Mettler-Toledo International Inc. (MTD) Earnings Call Transcript & Summary

I'm Vijay Kumar, the Life Science and Med Device analyst at Evercore. A pleasure to have with us the team from Mettler-Toledo. We have CFO, Shawn Vadala. Shawn, thank you for being with us this morning.

Yes. Thanks for hosting us, Vijay.

Great. And for you guys, I think given that you have the guidance or the initial fiscal '26 outlook out of the way, right, and you guys go early, I just want to maybe take a different tack with you guys. When I look back at Mettler, you guys have always -- I think the term that comes to my mind is execution. Pricing for you guys, so 1% to 2%, very consistent, probably at the higher end of industry. For those of us not familiar with Mettler, right, can you talk about what makes Mettler, Mettler, right? What are the different end markets you serve? How is it that Mettler is able to realize 1 to 2 points of pricing that's probably at the higher end of industry consistently?

Yes. Thanks, Vijay. So maybe I'll start with some of our competitive advantages, and then, I'll kind of go into some of those more specific questions about pricing and the end markets. But I think it starts with innovation. Like at Mettler, we're very proud of our long and rich history of innovation. If you kind of go back in our history, I think the Mettler brand has been around for about 80 years. The Toledo scale brand was around for about 120 years. And we've always had a competitive advantage when it came to innovation. It's really fundamental inside the company. It's part of our DNA, and it's the ability to create value for customers, which ultimately is going to enable share gains as well as pricing. And so we've been able to then kind of take that innovation strength, and that's translated into market leadership, okay? So about 75% of the time, maybe 80% of the time, we're the global #1 company, okay? So we're global #1. But we're serving pretty niche markets. If you look inside Mettler-Toledo, it's probably about just close to 25 different product categories. And so they're very niche markets that we're serving. But at the same time, our market share in these markets tends to only average in the 25% or so kind of a range. We're going to be higher in certain categories like laboratory balances, but a lot of categories were maybe in that 20% to 25% range. So highly fragmented markets despite being the market leadership. So now we just need to gain just a little bit of market share to kind of like to grow faster than the market growth. And so we do that through our Spinnaker program. So Spinnaker is a program we've talked about for many years. It's operational excellence in sales and marketing. If you think about it, inside the company, we have about 3,000 direct salespeople. So that's a strength, right? It's having a direct sales force. So if you think about these 25 categories, we're not -- we don't have generalists. We have dedicated application experts in each one of those categories. And that's important because they can ultimately articulate that value proposition, okay? But then the question is how do you then use them most effectively? And so Spinnaker is helping to direct them towards the most attractive parts of the market, the fastest growing, the most profitable. And so over many years, we've developed a lot of tools and training. And in today's world with the newer technologies, you can only imagine how sophisticated we can get when we do that. And we can maybe talk a little bit more about that later. But then -- but by doing that, we're ultimately directing them towards the most attractive opportunities. And you can imagine in a world that's pretty dynamic right now, that's important. And so -- and then that's how we gain a little bit more extra market share. And then, if we think about things like pricing, for example, right, so in the end, we're selling -- our average price point is less than $10,000, okay? And so it's not as significant of a decision for our customers. It's not going through CapEx approvals, but we're also selling often to the end user, okay? So we have a direct application expert that can articulate the value proposition, but they're selling it to someone who understands it and ultimately is going to use the product. And it happens to be something they can handle with an operating expense budget. So that's kind of like a nice setup that we have in terms of our business. But then, we supplement that with a lot of analytics and tools and KPIs to monitor the program. We try to be very thoughtful and surgical with how we approach pricing in terms of not only price increases, but looking through the entire process of pricing in terms of different points of leakage, the way we administer pricing, the whole thing, and we look at it pretty holistically. And we have a very strong team of people all around the world. And I think it's very well ingrained in our marketing organizations as well around the world. And I think through that, we have a culture of articulating that price and capturing the value that we provide to our customers. In terms of the end markets we serve, we're also selling to, I would say, attractive end markets. Now, I know our end markets have been under pressure in the last couple of years. But I think long term, these are very attractive end markets. About 40% of our business is sold to pharma, biopharma companies, okay? About 20% is sold to food manufacturing companies and about 10% to 15% would be sold to chemical. And for us, chemical means mostly specialty chemical that really -- the companies that really value precision. And so if you step back and look at these end markets, we think they're attractive. We think that they will follow world populations, but there's also a lot of human need around these end markets, but also regulation and a need for precision and a need for service and support. And so when you look at these end markets, we think that they're attractive. They also are going to invest. They're going to invest in automation. They're going to invest in digitalization. And frankly, a lot of these companies, especially in the pharmaceutical are the ones that are making a lot of commitments in terms of capital for onshoring and research and reshoring in the future. And if you just think about pharma, in particular, you're more of an expert, but the new modalities and a lot of the different exciting things that are going on with the development in the future, I think we're very well positioned for it.

