Good day, ladies and gentlemen and welcome to the Third Quarter 2020 Mettler-Toledo International Earnings Conference Call. My name is Jamaria, and I will be your audio coordinator for today. At this time, all participants' lines are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thank you, and good evening everyone. I'm Mary Finnegan. I'm responsible for Investor Relations at Mettler-Toledo and happy that you're joining us. I'm on the call today with Olivier Filliol, our CEO; and Shawn Vadala, our Chief Financial Officer. Let me cover just a couple of financial or administrative matters. This call is being webcast and is available on our website. A copy of the press release and the presentation is also available on our website. Let me summarize the safe harbor language, which is outlined on page 2 of the presentation. Statements in this presentation, which are not historical facts, constitute 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, level of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties, please see our recent Form 10-K and other reports filed with the SEC from time to time. All of our forward-looking statements are qualified in their entirety by reference to the factors discussed under the captions Factors Affecting Our Future Operating Results and in the Business and Management Discussion and Analysis of Financial Condition and Results of Operations sections of our filings. Just one other item. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the use of and the differences between non-GAAP financial measures and the most directly comparable GAAP measure is provided in our Form 8-K. Let me now turn the call over to Olivier.

Thank you, Mary. Good evening everyone. I hope this continues to find you safe and well. I'm calling in from Switzerland tonight, while Shawn and Mary are in Columbus, Ohio. I will start with a summary of the quarter and then Shawn will provide details on our financials. I will then add some additional comments, and we will open the lines for Q&A. The highlights for the quarter are on page 3 of the presentation. Local currency sales increased 6% in the third quarter, which was much better than we expected. Demand in our end markets continues to be negatively impacted by COVID-19. However, we had excellent growth in China and the performance of our Lab business was very strong. With our strong product portfolio and the innovative sales and marketing strategy, which we have successfully adapted through the challenges of the new environment, we believe we are gaining share. We have very strong growth in operating margins, due to the benefits of some of our temporary cost actions, as well as our ongoing margin and productivity initiatives.

Thanks, Olivier, and hello everyone. Sales were $807.4 million in the quarter, an increase of 6% in local currency. On a U.S. dollar basis, sales increased 7%, as currency benefited sales growth by 1% in the quarter. On slide number 4, we show sales growth by region. Local currency sales increased 3% in the Americas, 4% in Europe, and 10% in Asia/Rest of World. China local currency sales increased 17% in the quarter. The next slide shows sales growth by region year-to-date. Local currency sales declined 1% in the Americas, 2% in Europe, and increased 1% in Asia/Rest of World. China local currency sales increased 5% on a year-to-date basis. On slide number 6, we outline local currency sales growth by product area. For the quarter, Laboratory sales increased 9%, Industrial increased 1%, with Core Industrial up 8%, and Product Inspection down 9%. Food Retail increased 5% in the quarter. One question I know you have is, how much benefit did we have from COVID tailwinds in the quarter? We estimate our local currency sales growth benefited between 1% and 2% in the third quarter from COVID.

Thank you, Shawn. Let me start with some comments on our operating results. Our Lab business had outstanding growth in the quarter. Pipettes had excellent growth and benefited from COVID-related activities. Process Analytics and automated chemistry also had very good growth, driven by the overall strength in biopharma trends. Most other product lines showed modest growth. Sales growth in all regions was strong. We expect the strong biopharma trends to continue to be favorable as we enter 2021 and believe the first half of the year will benefit from vaccine research and testing as well as bioproduction scale-up and production. We spent a disproportionate amount of R&D and sales and marketing investments in Lab. And believe we are well positioned to capture growth. In terms of our Industrial business, Core Industrial was up 8%, driven by strong double-digit growth in China and slight decline in both Europe and the Americas. China is benefiting from strong demand across most product lines, in part due to pent-up demand. Overall, we are very pleased with the resiliency of our Core Industrial businesses in 2020, given the challenges of the end market. Our outlook for this business is solid, as we expect to continue to identify pockets of growth. However, we are not immune to the overall economy. Product Inspection was down a little more than we expected in the quarter, with declines in all regions. In the near term, market conditions continued to be challenging, as large packaged food companies are focused on COVID-related safety, in the manufacturing site and on operational execution. We are more optimistic for Q4 and are well positioned once packaged food companies return to a more normal operational mode and believe we will benefit from pent-up demand.

