Waters Corp (WAT) September 23, 2026 Conference Transcript

focus more on tuck-in size acquisitions, and then returning capital to shareholders in the form of dividend and share repurchases. Yes, with that commitment of over 75% of free cash flow on an ongoing basis, given the strength of our investment-grade balance sheet in our two to three times debt-to-EBITDA range, which even today we're in the middle of that at around two and a half times debt to EBITDA. So we have significant balance sheet capacity to fund whatever tuck-in acquisitions we may be interested in.

Yeah, but that would include, if this were to go a certain way, that framework would not be materially disrupted by this acquisition.

So yeah, so if the situation were to be that we were going to end up proceeding with the Acculence acquisition, Number one, please welcome Udit Batra, President and Chief Executive Officer of Waters Corp, interviewed by Casey Woodring at J.P. Morgan.

Well, thank you, everybody, for joining us today. Thanks to Udit for joining us and making the trip out here for us. Maybe Udit to start, just level setting here. You got a very strong 2Q, right? 9% organic growth above the 6% to 8% guide for the quarter. Orders, again, outpaced sales, backed in accelerated. Maybe, like, what were the most important takeaways from the quarter from your perspective? And, you know, where would you say growth outpaced your expectations?

Yeah, I think, firstly, thank you for having us. It's a pleasure to be here. When the quarter came in ahead of expectations, as you said, on the base business, across the board, we saw acceleration, right? We saw instruments growing high single digits, service growing high single digits, chemistry yet again double digits. And if you accounted for the pull forward that occurred due to Liberation Day, same time last year, it grew 16 percent. Geographically, we saw U.S. mid to high single digits. Europe was mid single digits. But China and India were in excess of India was in excess of 20 percent. And China was again double digit growth. And again, if you account for the pull forward, China was mid-teens. When you look at end markets, pharma was again double digits with the replacement cycle contributing in the U.S. and Europe with large pharma. India benefiting from genetics. And the good news was the best coming out of China, where, again, pharma grew in excess of 24%, 25%. First quarter was 50% growth in pharma in China. So pharma recovered nicely. Industrial was those single digits. Academic and government, the end market was double digit growth. And that was largely driven by nice budget release in Europe. And even in that number, there was no stimulus from China. So across the board, the analytical science business and the material science business did extremely well. This is a legacy waters business. Where we were even more pleased is how the integration has started with the Beckton-Dickinson businesses. They both, on average, grew roughly four-ish percent. China had a 200 basis points headwind, so that, if you extract, was a 6% growth already, mid-single digit plus growth. And the more important thing is what was underneath contributing to it. A 180-day plan to accelerate sales activity, to accelerate pricing, which was 90 basis points versus 50 in legacy BD. The growth in China that we expect to start to come in Q4, all the tactics are starting to contribute. We saw cross-selling contribute as well. So overall, from a revenue perspective, things are going reasonably well, knock on wood, and the leading indicators are very good. Now, on the cost side, what we also shared is from a cost synergy perspective, by the end of the year, we will have a run rate of 200 million as we go into next year. Remember that 200 million was the number that we had targeted at the end of three years for cost synergies. So within nine months, we're already there, and there are a lot more initiatives to contribute there. So as you enter, as you finish 26, and we're not yet even done with Q3, we think we're very well set up for 2027, where the BD businesses should accelerate. Our base business is now a sustainably high single-digit grower. So it sets us up very nicely for what's to come ahead of us.

Yeah, lots to dig into there. But I want to start off, you know, this has been dominating the conversation, you know, certainly at this conference and other conversations, but AI, you know, I guess it sounds like you're beginning to observe some incremental demand and consumables tied to AI-driven workflows and pharma. Maybe just talk a little bit about that. What waters his exposure here and just maybe go into a little bit more detail on what you think.