That's fantastic. I did have one pharma question, but maybe we'll circle back to that later on. Just the key products that you sell. I know you do pH meters, scales, et cetera, sensors, maybe relative sizing of these product categories. How big are your key product lines?

Yes. I wouldn't want to try to size every product category, but maybe I'll give you a little bit of a flavor. So I'll talk about our global business and then -- and set a specific to pharmaceutical because there also is frankly a lot of overlap as well, too. So 55% of our business is laboratory products, okay? Now, one of the strengths of Mettler-Toledo is we sell all the way through the value chain, right, right from research and through development, scale up, production and logistics. And then -- and we even have a small food retail business for the food business. So it's a huge strength being able to sell all the way through the value chain. I think that's also a lot of opportunity in the future for us to continue to leverage that capability as we provide data points to customers through their value chain. So now, if you look at -- you try to break it down into these like silos of product categories, so lab would be 55% of our business, okay? The largest product category is going to be laboratory balances, where we have a very strong market leadership position and rich history. We then have analytical instruments like you mentioned. Within analytical instruments, you have titration, you have thermal analysis, you have pH meters, even some smaller and newer categories like cell counters and things like that. We also have liquid handling, so pipettes and pipette tips. We sell automated chemistry equipment that's sold into -- that helps with process development. So once you've discovered a chemical compound, you then need to determine how to make it safely and efficiently. And so our AutoChem equipment is used for that. And then, you get into production, and so, like bioprocessing, so process analytics. So we were the first company to actually sell in-line process analytics and bioreactors under our Ingold brand many years ago, and that gave us a competitive advantage. And over the years, we've been able to expand the parameters of -- that we can measure inside of a bioreactor, okay? And so now, we have several parameters we can measure. We can actually then feed that information back to our transmitters, and that really gives the -- our customers the opportunity to really monitor what's going on inside of the reactor. And one of the interesting things for me was like maybe coming back to this point of selling through the value chain, so if you think about COVID, right, in February 2020 when Moderna first was -- felt like they had a vaccine potential, right, the Wall Street Journal ran an article on that. And I remember seeing it, and I remember because they showed a big picture of scientists at Moderna using our pH meters. And so people probably wouldn't have thought of Mettler-Toledo as the company that would have been in that picture, but we were. And then, a few months later, there was an article, I think it was also in the journal with Pfizer, and they were showing, hey, they're getting close to production, they're developing the drug. Where are they with the development? And they were showing our automated chemistry equipment in the journal. And then, a few months later, another article. And this time, we have -- it was now President Biden was at Pfizer in front of a big bioreactor making the drug, and it showed our Mettler-Toledo process, the analytics terminal, monitoring what was going on in the reactor. And again, it's like -- it was a great example of just a story of how we were able to help these companies throughout the whole process from discovery all the way to production. If you look at our business, though, for life sciences and pharma, I'd say about 3/4 of it actually is helping in production in QA/QC labs. And on a QA/QC lab, we can sell up to 40% of the instruments on a typical quality bench, okay? And so that's a good value proposition for our customers. But we can also -- we also have a strength in our software. So our LabX software is also sold to many of those products. So if you think about meeting the needs of data integrity or the needs of trying to automate workflows with an instrument, but also between instruments, it's a huge value proposition. And so LabX is a huge differentiator for us in the marketplace. And I think this theme of automating labs and digitizing labs is certainly a theme that we continue to see into the future. Then, let me go to our industrial business. So our industrial business is about 40% of our business, and there's 2 parts of that. There's the core industrial business, which is 25% of the global business, and there's the product inspection business, which is 15% of the global business. So core industrial is 60% of industrial, product inspection is about 40%. So what you see in our core industrial business is actually a lot of overlap with our same core segments that we see in the laboratory side. About 60% of our business in core industrial is sold to a combination of pharma, biopharma, food manufacturing and chemical. And as I said, that's mostly specialty chemical. And when you look at core industrial, probably the best way to think about this business is process control, like that's effectively what we're largely doing. So if you think about like a bioreactor, right, you need to fill that bioreactor. You need to monitor that bioreactor. Well, all those filling and formulating processes are based on weight. And that's also monitored through our terminals and our softwares -- and our software that's also integrated into our customers' processes. And so that's a lot of what that business is. That business also is -- can be sold into other industries. It's less cyclical than it used to be. But certainly, when you think about the economy, it's going to have a little bit more exposure. But this business also is going to benefit significantly from trends around onshoring as well as trends towards automation. As companies are onshoring, they're looking for more automation. And then, most companies in the world today are also looking to extract more information out of their instruments or their processes. And so we enable that as well, too, and that's a strength of our portfolio also. And then, on the product inspection side, like I said, that's about 15% of our business. And with PI, about 70% of that business is sold into food manufacturing companies. So that business is -- that's been a more challenging end market over the last few years with higher inflation, input costs, et cetera. But we're actually competing really well, and it's a really good story of innovation. If you look at some of the things we've been able to come out with over the last few years we're very proud of. They're very well received in the marketplace. And also just how we're looking at that business strategically. And there was a day where we were kind of sitting in the premium space pretty exclusively, not that there wasn't competition, but that's kind of where we've spent a lot of our energy. But over the years, we've really tried to think about it a little bit more holistically and looking at the middle market opportunities. And that's really -- the markets shifted a little bit there as well, and that's really helped us to grow, not only domestically here in the U.S., but globally in emerging markets as well, too. And so we -- you've seen some pretty good numbers in that business over the last year. And then, our last business would be our food retail business, which is about 5% of our business and tends to be a little bit lumpier, but does a nice job of leveraging a lot of the infrastructure inside of the company.