Operator?

Our first question will come from Vijay…

Operator, hold on just one second. Olivier, are you still on the line? Operator, I think, Olivier was disconnected. Can you connect him?

Okay. One moment, please. Hi, is this Olivier? Hello, is this Olivier?

Operator, we are on here, but should Olivier just dial in again to the same number?

He is dialing in.

Yes. Where did – you need to guide me. I don’t know…

Olivier has rejoined us.

Thank you.

Okay. Yes, I am back. Apparently, I will be to update soon and just signaling me by video that I – where I stopped. So I will continue on and I will just finish instead talking about marketing initiative and I am coming here at this point. Digital sales and marketing tools are one component. We also use advanced data analytics and machine learning to identify thousands and thousands of customer sites that have potential sales opportunity. During this past year we also leveraged heat map of customer segments that helped us navigate COVID resilience and recovery. Internally these opportunities generate sales alert that we provide to our front-end organization. The alerts include insightful information such as product descriptions, cross-selling opportunities, contact data, CRM activity, site pictures and specific value-selling guides for associated products and more. We have structured our front-end so that back office sales resources can qualify these sales alerts. They have knowledge of our customers and can determine if the computer-generated alerts have the expected potential and if so the ideal timing for customer interaction. This helps us guide our direct field sales force to the best opportunities and with all the necessary materials for an effective customer interaction. We also leverage our front-end via telesales reps to sell to smaller or less complicated accounts. The digital sales tools available to our field force are also fully available to our telesales teams thereby supporting their efforts to articulate the value of our products to customers. With the investments we have made in inside and telesales resources over the last several years, our front-end is now structured. The field reps spend the majority of their time on non-customers or existing customers with strong cross-selling potential. The combination of our strong product portfolio, the innovations we have made to our sales and marketing tools and the investments we have made over several years to our front-end organization is leading to accelerated market share gains versus our direct competitors. There are still relatively small gains overall but they have allowed us to help offset the challenging market conditions of the COVID environment. The COVID challenges have helped us accelerate improvement not only in our sales techniques and approach but also in our margins and productivity initiatives. Our supply chain teams around the world had to overcome numerous obstacles this year including obtaining necessary protection supplies, compensating for component shortages, orchestrating global safety stock, navigating freight capacity and adapting to changing trade restrictions. We were one of the first manufacturing facilities to have opened in China and we did not have a single day of shutdown in our western facility. At the same time the team continues to make progress on their Stern Drive initiatives which are focused on productivity improvements in our manufacturing and back-office operations. Globally more than 130 projects have been completed this year with 350 projects currently underway. That concludes our prepared comments. The current environment continues to be the most challenging and unique we have ever faced. We are executing very well and while much uncertainty still exists in our markets, I remain confident, we can continue to gain share regardless of economic conditions and are well positioned for solid results in 2020 and 2021. I want now to ask the operator to open the line for questions.

Your first question will come from Vijay Kumar with Evercore ISI. Please proceed with your question.

Hey, guys. Thanks for taking my question. Congrats on a really good print here. Olivier, maybe on the China comments, the 17% growth here, could you maybe help clarify what portion of that 17% was perhaps pent-up demand? And I think you guys mentioned one to two points of COVID tailwinds. Is the COVID tailwind the same as pent-up demand, or is that a separate item?