I think there are two topics that have sort of dominated conversation and tools for the last few months. One is AI, the other is reshoring, and if the reshoring conversation gives you any evidence, we are a reluctant contributor to the discussion until we see facts, right? Now with AI, since we knew a lot of people are interested, we sort of dug in with the teams, and I'm going to give you first a frame, and then some evidence that it's having impact on Waters' business. When you think of labs, labs can be broken into three pieces. First, there is a sample prep part where you're taking reagents and samples and putting them through a workflow. And once that workflow is perfected, you can automate it and then you can have an agent run it, not before then. So just keep that in mind. So in reagents, you first have to sort of get it standardized and then only the AI model can be unleashed on it. Second is the instrument. And in the instrument, the protocols are generally refined, and different users have different protocols. And third is software. These are the three parts of a lab, right, of an experiment in a lab. If you take that logic of reagent standardization and you go into quality control and late-stage development, that's where the variation is very little, right? Because in quality control, the reagents that you use to analyze samples are the same. if you run the experiment versus I run the experiment. That's the part of doing quality control that you want minimum variability in. Second, the instrument protocol is the same. And third and most important, in QA, QC and late stage development, the software of record in pharma is Empower. Four in five molecules use Empower, right? So you cannot pull the data out of Empower and put it back into Empower and have the regulator look at it. So it's the software of record. And so that software has a certain protocol itself. Now, where we have seen evidence of the adoption of AI is on all three fronts, especially on the software side in QC, where customers are buying more seats in order to train agents on an already perfected workflow on the reagent side, on the instrument protocol, and of course, then the software. right? So in QC, you start to see the adoption of agents and use of agents in labs much faster than you see in discovery. Now, you take the same logic and go to drug discovery. In drug discovery, everyone runs an experiment differently using different reagents. So first, you have to standardize that. We are seeing increasing consumption of reagents and columns in that segment as well, but not at the same pace as we're seeing in QC. Second, once you've done that, The protocols have to be standardized so the agent can run it. That also requires a bit of work. And there is no software of record. There are many different softwares that are used to analyze different types of samples. So our belief and the facts suggest to us that the adoption of AI models and AI agents is much faster in QC and manufacturing than it is in drug discovery. I know the discussion is largely dominated by discovery discussions. The reagents consumption, as we compare our two businesses in BD biosciences, the reagents consumption is higher on the discovery side. In the legacy waters business, the column consumption and the reagent consumption, the software agents are much higher than they are in discovery. So I hope that gives you sort of a contrast, but we are seeing early signals already in discovery and we're seeing more robust signals in QC. I will wait to share the quantitative impact once we have more than a few ideas from our customers. I want to have a few data points, and then we can talk about the quantitative impact. I hope that wets the appetite of AI.

No, that's super helpful, especially on the QA, QC point. Maybe we can circle back to that later. But maybe just going back to the most recent quarter, right, you raised the organic guide for the year, and that implies the second half cadence that you've described as prudent. The midpoint implies sequential steps up in 3Q and 4Q that are below normal seasonal patterns. So maybe just walk through kind of where within the guide you are embedding this prudence across your different businesses and then maybe like what are the key swing factors that would bring you to the upper versus lower end of the guide?

So I think, I mean, on the base business, it's been growing 8% for the last seven quarters on average, right? So almost two years, it's been high single digits. For the first half of the year, in fact, the average growth rate is double digits. So momentum is actually picking up. And there's some logic behind it, right? When you look at our LRP that we had discussed at the Analyst Day at the beginning of last year, it contemplated high single digit to high single digit plus growth. But the market growth that was contemplated there was 4% to 6%. And we know looking left and right at our markets, that's not where the peer group has been. It's been lower than that. And despite that, we've sort of grown at high single digits. So now as the markets improve in biotech, in drug discovery, in CROs, that baseline comes up. So the overall growth rate should even be higher. But we've decided to guide in a way so that gives us some room to overachieve, right? And that's especially prominent in Q4, right? If you look at our guidance, Q4 contemplates a 4% growth. You adjust for days, that gets to 6%. But as I said, we're growing double digits since the first half of the year. So there's no reason to believe that it will slow down. And you see that in the leading indicators in the funnels. You see that in the reagent consumptions. You see China growing rapidly. And we didn't see any stimulus in the first half of the year. The stimulus contemplated in the second half of the year, but it's not in the guide. So there's room to overachieve with the stimulus. There's room to overachieve with instruments, with chemistry, with service. So across the board, it looks pretty good. On the BD side of the business, as you look at the second half of the year, the first half of the year, roughly at least the own period, is mid-single-digit growing. It's growing mid-single digits, 4% for Q2. If you adjust for China, it's 6%. As you go into the latter half of the year, especially in Q4, the headwinds from China abate. So that's a 200 basis points uplift. In terms of quarterization, one thing I want you to keep in mind is it's very difficult to understand the quarterly profiles of an acquired business. It was the same when we acquired Signal Rich when I was at EMD Milliport, right? So I would just look at the first half versus the second half. Overall, there's momentum picking up in the second half. And when you look at Q4 in particular, we contemplate growing roughly 6 plus percent in Q4 for the acquired businesses. This is on a baseline of minus 10%. The better way to look at it is on a two-year basis, mathematically. On a two-year basis, Q2, Q3 are growing 1% to 2%. Q4 in the guide is minus 2% to 3%. And so if you adjust that mathematically, you'll see there's room to overachieve there as well. And this is on the back of China's sort of localization occurring in bioscience and in diagnostics with increasing momentum from our revenue synergies, better execution with our launches. The launches just start to hit towards the end of this month. So the setup is extremely good as we enter the second half of the year.