Great. And then maybe switching gears to the macro, shutdown has been topical. Budget flush, I think, comes up. How would you characterize the macro? Any change in sentiment?

Yes. So, it's been an interesting year, right? I mean, we -- when we were sitting here a year ago, Q4 was actually looking pretty good. We had a strong budget flush. And then, there's been a lot of uncertainty this past year with between trade disputes, different governmental policies affecting our core end markets and then just a little bit more uncertainty on the economy as well as our core end markets. The headlines have been better. And so I think we're all hopeful that that's going to create an environment that gives companies more confidence to invest again. But we're still a little cautious. I think it's maybe our nature to be a little cautious, but we're a little bit cautious as we kind of guided here for next year. We do see things improving. We're optimists. We do believe that a lot of these policies are going to create a lot of incremental investment. It's just -- it's a matter of timing and when. But I think in the short term, we're just a little bit more cautious with some of this uncertainty. And as you can appreciate, it's very dynamic, right? Like it's -- certain companies are already probably feeling a little bit out of the woods and maybe they're going to start to move a little bit faster. There's other companies that are probably still dealing with some of these topics. And if you think about it, we're a global business. And so I can imagine that there's -- if you look at our guidance, we're a little bit more cautious on Europe, as an example, compared to other parts of the world. Now, part of that is because Europe has a more difficult comparison to a year ago in Q4. But I also think that the economy is a little softer there right now. And I think that there's a little bit more uncertainty in that part of the world in terms of what does some of these policies mean for them.

Got you. Sorry, just on shutdown, Shawn. Have you seen any impact from the shutdown at all, government shutdown?

Very little. We would feel that in our liquid handling business, especially given the consumable nature of it. So I heard a couple of anecdotes about that, but it's an extremely small part of our overall business.

Got you. And then, for year-end budget flush, when do you typically see that? Should we have seen that by now? Or is that...

For us, we are more very late in that cycle. I think it's because -- well, we're never the biggest budget flush company, and I think it's probably because of the nature of our products being such small ticket items that can be procured pretty quickly towards the end of the year as companies have more clarity on what they want to spend or don't want to spend.

