, China and genetics in India, continues to contribute, right? So, uh, that's on the LC side on the Mass Effect side. I mean, the TQ absolute and the TQ absolute XR. Now have terrific. Terrific reception from customers across testing.
And now increasingly across plasma testing in dmpk Laboratories and segment. We hadn't been able to penetrate in the past so feel extremely good about
Both the demand that we see in our funnels and, uh, and the differentiation of the product portfolio that is meeting these meeting these demands. And I mean, overall, like you've done through the year, it's assumed at 5% instrument growth, which is not reflective of the funnel strength and the momentum in our business.
and the ramp from Q3 to Q4 is also in line with
Last year, so that's sort of the risks are outlook for the remainder of the year.
okay, great and and then maybe just 1 other, I know there was a question on China, obviously, terrific quarter versus
What you guys expected? And you maintain the guy who do you sell for conservatism Chris? Is there anything in the quarter itself? I know there's a bunch of things that went right, anything in the quarter itself that would lead you to believe it was temporary. And I know you touched up on stimulus but I just wondering if you can elaborate a little bit more on kind of what you're seeing specifically there. Thank you. So so I'll answer your stimulus question at the end. Let's start with Pharma first. There's increasing cdmo activity. As I mentioned, there are 8 of our top customers who are visiting us and at 4 days of workshops looking at our product portfolio and they're very excited to support the the Biotech Industry in uh, in China. And, you know, that that's starting off a low base over the last couple of years after biosphere, the cdmo industry was under pressure, it's picking up life very nicely.
In China and we have great market share their second on the industrial segment. The battery testing is doing extremely well, where we saw in the US and Europe, slow down in the Plastics. And, and applied material, segments, we're seeing strength in the battery segment in China that really strengthens the growth of, uh, the industrial segment there and in the AMG segment. It was high single digit growth. Uh, some of it had to do with the fact that we have a completely localized portfolio where high-res Mass Spec in particular did extremely well. Um, and uh, and there was a modest impact of the stimulus. Now, going forward. Uh, the cdmo trends, the battery testing Trends are going to continue. We've just sort of been a bit conservative to not just take 2 data points and start drawing a line. Um, and then the third piece is around academic and government. The local portfolio is doing well, the distributions helping there's a stimulus coming up. But again we've sort of said, hey you know, let's just be a bit conservative about what we're seeing in in China so far.
I hope that helps.
This concludes the Q&A portion of the call, I will now hand it back to Casper.
Thank you. Leila this. Concludes our call. We look forward to connecting with many of you at
That's upcoming events and conferences.