Let me address the second part first, as it's straightforward to respond to. No, it's not linked to pent-up demand. The positive impact from COVID primarily comes from our tips business with Rainin and biotech, which cater to the COVID testing markets. So, while we are experiencing that positive effect, it isn't classified as pent-up demand. In terms of the growth in China, it's challenging to isolate the pent-up aspect. However, if we look at the year-to-date performance, earlier in the year, China experienced a notable decline, but we have seen a strong recovery in Q3. A significant part of that can be attributed to pent-up demand, showing a V-shaped recovery. Additionally, I believe we have captured good market share in China. Our team performed exceptionally well throughout the COVID crisis. Even during the lockdown, they maintained contact with customers and quickly resumed deliveries, building strong confidence among our customers. Furthermore, the global rollout of management changes in our go-to-market strategy, which I mentioned earlier, particularly benefited us in China during Q3. There were various factors that contributed to our impressive growth, and pent-up demand was definitely one of them.

That's helpful. And then now for my follow-up, I guess when you look at the 2021 preliminary outlook 4% to 6%. I'm curious are you assuming any share gains within that 4% to 6%? And perhaps comment on what's being assumed for the different segments.

Let me address the first part, and then Shawn can cover the second part. Regarding share gains, we do anticipate some. However, our strategy focuses on achieving consistent small share gains annually rather than aiming for large increases. These small gains accumulate over time and contribute significantly to our organic growth. Recently, we've seen a more substantial shift in share gains, and I hope that next year we can achieve a slightly above-average gain, although not at the same level as the last two quarters. Shawn, could you take the second part of the question?

Yes. Hey, Vijay. Let me start first with the product categories, and then I'll talk about the regions. So for 2021, we currently expect the Lab business to experience mid to high-single-digit growth. In the Industrial business, we anticipate the Product Inspection segment will see mid-single-digit growth, while the Core Industrial business is expected to be more like low single-digit growth. We also foresee Food Retailing reflecting low-single-digit growth. From a regional standpoint, we believe Europe will show low to mid-single-digit growth, whereas the Americas and China should experience mid-single-digit growth.

Appreciate the comments, guys. Thank you.

Thank you.

Your next question will come from Tycho Peterson with JPMorgan. Please proceed with your question.

Hey, thanks. Actually Shawn, I want to pick up right where you left off on Europe, being flat in the fourth quarter low to mid-single-digit next year. Obviously COVID cases going up a lot there. The Horizon's 2020 budget has been cut. What gives you kind of confidence in that market being relatively stable?

Our guidance at this moment is based on the assumption that market conditions will stay the same as they are today. While the situation with COVID is unpredictable, we are not currently facing any issues with customers restricting our on-site installations or behavior changes. We acknowledge that there are risks associated with COVID. Our guidance for the fourth quarter in Europe shows little change, being slightly down from the third quarter. For next year, we anticipate low to mid-single-digit growth.

And then, Product Inspection, you mentioned that was a little bit worse than expected. You're talking about mid-single-digit growth there next year. So, are you getting leading indicators from your consumer, packaged goods customers and others that that demand will come back sooner rather than later?

It's an interesting situation. We are having discussions with customers that show there is interest in initiating projects. However, many customers are currently preoccupied with their operational challenges, which affects their ability to start new projects. Nevertheless, we are optimistic that the fourth quarter will perform better than Q3, and we feel positive about the outlook for next year. We are confident in our business, particularly regarding our competitive advantages and the factors that promote growth, such as food safety. While we are optimistic about the mid-term, it's hard to predict exactly when customers will shift back to investment activities.

And then lastly, for Olivier, there was a lot of talk on the call about market share gains, and that's great to see. I'm wondering if you could talk a little bit more about where those gains have been the greatest. Anything you can kind of quantify? And then, with the digital infrastructure now built out, how will they step up share gains going forward? Could they start to accelerate?