Got you. And, one of your peers, I think, on the recent earnings call, they quantified a dollar number for onshoring. This is more for biopharma. They're more in the QA/QC area. They put a $1 billion number, and their assumption was low single-digit percentage of the overall whatever announcements by biopharma should go towards tools companies for QA/QC kind of instruments, right? Is there some math on what it means for Mettler? Have you tried to size what onshoring means for tools and for Mettler?

We haven't tried to size it for our business. Of course, we're seeing a lot of the things that you're seeing about commitment levels, which is very encouraging, especially the time over the next 3 years, but to try to break that down to our business, we haven't done that math.

Got you. But suffice to say, I know like during the earnings calls, Patrick sounds a little bullish on onshoring, right? Have you seen customers bring up onshoring and start placing orders?

Well, I mean, we have a lot of customers, right? So our largest customer -- end customer in the world is still not more than 1% of our sales. So it's hard to like try to relay like one conversation and try to extrapolate. But I feel like we're very much in the early innings of this topic. I have heard anecdotes of our -- literally companies in China talking to our team asking, can we work with them if they want to move to Mexico or if they want to move to Singapore or they want to move to another part of the world. And I almost purposely say that just to show you like it's a very broad topic. It's not just the United States. And as a global company, I think we're very well positioned for it because a lot of times customers don't want to just start with a new company. And so I think we're well positioned to move with them when they move around the world. And there's going to be stuff moving to Europe as well, too. There's going to be stuff moving into India. But of course, we see locally a lot of the commitments in the United States, which is very exciting because when you think about historically what our business looked like, I'd say about 80% to 90% of our business in North America and Europe as well was replacement business. We didn't have a lot of green fields. Now, we're going to have -- whatever that number is, I'm sure it's going to be more than it was in the past, right? And so it's a very exciting opportunity, I think, going forward. And then, when you combine that with a replacement cycle that's a little bit stretched at the moment, our installed base is a little bit older than it usually is, that could be a very powerful combination as we kind of look over the next 3 to 5 years.

That's very helpful, Shawn. On the replacement cycle, what is like a typical replacement cycle for Mettler? Would customers start replacing those instruments after a certain number of years? And when you say stretch, like how stretched are we relative to the normal replacement cycle?

Of course, it's going to always depend on the product and the application and how it's being used, what conditions it's under, but we would typically estimate that our average life cycle of a product would be about 7 years. And so if you just think about COVID being like a high watermark of purchasing, it feels like we're starting to get there in terms of that replacement cycle at some point in the foreseeable future. If you look at our installed base, we look at it by different categories, of course, but it's a little bit longer than it normally is. I don't want to be so precise to try to measure it, but it's a little bit longer than it normally is. And so that's another indication. Now, do customers now decide to use things longer than normal? Like we'll see. But I think -- but personally, I feel like there historically always has been this dynamic, and it's our job to bring new innovation to the market to give them a reason to buy a new product as well, too. And I think we've done a lot of things with our R&D programs to accelerate development and to be a little bit more agile with our development. And you've seen probably an increased cadence of new products coming out over the last year or 2. And that's -- when we look at our pipeline, we actually feel very good about that as well, too. And that was always very important to Patrick was how do we come out of this downturn as a stronger company and a very strong belief that companies that invest into these cycles in the right areas are going to come out stronger. And so if anything, we actually increased R&D over the last few years with an intention of coming out stronger.

Got you. And I know on the 3Q call, you guys spoke a lot about AI digital initiatives. What are these? And how are they helping Mettler?