You touched on it a little bit in that answer. Just the instrument replacement cycle, I think you've talked about instruments are growing around 2.5% organic since the first half of 2019, well below the 5% average historically prior to that from 2009 to 2019. You've also described this current replacement cycle as more elongated versus the typical two to three year duration, right, given the multi-phase recovery that we've seen since 2024. I guess putting that all together, we're in kind of this year two of an elongated cycle with a sizable gap between historical and current volumes. Like, how do you see the replacement cycle continuing as we look towards 27, 28?

Yeah, I mean, usually you have line of sight per year and change in the instrument business, in the LCA, LCMS, given the funnels. We see clear line of sight to take us to the end of 27, and you can look at it from many different vantage points. You already talked about the arithmetic piece, which is 2.5% CAGR from 2019. For now, it should get to 5%. And I'll remind you that 2.5% includes better pricing than historic pricing by about 100 basis points. It includes newer products and upgrades you to newer products. And it includes some idiosyncratic growth drivers that might not have been present in the past. The 2.5% is probably a lower number if you adjust for all of those. So we have, arithmetically, quite a bit of line of sight there. Second, when we look at the instrument replacement volume quantitatively, we can see in our funnels a very strong set of instruments to be replaced in the years ahead. So this goes on at least until the end of 2027. And there's clear line of sight, and the execution is pretty down good on the instrument replacement in the business. Are there any customer groups that have lagged from a replacement setting? So when you look at it historically, all customer segments started to replace together because that replacement cycle is generally dependent on macroeconomic cycles. In this particular case, biotech, CROs, drug discovery have lagged, and they're starting to replace now. The only one that's not replacing is genetics in China, which is a small portion of our business. So the cycle has been elongated largely because not all segments have replaced at the same rate. And now as the other segments start to replace, you start to see that augment the initial growth rate. But as I said before, we've seen a high single-digit instrument growth rate for a while now. Part of the contribution is idiosyncratic growth drivers. Part of the contribution is pricing and innovation. But equally, there's a backlog of replacements that we see quantitatively in front of us in addition to the arithmetic that you did on the 2.5%. it.

Can't talk about instruments without reshoring. You've talked about, I think, half of the U.S. pharma sites are now under construction. 70% of those are tied to high share waters accounts. I think you've talked about reshoring being an incremental growth driver from 27 to 2030. Just help us understand what you're seeing in terms of orders right now and activity right now, the actual timing as these sites move construction to equipping and any further color you can share.