Yes. Actually, quantifying it very difficult. Of course, we don't have particular market data from our direct competitors. We have some data points from our peers that give us a lot of comfort. I think it's more information that we get from our markets around the world. We see it also in terms of many new customers that we can gain. We have some KPIs that we use internally to monitor how much of our business comes from existing customers and how much comes from new customers, that all gives us these indications that we have been winning share. I would be really hard pressed to come up with a number. Also what I want to say is, we feel this is something we achieved across the world across businesses. And this is also very much driven by all these programs that I described that we apply really across everything. What we certainly also see the biggest benefit is in our direct business and our direct business has been also growing faster than for example the indirect business. That's probably another indication why these programs work really well.

Okay. Thank you.

Your next question will come from Derik De Bruin with Bank of America. Please proceed with your question.

Hi. It's Mike Ryskin for Derik. Thank you for the question. I want to follow up on the guidance for 2021, specifically regarding the top line and adjusted EPS. I'm curious about your strong results in the third quarter and the mid-single-digit guidance for the fourth quarter. As you look ahead to next year, you'll be facing significantly easier comparisons in the first half of the year, along with an easier comparison for the entire fiscal year 2020. I'm wondering if this uncertainty in the second half of the year influences your outlook. I know we've discussed some geographies and business segments, but I’m interested in understanding where you're seeing the positives and negatives, especially considering the favorable conditions expected in the first half of 2021.

Yes, I'll take this one. As you know, we have limited backlog in our business, typically around 1.5 months. This makes it challenging to provide our first guidance for next year. Looking ahead, we will benefit from easier comparisons in the first half of the year. However, we anticipate more difficult comparisons in China during Q3. Overall, we're optimistic about the business, our execution, and our momentum, although guiding is challenging due to some uncertainties. China is always a factor that can swing either way, as things can change quickly there, and we've seen rapid fluctuations in both directions over the last nine months. Additionally, I want to highlight Product Inspection, which is similar in size to our overall business. We're confident in this segment, but it can also be influenced by the dynamics I previously mentioned.

Great. That's helpful. And then a quick follow-up along the same lines. If we sort of look at the P&L. if my math is right for 2021 obviously you're guiding to about 40 basis points of margin expansion give or take on the operating margin. So just trying to think through what changed in 2020 relative to your initial expectations? Is this just a lot of the costs that you pulled back on this year coming back, or is this additional incremental investments on top of what would normally happen just sort of looking at the '20 to 2021 move there?

Yes. So I think we'll probably do a little bit better than that Mike, but you're right it's going to be a little bit lower than our typical guidance of 70 to 100 basis point range which we still feel very good about from a medium term perspective. We also have to keep in mind that we're coming off of a strong year of operating profit margin growth in 2020 of 120 basis points. In terms of the program supporting our margin, we feel really good about the momentum that we have in terms of the pricing program as well as our Stern Drive program. But you're right one of the things that will be maybe a little bit of a headwind next year is the temporary nature of some of the cost savings measures that we had in 2020 that we now need to bring back into the cost structure for 2021.

Okay. Excellent. Thanks so much.

Thanks.

Your next question will come from Brandon Couillard with Jefferies. Please proceed with your questions.

Hey good afternoon. Shawn sticking with the 2021 outlook. Free cash flow guidance a little below 10%. Can you speak to any working capital needs for next year? And then what are you penciling in for CapEx?

Yes. Just one second Brandon. Let me pull it up here. So let me start with the second one. So for CapEx we have $103 million in our model for next year. So that's going to be up about $10 million from this year. We have some facility investments that we're going to be making in the first half of next year. Otherwise we feel good about our overall free cash flow growth next year. I think it's going to be kind of in line with our operating profit growth generally. There's always maybe timing topics from one year to another. But I think especially if you look at like the two years combined like this year and next year overall, we're very pleased with the growth. I mean you saw the cash flow generation that we had here in the third quarter and on a year-to-date basis really, really impressed with the execution in the organization on a lot of different management of cash initiatives and I feel like we'll continue to have that momentum as we kind of go into next year as well.