Yes. So for us, the broader topic of digitalization is not new, right? Now, AI is new. But I think it's a pretty broad topic. And I feel -- when I look back, I feel very good about our journey here, like -- so over 15 years ago, we started this journey on Blue Ocean, right? So Blue Ocean was a program that looked at our very complex global company with very fragmented systems and had an aspiration to try to say, how do I take this complicated company and harmonize its processes, and then, how do I enable that with a single instance of an ERP in a single instance of a CRM that's fully integrated? Super ambitious goal, like anybody that's worked in a multinational company can appreciate that's very ambitious. And it's taken us a while to get the entire business onto this program. And we're pretty much there. There's just a few units that are not on the Blue Ocean program. And I think they will be by the end of next year. So now, with Blue Ocean, so why is that important? Well, that's the enabler. And so with that setup, you have the data. And we have very, very rich data. And we started to see some of the true fruits of that during COVID. When the market started getting very dynamic and things started changing very quickly, the ability for us to see through our supply chain and react was, to me, really cool, like that agility. And we're developing, frankly, new muscles throughout the whole process with the trade wars, et cetera. And so with that data, we can now do a lot of things. So when you think about digitalization, I'd say there's like 3 pillars to it, right? There's -- Pillar 1 is what does it mean internally to Mettler-Toledo. Pillar 2 is what does it mean with how we interact with our customers. And then, Pillar 3 is what does it mean to our products and services to our customers. And so on Pillar 1, now that you have this Blue Ocean program, you have shared services and things like that, but now with harmonized processes and -- when I say harmonize as best as you can be as a global company, you have the ability to automate. And so I think we were early on the automation bandwagon, and we have a very significant number of bots out there today. We have more under development and more to come. And so I think there's a lot that we're doing in terms of our own internal automation and productivity. But then, we're doing a lot with how do we gain more -- well, this is also a combination of insights and productivity, this next thing, but with generative applications, now we get a little bit more AI, right, so large language models. Like so every function within Mettler-Toledo has its own list of use cases, and it has its own list of, I'd say, AI strategy, if you will. So Adam and I were just at an internal finance conference a couple of weeks ago, and that was a huge theme of our conference, right? It was how do we embrace and accelerate digitalization in our finance community, and we launched several tools in this regard. Some of them are generative applications, some of them get into predictive analytics, some of them are into how do you process, mine your -- how do you mine through your processes and identify opportunities for efficiencies. And then, some of them are basic things about like how do you best summarize your financial results or how do you best -- if you have a question. And so we have like our own version of chat. We have -- we call it ChatMT. We've had it for a couple of years. And so that's been something that's been helping our organization to be more efficient, productive. And I give the finance just because it's more topical for us coming out of that thing. But you can imagine it has even more power when you think about how do you prepare to meet with the customer, how do you -- we have technologies that are also helping us go through our pipeline to prioritize our pipeline, to guide our sales force to the -- how they should best use their time, but also to prepare for those interactions. So if you think about all the collaterals we have inside the company, it can leverage all those types of things. If you look at like our service business, we have tools that allow our service technicians to be dispatched in a more efficient way, like it can look at what's the average time to go from point A to point B, what's the average time to do that type of a service call. And so we have technologies that help us to automatically dispatch. And then, if you look at our supply chain, we have things that help us to determine what the cost of something should be. So we call it should costing. And so this gets into big data analytics and things like that. And I could go on for a long time here because there's a lot of things. Spinnaker has a lot of -- has for a long time leveraged big data in terms of topK and how we guide our sales force to the most attractive opportunities. The second part, the pillar that I referred to, was the customer pillar. So in the customer pillar, it's really about how do you enhance the digital journey with your customer, right from when they're trying to do their own research on Mettler-Toledo to the whole -- evaluating our capabilities and our products to ordering to even after they placed an order. They have access to their installed base, and they can have their own personal portal, and they can look at all their service certificates for their own compliance programs and those types of things. So there's a lot of things we're doing with them to better interact digitally. Some of those are live, some of those are in process, but it's actually very interesting to see what our teams have here. It's a big part of this last wave of Spinnaker 6 as well. And then the last part is -- the third pillar that I referred to is our product. So I think there's like 2 elements to that. One is, if you think about our instruments, they're a source of collecting information. And so our instruments by nature are enabling our customers' own AI and digital programs, okay? And so as we do that, we need to make sure that we have structured data, okay, in a way that facilitates their analysis. We need to make sure that we have good connectivity into their systems, and we need to make sure that it's cybersecure. And those things might sound basic, but they're not. And I think the fact that our teams have done a very good job on these types of areas and have been kind of out in front on these areas has created a competitive advantage for us with our customers. And you see it, like, for example, in our core industrial business. But then the other part of it is like what are we actually doing to our products to make them AI-enabled? And so we have things like vision technologies, like where we could like look at imaging and like so a good example would be like in our food retail business. So as a consumer, it's a product that you would be more familiar with. So you go to self-checkout, you want to put on -- you put on some apples on the scale. It automatically knows they're apples. It automatically can weigh them. It can be in a plastic bag. And our technology is much faster and much more accurate. And it's a relatively new technology, and it's just in the process I think of being introduced into the U.S. at this moment. But I just remember being in Europe in last year's budget cycle and hearing stories of how European companies were reacting to this technology. It's a huge value proposition for them. And that's just 1 example. You can imagine we can use image technologies and other applications as well. But then, on the data side, some of our products have what we call AIWizards embedded in them as well, too. And then, a really good example of where we use software for predictive applications for our customers is in AutoChem. So if you think about automated chemistry, you're kind of in that process of like, okay, I've discovered a chemical compound, how do I make it most efficiently and most safely, so they would in our -- with our products, we have like these mini reactors, and we have all these sensors going into the reactors. They would then do the experiment, the reactors would feed the in situ information into a computer. And then, historically, a chemist would then have to spend sometimes hours trying to analyze that information. But we have software now that can look at that reaction and basically provide a recommendation of the best way to do it, and then, they can rerun the reaction based on the recommendation, and it saves them tremendous amount of time. And so that's just yet another example.