So I think you sort of summarized the context very well. There are two things I will add. One, when you think of instrument placement, generally the cycle time, the sales cycle for an instrument LC or LCMS is between three and six months. Our orders can outpace sales, but the quantitative value of the orders is not terribly higher than sales for any given quarter. You can go back in the history of Waters or other LCMS players. So that generally means that you usually know concretely exactly what is going to get placed three to six months in advance of actual placement. Given that ground has been broken now in many of the sites, the announcements were made a year ago, it stands to reason that they will actually be constructing labs in a year from now. So we'll see three to six months from now, concrete orders, right? So that's the first thing I would keep in mind. That's why we're reluctant to say, hey, exactly, this is the order of value. While we have line of sight on all the sites that we've talked about, while we have a probability adjusted model internally that says, hey, this is the value of the 100 billion capex that has been announced that will accrue to waters, I'm reluctant to share it until I see the first few data points. But this is just generally toward waters, right? So that's the first thing I would add. The second is, as you think of instrument placements in these reshored contracts, what you also have to understand is, and I have empathy for, not sympathy, but empathy for others who might be talking about orders coming in already, because there's a bit of confusion at the customer sites as well. So I'll give you two examples. One of our large customers, in fact, the largest customer that we have for LC replacement has a site in North Carolina. They have expanded the site and they placed a $10 million order in Q2 with us. And they said, hey, this is reshoring related. And our teams came internally because internally, sorry for the digression, internally we have incentives, not just for the overall amount that the sales teams are achieving, but also for what they are able to bring home from reshoring. So reps are incentivized to classify things as reshoring. And so we have a lot of scrutiny on that to say, hey, this is reshoring and this is not. In that particular case, we said this is not reshoring because it's site expansion that would have occurred regardless. Show me the cause and effect. Show me the cause of reduction in CapEx somewhere else that has led to an increase in capex here so the burden of proof in classifying something as reshoring at waters is high right and the same thing happened with another customer in Wilmington Delaware where they expanded a site and four million dollars came in in Q2 that we could have classified as reshoring but internally we said nope this is not reshoring this is just capacity expansion so I have empathy when people say they have orders that have come in that they're calling reshoring I don't have any sympathy because that's, I think intellectually, you could go in different And if you want to be pure, you want to keep it in the way we are doing it. But at the end, what really matters is total capex, right? And the total capex is going to be higher. It doesn't matter for Waters if it's placed in Europe or in the US. We will see a benefit. And I'll remind you that anytime there's a new site, a new product, Waters wins more than we lose given our product portfolio so we feel pretty good about the fact that these are newer sites where there'll be new business we'll win more than we'll lose versus our competition in the u.s we have higher share in lc and lcms than we do in europe so i feel pretty good about where we sit just reluctant to quantify the exact impact from the 100 billion what accrues to us Once we start seeing the data concretely show up as orders that we classify as orders, I will talk about it. But I think at the end, you should just look at the overall CapEx. Otherwise, we're just sort of double counting.

Okay, fair enough. You brought it up, the competitive dynamics in LC and LC-MS. We've talked a little bit about how replacements are driving growth, but you have launched a few new products. So maybe talk about new product traction and how that's contributing to growth. And competitive shareships.

And I think competitively, there is very little sort of third-party data that gives you clear evidence who's gaining share, who's losing share, right? And in many of these markets, it's two players, and it's pretty easy to see who's growing faster versus not. And when you look at waters for the last two years, our LC and LC mass spec growth has been higher than competition. They're reported and are reported numbers. And so I think it stands to reason that we're growing faster. Now you can call it share shift, you can call it upsell, you can call it anything else. I don't really care, but we're growing faster, right? So I think that is incontrovertible, right? And that's backward looking. Facts are backward looking and projections are forward looking. So I think there I'm very comfortable and we know sort of why that would be happening with new products, et cetera. I think what, coming back to sort of our playbook, I mean, when you look at the instrument business, LC, LC mass spec, and now increasingly some of the other pieces of the business, it really has two to three parts. First, it's the replacement business, right? So where you look at the install base and say, how much do you have to replace? And there, we're doing pretty well. Second, it is new products, right? New products trigger replacements often, but they're also incremental sales. So the Alliance IAS has been setting the standard in QA you see for pharmaceuticals, the TQ-Absolute XR and the TQ-Absolute in MassSpec, it's the most sensitive instrument for PFAS testing. We've launched some high-resolution MassSpec instruments with Zivo MRT, and they are setting the standard in speed and in resolution from a benchtop high-resolution MassSpec instrument that has just started to go into drug discovery and will increasingly grow into drug development. It's now used also by some of our largest customers in China for impurity testing of GLP-1s, right? So innovation is sort of leading and augmenting the growth. And the third are specific idiosyncratic growth drivers, right? GLP-1 testing has benefited from Alliance IS. PFAS testing has benefited from Zevo TQ Absolute and TQ Absolute XR. India Genetics has benefited not just from our strong market share in India, but also the Alliance IAS and our service offering. So overall, as you look ahead, we feel that we're very well positioned from our portfolio perspective, from a commercial execution perspective.