Can you discuss the net pricing capture for 2021? Additionally, when considering gross or margin expansion, will it rely more on gross margin rather than operating expenses, especially in light of your comments about certain cost items returning to the income statement?

Yes. Sure. So in terms of our gross margin for next year right now like for this year right now we're we did just over 2% in terms of price realization for Q3 and I think we'll probably be at that kind of a level for 2020. As we look to 2021, we do have good momentum in the program but at the same time we're looking at a lower inflationary environment. So at this point in time we're right now thinking that we'd be more like in the 1.5% kind of a range for next year for price realization. And then if we kind of like look at the overall gross margin expansion next year probably something in the 30 kind of basis point kind of a range that would exclude maybe a little bit of unfavorable effect of currency. One of the things that we have as a headwind also to our gross margin next year is going to be some of these temporary cost savings that we talked about that come back that will also be a little bit of a headwind in terms of our gross margin expansion next year as well.

Very good. Thank you.

Your next question will come from Patrick Donnelly with Citi. Please proceed with your question.

This is Jesse on for Patrick. Just wanted to touch on the 1% to 2% of COVID-related tailwinds. Wondering if you could break that down a little bit further between the areas you laid out between testing and vaccine research and bioprocessing? And then just curious what's implied there for 4Q 2020 and 2021 guidance?

So as mentioned, it is related to the tips business and pipettes. It's related to testing kits or for testing centers where pipettes and the tips are used. That's the part that we call tailwind because, obviously, this is tied to the number of tests being conducted and the tips demand associated with that. This can have a very high volatility in demand and we see actually that volatility also following the waves in different regions. So the 1% to 2% was for Q3. For Q4, we would expect more like 1%. And when we think about next year, we could still see some tailwinds at the beginning of the year and depending on how COVID evolves it would start to diminish and then we would start to have some headwinds from a comparative standpoint.

Looking back at the early days of the pandemic in relation to China, we experienced a significant drop in the first quarter, followed by a strong recovery in the second and third quarters. As we look ahead, will we anticipate a similar trend if the country faces shutdowns due to a resurgence of COVID cases, or do you believe that with the new go-to-market strategy, there could be more resilience in China, even amidst a potential surge of COVID this quarter and into 2021?

Yes. I believe what has changed is that each country has learned to handle COVID in a more nuanced manner. From my own experience in Switzerland and Europe, the second wave is having a completely different impact on the business world. This is due to varying government responses and the differing reactions from businesses and individuals. We are far more informed now, with protective measures like face masks available. As a result, the B2B environment we operate in is not as severely affected anymore. I've also noticed that our customers are reacting in a much more measured way; for instance, despite semi-lockdowns in Europe, we’re not seeing the same negative effects on order entry and lead generation. Furthermore, as you mentioned, we have already adapted our go-to-market strategies. Therefore, I anticipate a much smaller impact on our business from any ongoing second wave currently happening.

Okay. Great. Thank you.

Your next question will come from Jack Meehan with Nephron Research. Please proceed with your question.

Thanks. Good afternoon. I was hoping you could tease out for us just how much of the sales in the quarter you think might have benefited from some, sort of, catch-up from earlier in the year? And are there any dynamics looking at sort of the three businesses you should just be keeping in mind going into the fourth quarter that catch-up might impact?

Yes. Hey, Jack, this is Shawn. It's always challenging to quantify that. The region that stood out the most for us was China, where we definitely observe a V-shaped recovery compared to some other areas. For other regions, it's harder to determine. There might have been some catch-up in Europe, but it's tough to say for certain. I would like to shift towards how we are currently viewing the fourth quarter regarding guidance, as those factors played a role in our projections for that period.

Great. And then wanted to follow up on R&D investment. Just a clarification. I think I heard 5% of sales, but I wasn't sure if that was for the full year or for the fourth quarter. And regardless I think you're calling for a nice step-up going into the fourth quarter. Just maybe talk about where you're finding new projects. And do you think you'll continue to invest at these probably more normalized rates in 2021?