Fantastic. And maybe switching gears to your 3Q and sort of Q4 assumptions in '26. When I look at Industrials, that was a highlight in that 3Q, right? Your core industrial up high singles at -- core, I think it was up 10%. With global PMIs being anemic, was there anything one-off that drove the 10% core industrials in 3Q? And I think your Q4 assumes that number to step down to low singles. So what causes this step down?

Yes. I mean, when we entered the quarter, we knew that -- we felt that core industrial was going to be strong. I think we -- I think our guidance might have been high single digit going into the third quarter. And then, we ended up with this, I think it was, 10% organic number. And so clearly exceeded our expectations. There was an element of things going well in a lot of parts of the world at the same time. We did have -- we did feel like we benefited a little bit from some timing topics, just some -- there are some projects in that business that can kick in from time to time. Some of those projects completed in the third quarter versus the fourth quarter. That's a little bit also why our fourth quarter guidance is a little bit more cautious compared to the third quarter. But I think if you just look at the second half of the year together, we feel really good about that as a print for just the second half. So maybe a little bit of timing going on there. But at the same time, I also feel like we are benefiting from some of these trends in automation and digitalization.

Got you. Sort of maybe a similar question on PID. Again, PID, I think was high singles in 3Q. What is Q4 assuming -- and why should -- when you look at both PID and core, right -- I mean, core, I understand that PMIs have lagged. But why should PID slow down when you look at Q4 into '26, right? I think your guidance looks at low to mid-singles for the segment.

Yes. So Q4 for product inspection, we -- our guide is high single digit. But you're right, for next year, it's low to mid-single digit. And we're -- that business, I think we feel like it's a tougher comparison. We acknowledge it's a more challenging end market. 70% of it is food manufacturing. And so the combination of those 2 things kind of fuels a little bit of our cautiousness going into the year. And keep in mind that's on a reported basis. So that number also includes a little bit of acquisition benefit as well.

What are -- I know the business is less cyclical now when you look at the combined industrial portfolio, right? Our PMI is still a relevant metric for us to be looking at when we try to forecast the business?

I mean, there's not 1 great KPI out there externally to try to compare us to. I'd say we're less correlated to PMIs than we used to be, but I also would say we're not immune to the economy. And so we still look at them ourselves, but we certainly have also noticed that we're less correlated than we were maybe 5 or even 10 years ago. And I think part of that is because through Spinnaker, we've really kind of shifted the mix of business more towards our core markets. If you think 10 years ago, pharma, biopharma would have been probably 30% or 1/3 of our business. Today, it's about 40%. And so that's a good example that we just have more secular exposures today than we would have 10 years ago.

Got you. And then, maybe on the lab side, lab did about 4% in 3Q, anything that stood out? Look, I know you have those different theses within lab between analytics and scales and pH meters, AutoChem. What stood out for you in lab? And then given the macro situation, right, like why is Q4 assuming a slight moderation to low singles? And what went into your fiscal '26 sort of low to mid-singles assumptions?