Okay. There's a lot to talk about with Becton, but just sticking with the Legacy Waters business, Chemistry also had a strong quarter in 2Q growing 10%.

You've launched new products in that business as well. um you know maybe just talk about the chemistry durability in the second half of this year yeah you know you have a selling day headwind in 4q but just maybe walk through mix of pricing installed base pull through new column adoption all that i think the chemistry business i think we've been pretty public about it has benefited from initially e-commerce adoption and then increasingly uh our innovative portfolio and bio separations and what is highly interesting is that a lot of these products are not just placed in QA, QC and development, they're placed in discovery, right? They're placed in drug discovery. Anytime somebody is coming up with a new molecule, they're calling waters to say, hey, I need to separate this. Which of your columns can I use? Or can you develop a new column? And we feel really good about our placements there. Our share has increased quite dramatically. That bodes very well for when these molecules move into late stage development and they become high volume runners, right? So that is a significant can change from history. We've sort of moved upstream with our columns. Second, as you look at our column business, it's starting to benefit from the AI discussion that we had earlier, right? People are buying more columns, some bulk orders, both in discovery, but increasingly in QA, QC to train models. And finally, on pricing, in some cases, since we are the only one that offers a solution for higher value products for our customers, in some cases, there's double digit pricing with 100% stick rate. So chemistry for the foreseeable future is a high single digit or double digit growth business. And we feel very good about what we have in front of us. We see the demands from the customers. And finally, I'll make one more comment on GLP-1 testing. I mean, we had displaced a competitor there and there the growth is pretty dramatic as well. So I feel pretty good about where we stand with the chemistry business.

Okay. Now let's turn to Becton here. Maybe starting on Flow. So Flow Clinical grew 8% in the quarter and Flow Research just returned to growth. I'd like to hear your thoughts on kind of the split between those two end markets. And as we look forward and the moving parts of Flow, I guess like how much of the A7 launch is going to contribute to growth here exiting the year? How much China localization we'll re-accelerate the business there. Maybe walk through the moving parts of that.

So when you look at the bioscience business, it grew 3% for the quarter. Ex-China, it was 5% growth for Q2. As you look ahead, first starting with just China and the headwinds there, basically the bioscience business had no access to several pieces of our flow cytometry instrument portfolio. They were not localized, so they could not participate in tenders. The spectral instruments were not accessible in China due to import restrictions. We have de-bottlenecked both of those things. In fact, we've localized our flow cytometry portfolio for high volume uses already. And the first sale will likely occur at the end of this quarter. There are some orders there as well, definitely in Q4, right? So that will sort of lift the baseline there. Second, on the spectral instruments, we have reduced the time for export approval since we don't have local production of those. In China, we've reduced it from about three months to two weeks, right? So anytime an order is being placed in China, you have less than two weeks to sort of consummate it, given how much time we need for approval. So both of those are going to be tailwinds as you go into Q4. And third, from an instrument portfolio perspective, A7 was launched on September 14th. Basically, that instrument sets a standard for spectral instruments. in transferability, right? So when you, and reproducibility. Again, remember Waters is a company that performs well in high volume regulated settings. Flow cytometry, especially spectral flow cytometry or high-end flow cytometry is marred with reproducibility if one user runs the experiment the second time or interoperability between instruments. With the A7, this is the first instrument in the spectral space that increases reproducibility dramatically so that you can use it in high volume settings, right? And that is a differentiated value proposition that we are starting to see benefits of as we go into Q4. So nice orders for A7. I won't quantify exactly sort of the impact of it, but nice orders in the US, in Europe, and increasingly China that will get consummated as time goes on. So from an instrument perspective, the flow business is is set up nicely as we enter the latter part of the year from a reagents perspective the clinical reagents part of the business grew high single digits and that's really levered to the use of flow cytometry in detecting cancer right and doing clinical trials in oncology and so that as you know is an area which has where there's a lot of investment from our customers so that there the trend is pretty nice the pricing is better given that we're implementing the waters playbook there. The research reagents part of the business over the years had lost traction versus a key competitor who was able to deliver antibodies much faster than we could. Second, pricing had not been as differentiated. We've sort of adjusted both of those topics. So on pricing, we went from roughly 50 basis points to 90 basis points of pricing for the bioscience business. On the research side in particular, we segmented the portfolio of our research antibodies. And there are specific antibodies they're called real dyes which is about 20 percent of the portfolio where there is no competitor where we've taken differentiated pricing like our columns business right double digit price increases where there's no other competitor so you can sort of command that price and the value proposition is so differentiated that the customers are willing to pay for it and so you see differentiated value uh value uh differentiated pricing and in addition the delivery has improved dramatically as we've implemented our e-commerce playbook right so that led to sort of growth of research reagents in Q2. And as we enter the second half of the year, it's not just that part that is going to contribute and pricing and better e-commerce, but additional use of reagents in drug discovery. So bioscience business looks pretty well set up. China sort of coming up the curve, research reagents and clinical reagents doing pretty well. So feel pretty good about where we're headed there.