The 5% applies to the full year and is also a strong figure for the mid-term. There is usually some fluctuation from quarter to quarter. However, when considering it independently of product launches or specific events, the 5% is relevant. The slowdown in spending during the summer was due to the timing of various projects, including product launches, as well as temporary cost measures we implemented, such as furloughs in Europe, which affected R&D spending. Moving into Q4, we expect R&D spending to return to more normal levels, possibly even slightly higher.

Your next question will come from Richard Eastman with Baird. Please proceed with your question.

Yes, thank you for the question. Olivier, when you look at the Core Industrial business, it was up 8% in the quarter. I believe you mentioned that the Americas and Europe were down slightly. Was that the case? And was the 8% growth primarily driven by China?

Yes.

Yes, it was. Very much. So China was very strong.

Okay.

Also related to this pent-up demand effect that we were talking about before and then the overall strong momentum that we see in our Chinese business. And then you might also recall that the Core Industrial in China has a little bit of higher percentage of the business mix than the rest of the world. So, in that sense, a double effect.

Yes. And given there's a cyclical element obviously, COVID would have impacted the business there as well just access I guess if nothing else. But if you think about the cyclical aspect of core industrial in the Americas and Europe, how does it feel? If you sift through COVID, does it feel like that business is maybe bottoming when you think about capital budgets and expenditures on Core Industrial in the two bigger geographies there?

So, if you would have asked me two quarters ago or even one quarter ago, I would have thought that Core Industrial would be impacted more by COVID and the recession. I mean in that sense pleasantly surprised. And I certainly explained it on one hand that the global economy recovered faster than we expected. But the second one also is we were very successful in shifting our resources to the more resilient industries. And the more resilient industries, for example, being biopharma hold up very nicely and we certainly feel we could gain share there also with our Core Industrial business. So, yes, I'm happy to see that it's less cyclical than we would have expected and shows that we have also good execution on it. There are individual segments like we call it the MPE market, materials plastic and electronics market that is clearly down and suffering from the economic environment.

When you mentioned earlier in your presentation about the digital marketing tools, do these account for some of this resilience? Is that part of how you shift your resources? Do you utilize those on the Core Industrial side as well?

Yes absolutely. We really deploy it everywhere. And I think there is a multitude of tools that are helping. So, one hand we do the segment analysis and heat map that show us which account sites have the most potential and we guide our salesforce go after these opportunities. And then we use the digital tools sales tools virtual sales tools on top of that so that for example our salespeople also for Industrial business would engage customers not only by physical visits, but more and more by video calls by online webinars that are dedicated to accounts. We have a digital library and all that. All these topics apply across the business including Core Industrial.

I see. Okay, very good. Thank you.

Your next question will come from Steve Willoughby with Cleveland Research. Please proceed with your question.

Hi, good evening. I have two questions for you. First, could you provide more detail on the 6% increase in consumables and services this quarter? I recall that services were down year-over-year in the second quarter, so I'm curious about the distinction between consumables and services. Additionally, where do you currently stand in meeting the demand for pipettes? Are you experiencing any backlog due to the increased demand, and is there any capital expenditure needed for this? My second question is for Mary; it seems you are increasing share repurchases in the fourth quarter compared to your expectations 90 days ago. How much share repurchase activity is included in the guidance you provided?

Good. Shawn do you want to take the first one, I take the second one, and Mary the third one?

Okay. Good. Hey Steve so on the first one I want to also clarify in the script, we realized that the 6% should be on a year-to-date basis for service and consumables. So, in the quarter service and consumables were actually up by 12% and that included about 4% growth in the core service business with very strong double-digit growth in our consumables business.

Got you.