Right. So we felt -- overall, we felt good about lab in Q3, but I think when you peel it back, there were mixed results. And so on one hand, we had very strong growth in our process analytics business that we talked about earlier. We really saw great growth in bioprocessing, both in upstream and downstream applications, but also in reusable, but single-use sensors. I think on the single-use side, we saw particularly strong growth in the quarter. But within process analytics, there's also other end markets that we're benefiting from, like, for example, the semiconductor industry. We have ultra-pure water applications, which is important for semiconductors. So we've seen -- we experienced very good growth there. And then, another like smaller hot segment is power. And so as you think about AI and the building of data centers, this business will benefit from that. Now, that's still to come. But right now, there's a lot of investment in power generation for those data centers. And so we're starting to see some benefits in that business as well. But then, the other side of lab is on the research side, which is softer. And so pipettes were down in the quarter. It's been a softer business. Consumables is -- does better than instruments. But on the instrument side, it's still down a little bit. I think that business has just been hit with a lot of the negative trends that we've kind of seen in the headlines, the challenges with biotech funding, the challenges with academia and grants. And then, even more recently, the government shutdown certainly didn't help. So I feel good about that business in terms of like what we're doing, what we can control in terms of innovation and how I think about the future. But right now, it's just a more difficult environment for that product category. And then, as we think about next year kind of low to mid-single digit, we kind of -- we're not expecting trends to significantly improve next year. We certainly see an upside case to that. As pharma kind of comes back, that business will obviously come back. As I mentioned before, we've been really trying to invest for the future. So we have a lot of exciting things when it comes to research and development and new product introductions, and that should help us in the future. And as you think about trends around automating labs and digitizing labs, our LabX software really is a competitive advantage, and we continue to invest in that for the future as well, too.

Got you. Just on the pharma. I don't know if you track growth by end markets. Like do you look at what did pharma overall grew for you guys in '25? Is that a relevant number for you guys?

We look at it, but we -- yes, we do look at it, but I don't have the number in particular off the top of my head. Yes.

Fair enough. On academic and government, how big is academic and government? What is your NIH exposure? Maybe talk about recent trends within that market.

Right. So it's a much smaller market for us. Academia globally is about mid-single digit. Government would be a low single-digit number. If you look at specifically to the United States, together they're low single-digit part of our global business. So the stuff that's been going on here locally is a much smaller impact on our global business. And then, if you look at NIH, it's closer to 0 than it is to 1. It is very, very small. The market has clearly been under pressure. Academia, I think, was somewhat better in the third quarter in the U.S. than it has been, but against a much easier comparison, but would still kind of consider it a more softer market for us compared to our other markets. And we're still a bit cautious on it kind of going into next year.

Got you. One on China. I think you guided low singles outlook for next year. Are you seeing any stimulus? Or what could change the China story relative to your guidance assumptions?

Yes. So I mean, China -- so in the most recent quarter, one of the interesting data points for us is that we saw growth on industrial. It was the first time we had growth on the industrial side in 2 years. It was modest growth. Both lab and industrial were up low single digit. But it was a nice indication that things are starting to slowly move in the right direction. Patrick and I were just there in -- recently in September. And I think the industrial team felt a lot better than it did a year ago in terms of like maybe some of the challenges in the local market. The economy is clearly under a lot of pressure. But I feel like our teams are competing extremely well. I feel like we have a very strong China-for-China strategy there in terms of making goods in China for China. I think we're well aligned with the Chinese government's priorities in terms of the -- where they're investing. And then, if you look at where we -- who we sell to, it's mostly Chinese private companies, it's not so much multinationals or even the government. In terms of stimulus, it's less of a topic for us there. But I think, overall -- I think these priorities of the government will yield results in the future. And I think if you look at topics like GLP-1s, there's a lot of investment. I think half the GLP-1 drug candidates in the world are being developed in China at the moment, and that's an exciting opportunity for us going forward as well.

Got you. Maybe last 30 seconds, Shawn. Would services grow for you guys in '25? And what is guide assuming for '26?

I think mid- to high single digit for both. And we feel like services a great opportunity to outgrow the corporate average given that our serviceable iBase is about $3 billion, and our total business is about $1 billion. So we're certainly making it a priority in how we invest in the business as well to kind of go after that opportunity.

Fantastic. With that, we're out of time. Thank you so much.

Thank you, Vijay.