That's helpful. And maybe just turning to Microbio, that was another good quarter, 6% growth ex-China. Understand that pricing tailwinds are starting to come through. We can talk about that a little bit. But I want to focus on the replacement opportunity here, 12,000 aged systems. How should we think about the pace of that conversion? And maybe just walk us through how investors should think about it, given the reagent rental model, the differences between them.

I think roughly 12,000 instruments that are over five years old more than half of them are over 10 years old the way the replacement works there i mean the the mechanics is the same so you go in and replace a box but the revenue recognition model is different roughly half of it is is cash globally and half of it is reagent rental on the cash side the logic is the same as as waters where as you buy a new instrument you take the volume, you take the pricing, and you add on top the replacement. So if you take that logic, volume grows between 3% and 4% in the microbiology business. Pricing is roughly 200 to a bit higher than that. As you introduce a new instrument, when you look at our nearest competitor, BioMiru, they basically took pricing up between 200 and 500 basis points. And when you introduce a new product, it could be on the higher end, but let's assume 200. And then when you're replacing 200 to 300 basis points of accretion on the instrument side. So that's the algorithm on the cash side. Now you have to take the growth and amortize that on the reagents business for the 50% that is reagent rental. But mathematically, if you take reagents and instruments, the logic would be the same overall, right? So overall for the microbiology business, you should see at least 200 to 300 basis points of accretion in addition to volume and pricing during a replacement cycle, just like the legacy waters business. Now, it should be a bit faster than that, just given where we're starting. But as a starting assumption, you should assume that you will see 200 basis points of accretion from instrument replacement, 200 to 300 from pricing.

Okay, understood. We just talked a little bit about pricing. Maybe we'll move on. I think something that's not talked about as much is the molecular business within Bectin or just diagnostics as a whole between molecular and point of care. That's been growing nicely. I think you have a new HPV offering there. Maybe walk us through that piece. How durable is the HPV-led momentum that you're seeing in this business? And is there more in terms of new product launches or new tests, many build-outs in this business too. It's a fantastic question, right?

So on the molecular side, there are two platforms, BD Max and BD Core, right? So the Max is an open platform that is one of one. So there are other closed platforms that are doing pretty well that are in our competitors' hands, but Max is doing well because it's an open platform and customers can develop their own tests and validate it on our instrument. The BD core is basically a high-throughput instrument. Just to sort of give you some facts, in 2025, for the full year, the team had installed four BD cores. In Q2 alone, we installed 15. So the pace of commercial execution has increased dramatically. Some of that is due to the fact that we have a home and self-test option for HPV testing. right and that's a very significant advance with a very broad genomic profile right so highly differentiated tests that allows us to have the conversation with customers who are looking for a high volume instrument that gets us into the labs but it only sustains if you have additional assays that come onto it our vaginitis panels our sti panels are doing pretty well on the max and the intent is to sort of move them to the core right so as we're getting more and more placements where we have plans to sort of get some of the tests on the max onto the core. I feel pretty good about the starting point of that business, given history and given how slow it was. In the short run, we've had to sort of ensure, given that we're a new player in that space, we've had to ensure that the instruments work as planned. The services has to be as good as what is this service in the past. So we've had to over-invest on the service side. Often, one service person per box is, I mean, so there's 15 installed, there's 15 service people sitting next to the box 24-7 saying, hey, I'm available if your box goes down so that you don't have any issues. Over time, we, of course, expect that to deplete, but we will have more and more placements over time, right? So feel very good about the start, but work to do ensuring that the service efficiency improves over time.