So, on the second one, the pipettes themselves are less of a capacity constraint issue. It's more the tips. And on the tips side you have capacity problem in the whole industry so not just that. We are in a reasonable situation because we have three production facilities. We have one in Mexico, we have one in California, and we have one in China. They are all running at full theme and of course we leverage the three different facilities for the global supply not just for local supply. We have been successful in increasing the capacity over the last few months and will continue to further expand capacity. There are different levers that we have. We feel good about it. And we certainly feel that this capacity increase will also allow us to further gain share. The demand is certainly here and I think we are in a good position to be faster to orders in terms of raising the capacity. This includes also a bigger facility expansion or new facility that will go live next summer. But our whole focus is actually to expand capacity already here in the next couple of weeks and certainly also into the first quarter. Mary, you take number three?

Sure. So, in terms of share repurchase as Shawn mentioned on the call we want to keep our net debt to EBITDA in this 1.5 times range. And so of course, the actual amount we do next year will depend a little bit on your assumption in terms of EBITDA and cash flow. If I just look at the midpoint of our range, we would be repurchasing somewhere around $850 million level. And of course, it could be a little higher, a little lower, just depending on how things play out.

Okay. Thank you very much.

Your next question will come from Dan Arias with Stifel. Please proceed with your question.

Good afternoon guys. Thank you. Olivier maybe just packing around the edges and sticking with the market share gain conversation. Obviously that's easier to do in some places than others. So, I guess, I'm just curious on the segments or areas of the market where you found it to actually be more difficult to take share. What is it about the competitive offerings that's allowed them to kind of hold share more than others? Is it customer loyalty price? What are the factors that are hardest to overcome that you're finding?

It's clear that we have previously discussed the retail sector. In Food Retail, our Spinnaker strategies in sales and marketing haven't been as beneficial. The retail environment is highly competitive, making it harder to differentiate through value-selling for customers. Projects in this area tend to be larger in scale. Therefore, our focus is not on gaining market share, but rather on profitability. Another distinction to highlight is between direct and indirect channels. Our direct channel strategies are much more effective for us. We're also introducing Spinnaker methods to indirect channels, but we don't achieve the same level of impact and can't implement all tools uniformly. This is the primary way I'd differentiate our approach. From a geographic perspective, I wouldn't make any distinctions. For our core business outside of retail, especially if the projects aren't particularly large, everything we do here applies and would assist in gaining market share.

Yes. Okay. That's great color. Maybe just operationally, are you guys through the SAP implementation within Product Inspection? And then on Blue Ocean when you think about where or how you finish the year there, what percentage of users do you think are fully under the umbrella of Blue Ocean by that point?

We successfully implemented the final phase of Product Inspection in Tampa during Q3. This facility was the most challenging and complex to bring online with Blue Ocean. Managing this process during COVID was particularly tough due to remote work and travel restrictions for international teams. Despite these difficulties, we are pleased with the outcome. However, as Shawn mentioned earlier, it did have some influence on our Q3 results, and we still have additional work to do. Each Blue Ocean implementation has presented challenges, and post-launch, we encounter workflow issues that need to be optimized. There is still significant data that requires optimization. We are actively addressing these issues and expect full stabilization in the coming weeks, after which we anticipate reaping benefits similar to those seen in other units, including the European Product Inspection unit. A few years ago, we launched Garvens and Blue Ocean for checkweighing, which faced initial difficulties but now shows significant improvement in material cost savings and operational efficiency due to the Blue Ocean implementation. I expect similar outcomes for Tampa as we continue to streamline our processes. Shawn, would you like to address the second point?

Yes. Most of the remaining units are smaller ones within the company. We still have a few smaller units in Europe and Asia/Rest of World. The largest unit we have is our French market organization, which will go live in a couple of years. Overall, I would estimate that about 80% of users are currently on the system.

All major producing organizations are now on Blue Ocean. That was the key part missing with Tampa and that's also one of the reasons why the majority of the benefits that we can get out of Blue Ocean are now in operational mode.

Yes. Very good, guys. Thanks a ton.