And then, you know, early revenue synergies are continuing to build in 2Q. Maybe help us understand what that cross-sell looks like in practice, which mass specs platforms are really resonating the most when they're sold into pharma. And then, you know, the whole DMPK opportunity, I should say. Just how's the progress towards the 50 million revenue synergy target for this year kind of looking like?

So I think just to sort of answer your question on cross-selling, and then I'll give you sort of a broader frame on revenue synergies. On the cross-sell, we saw an additional $10 million of incremental sales into DMPK, mass-spec sales into DMPK, due to our customer contacts and bioscience, right? So that contribution will be roughly $35 million to $40 million until the end of the year. In addition, there are other pieces of revenue synergies, and it's simpler to think of it in three buckets. The first one are ones that come in our 180-day plan, right? Improvement in pricing, improvement in sales activities, localization in China. That all contributes. So that is the first bucket that's already started to contribute. The second bucket are operational activities that were perfected at waters are now being applied to our acquired businesses. This includes instrument replacement. This includes service attachment. This includes e-commerce penetration. This includes launch excellence, stuff that we talked about legacy waters five years ago, right? And so we don't have a sexy name for our business model, but synergies come from taking our capabilities and applying it to any new business, right? So that's the second bucket of synergies that is tangible, that's starting to sort of contribute now. And the third bucket are what you were referring to are broader cross-selling and strategic synergies, right? On the broader cross-selling, it's not just mass spec into DMPK. It's LC-MS into the diagnostic segment. Given that we have such a broad reach into hospitals with our advanced diagnostics business, we are selling more LC-MS instruments into those labs. Flow into QA, QC, right? We had only underwritten flow cytometry sales into drug development for cell therapy. The intent is to actually take it into QA, QC. The software part of that will take a little bit longer, but the basic placements are occurring. And then lastly, bio-separations. We had sort of said, you know what, we'll have two to three programs that we will take from legacy waters that currently source antibodies from outside. We'll use our bioscience business to supply them. There are roughly 10 programs where that's happening already. Basically, the strategic synergies, the third bucket takes a little bit longer to consolidate. but you have enough in the other two that augments the growth in the short to midterm.

Okay. Understood. Maybe on the cost side, we talked a little about this earlier. You've pulled forward the $200 million run rate savings. How should we think about implications of that dynamic in terms of margins for next year? I know we talked a little about some sort of reinvestment expected there.

How should we think about margins overall in 27 and then how the cost I mean, Casey, for 27 and the like, there's more time to sort of talk about it, and we'll do it at the right time when we give guidance. But conceptually, the moving parts are as follows, right? So we've given guidance already for the full year at 28.2%, and when you look at what happened in the first six weeks of the year when we acquired the BD businesses, we got the cost but not the revenue. So you basically have a 70 basis point headwind on that number. So your starting point in 2027 is 27 and a half. But then you take the cost synergies, the 200 million run rate, the operating leverage from the faster growth rate. So high single digit for the base business. That's a mid single digit to high single digit for the acquired businesses. You have operating leverage there. You have additional cost synergies that come from additional levers across procurement. across manufacturing optimization, distribution optimization. You have the revenue synergies picking up, not just sort of the strategic buckets, but also the operational ones with instrument replacement, e-commerce, service attachment. You add all that up, it's a very significant margin expansion. We will use some of that to reinvest back in the business. I think when I look at the street models, people are roughly around 29, 29.2. That's a reasonable starting point. And I'd be surprised if we don't do way better than that. Just given how much opportunity there is, what we would like to do is to take that and reinvest in industrial stability to accelerate the growth of bio-separation. So three to five years from now, we're looking back and saying, wow, these reinvestments actually yielded something like our bio-separations business or our bio-analytical business. And that is the intent.

Understood. Something else that came up in conversations earlier today, we kind of talked a little bit about how reshoring and AI, maybe less visibility there, not as much data to really call what that could look like for the forward outlook. But it sounded like you had more confidence in China and what was going on there. Maybe just walk through the underlying market activity across pharma and biotech in China.