And we do have one final question in queue and that will come from Dan Leonard with Wells Fargo. Please proceed with your question.

Thank you. So for starters, could you be specific on the growth in China between Lab and Industrial? If you disclosed that earlier I missed it.

Yes. We had double-digit growth in both the Laboratory and Industrial sectors in China during the third quarter.

And safe to assume Lab was above 20%?

No. Actually, our Industrial business was stronger than our Laboratory business in the third quarter, which is kind of supports our comments on why we thought like there was pent-up demand on the industrial side.

Got it. And then my follow-up. Shawn, can you help me think about how you're framing any year-end uncertainty in your fourth quarter guide? Is it fair to assume that your 4% to 5% local currency assumption reflects a better result than that during the month of October with more caution around December, or are you assuming more linearity in your performance?

Yes. It's always challenging to comment on a specific month. There are prior year comparisons to consider, but we feel confident about our guidance and how we began the quarter. We had the advantage of knowing the month of October when we issued our guidance, and we did not incorporate any specific uncertainties, though we recognize that market uncertainty exists and situations can change rapidly.

Great. Thank you. Have a good night.

Thank you.

We do have one other question that just came into the queue and that is from Dan Brennan with UBS. Please proceed with your question.

Hey, everyone. Apologies for the mix-up. Thank you for the question and congratulations on a strong quarter. I have a couple of questions for Olivier or Shawn. Regarding the guidance for 2021, it seems like the core growth forecast is quite conservative considering the low single digits. I understand you're factoring in the ongoing uncertainties with COVID, but given your recent quarter's performance, it raises some questions. Additionally, concerning China, I know it has been discussed earlier, but could you provide some insight into the rationale for both of those particular forecasts? Are you anticipating a potential downturn that is reflected in those projections?

Sure, I'll take that question. We're very pleased with how resilient the Industrial division has been recently and over the past couple of years. We're confident in our ability to focus on the more attractive and faster-growing segments of the market, but we are aware that we are not immune to economic fluctuations. Historically, this business has been more vulnerable to global economic changes, which factors into our outlook of low single-digit growth. Additionally, we recently experienced significant growth in China, which we mentioned earlier, so we anticipate more challenging comparables in that market next year. China represents a large portion of our Industrial business compared to our other segments, which is important to consider. Did your question about China for next year clarify your concerns?

Yes. I know you covered it several times, but could you just maybe in closing just give us a flavor for kind of what's happening now? I think there was a question earlier about was there any kind of catch-up. I think maybe Jack asked it. So just to be clear did China benefit from a catch-up this quarter? And if not the 5% next year is really just conservatism or the comp, or just any color there. Thank you.

In the third quarter, China experienced a 17% increase. Both the Laboratory and Industrial businesses showed double-digit growth, with the Industrial business performing particularly well. There seems to be a pent-up demand in China during this quarter. If we look at the sequential quarters, starting with a 13% decline in Q3, the recovery appears very much V-shaped. Our team is executing effectively, and the digital marketing strategies mentioned by Olivier are also beneficial in China. We believe we are gaining some market share there, which makes us optimistic about our execution. We are also positive about China's growth prospects moving forward, especially in the medium to long term, considering trends in biopharma and other areas. As we plan for 2021, it's important to note that changes in China can happen rapidly, as we have seen in both directions over the past nine months. Therefore, we approach forecasting for China with caution. Currently, we feel confident about mid-single-digit growth. It's possible this could be higher or lower, but we'll see. We anticipate that the Laboratory business will experience stronger growth in 2021 compared to 2020, especially after a particularly robust Q3 for the Industrial side, which means we'll face more challenging comparisons in the latter half of next year.

Great. Thanks, Shawn.

You’re welcome.

And at this time, we have no further questions in queue. I will now turn it back over to the panel for closing remarks.

Thank you, and thanks everyone for joining us this evening. As always, if you have any questions, please don't hesitate to reach out. Take care. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.