Take a full step back when you look at the algorithm we talked about with our base business in early 2025 at the analyst day. We had the base business growing at four to six or the market growing at four to six percent. Then we said there's instrument replacement, which adds about 200 basis points, which is still ongoing. Pricing is accretive by 100 basis points versus history. China was dilutive at the time by 100 basis points, but India was offsetting it with the idiosyncratic growth drivers contributing being roughly 170 basis points. And that took you to high single digit plus growth, which is where we are today. But if you look at that, China was diluted by 100 basis points. China has not been diluted for the last three quarters. In fact, it's been accretive. And it doesn't include the stimulus yet. We're seeing no end to the biotech investment in China. If anything, that is a secular trend. And if you read the five-year plan that has just been shared by the Chinese government, you see that the intention is to grow pharma by 20% every year. So you basically have a significant tailwind on the pharma business, which is where we are strong in China. And we feel very good about saying that China is not going to be diluted to a high single-digit growth going forward. The same is true for reshoring, which adds another positive vector, again, yet to be quantified. And the AI-led increased consumption in software as well as in reagents in the short term. So we think there are additional drivers that give us confidence on the high single-digit growth algorithm. And if you add it up, it seems like a bit higher, especially given that the 4% to 6% we haven't seen in the overall market for a while. But now that looks a bit more robust with biotech, CROs, and drug discovery also recovering, right? So as those markets and in-markets recover, the 4% to 6% becomes more robust, and you have additional drivers in the overall waterfall for growth. So I feel pretty good about our long-term algorithm of high single-digit growth.

I want to shift gears a little bit in the last few minutes we have here and just ask about the Merck and Moderna data and what the read-through looks like for your business? I think personalized medicine was something that got a lot of airtime pre-COVID, not as much kind of post-COVID. Do you see that data as catalyzing some reinvestment in that space, and would you benefit from that?

Firstly, it's fantastic for patients, right? I mean, if we continue to have therapies that are solving unmet needs, I mean, it's fantastic. The good news for Waters is that, especially with our columns, we're placed in all these novel modalities. When you look at Keytruda, Waters' columns are used to do QC for Keytruda. When you look at the mRNA molecules from Moderna, Waters' columns are used to do QC with Moderna's columns. And if you take a step further, close to 80% of the phase 2, phase 3 molecules for mRNA have Waters' column spectin. So as the industry goes towards personalized medicine and more and more complex molecules, we feel very well placed, especially with our innovation in chemistry, our innovation in biologics to sort of accrete to the overall growth rate. So we feel very good. The fact that patients are benefiting from this, we think it's going to be a slow burn given it's patient by patient. But that said, water is extremely well-placed, especially from a column perspective, as more novel modalities come down the line. And 80%, as I said, of mRNA molecules use our columns. And then, you know, completely separate topic here, just to end on, material science grew high singles in 2Q, was driven by electronics research testing, you know, semi-conductors, data centers, and then, you know, you also had advanced materials in aerospace and defense. maybe just walk us through what you're seeing like on the more industrial side of the business so it started i said what what you have to keep in mind is the baseline was lower last year right so given given there were headwinds for that particular business but very happy with what we're seeing especially in asia for semiconductors even battery testing the new products new products especially our coin cell dsc is contributing nicely to and integrating into workflows for our battery testing customers. You see defense spending contributing nicely in Europe as well as in the United States. And as we look ahead, the funnels are extremely strong in that business as well, right? And as I said, the baseline was a bit weaker last year. So if anything, that is accretive to our overall legacy waters business for the balance of the year. So again, good setup. I think you haven't asked, but I do want to say not everything is rosy. And there is a lot of work that's happening on integration behind the scenes. Remember, we are carving out a business from a large company. This is not a standard integration. And when you carve out something, you're dependent on the other company to provide services. That requires daily attention. The BD colleagues are awesome, but it stands to reason that they pay less attention to something that's going over the pond. Second, as you bring things back into waters, we have just sort of stood up our processes and systems. And now on top, you're adding a similar size business. So there is a lot of strain on the processes and systems that we've put together. And there's a ton of work that happens there. And that's always a risk that one has to mitigate. So while there are nice growth drivers, the teams are highly focused on revenue synergies, cost synergies. We have to keep in mind, it's still a large integration and people have asked me, hey, you know, what's next and what's going to, nothing. We want to focus on getting this done properly and we have ample time to talk about anything else down the line.

Okay, well, that's probably a great place to end. Thank you for doing this with us. Thank you everybody for joining us and have a great rest of the conference.