Waters Corporation (WAT) Earnings Call Transcript & Summary

All right. Good morning, everyone. My name is Caspar, Caspar Tudor, and I'm pleased to serve as the Head of Investor Relations for Waters. Thank you to all of you joining us here in the room today and for those of you joining virtually on our webcast. Over the course of this morning, our leadership team will walk you through our recent accomplishments, strategic initiatives and future growth path. We aim to give a comprehensive view on where we stand today and most importantly, where we are heading. Our agenda includes presentations from our executive team, beginning with our President and Chief Executive Officer, Dr. Udit Batra. This will then be followed by presentations from our division heads, Rob Carpio and Jianqing Bennett, followed by our Chief Financial Officer, Amol Chaubal. We will then take Q&A as a panel from those of you here in New York. Before we get going here, I would like to point out that during the course of today's presentation, we will make various forward-looking statements regarding future events or future financial performance of the company. This includes financial and operational guidance, certain financial projections, other estimates with respect to market trends and Waters' anticipated performance. We'll also be referring to certain non-GAAP financial measures today. Please take a moment to review the disclaimer on this slide, which is Slide 3 of the presentation deck as well as the additional disclosures in our recent SEC filings and recent earnings release available on our website. Now with that, let's kick things off. I would like to welcome Dr. Udit Batra to the stage to begin today's presentation.

Well, good morning, everyone. I hope you had a good time looking at the instruments and talking to our colleagues. There will be a quiz at the end. So I hope you were paying attention to what you were told about the instruments. I love coming to New York to see many of you, but more importantly, to get reenergized to know that in a turbulent time, people can still focus -- we don't have a turbulent time. People can still focus and go on about their business. And New York just goes on no matter what's going on around us. Roughly 20 years ago, I had the chance to run the New York City Marathon. And if anything, exemplifies the indomitable spirit of the city that Marathon does. It starts at -- how many have run the marathon? How many have sort of cheered for people who are running the New York City Marathon and others. That's many more people who have done that, yes. It's a fantastic experience, especially when you finish it. But it starts at the Verrazzano bridge. You surrounded by thousands of people. And you start and the momentum of the crowd literally carries you forward. There are people behind you pushing you, right? So you're not too slow and you get pushed for the first 4, 5 miles, it continues on like that and that the crowd then starts to thin. That's when the crowd on the side takes over. There are people lining up the streets. And as you go mile after mile, there are people offering you oranges, there are people offering you all kinds of drinks. Some even try to give you coffee, I would highly recommend against that when you're running. But you get carried on with that momentum until you reach the 17th mile. At the 17th mile, your body starts to tell you this is not what you're supposed to be doing. And at the same time, you're confronted with the Queensboro Bridge. And as you're coming down, it's a left turn and you look up, there's nobody on the side because there's no room. It's a dark tunnel looking up and there's no light in it. And as you start to traverse up that hill, there are people crouched on the sides. They're tired. There's nobody cheering anybody on. I had in front of me a guy whose legs crumbled and then he had to move to the side. It's a harrowing experience, right? You're going up the hill. There's nobody on the left or the right, and that's when you remember your training. You remember you've done this before. You remember that you can do it. You remember you've trained with your team and your buddies. And the most important thing at that point in time is just placing one step ahead of the other. That's it. It's that simple. Focus on the next step. And that's what Waters has been doing for the last few years, right? A turbulent time it has been. I joined the company when we were in the middle of a pandemic. Most of the executive team joined during that time or after. It's not gotten any easier. We thought the pandemic was tough. We came out with our turnaround, the business went up. And then post that, there was a supply chain crisis. Chris Ross and his team and Allan Jaenicke had to make sure that we were able to supply our customers with all the products that they needed. The demand was going through the roof and with the supply chain crisis. Behind us, the next challenge was the biotech slowdown. The industry slowed down, biotech crashed. China slowed down dramatically, all through 2023 and the first half of '24. right? China is still slow. But all during that time, what we did is we remembered our training. We developed a common understanding of the situation as you do in any sort of crisis. We all agreed to it as a team, made a plan, and then we just simply focused on execution, one step at a time, right? And that's what's gotten us so far. And 2024, late stages growth came back. I'm getting ahead of myself. I'm going to talk to you about three things today. First, I'm going to remind those of you who don't know the Waters story, what Waters is all about. We are a leader in downstream high-volume applications. Then I'm going to spend some time sharing with you what we've done in the last 3 to 4 years, laying the foundation for transformative growth going forward. And I'll spend bulk of my time delineating the new era of growth. Some of it will be embellishing on what you've already heard from many of my colleagues, but I'll try to synthesize it. So, let's get started. Waters serves regulated markets with large unmet needs. It's roughly $19-or-so billion total accessible market, growing mid-single digit plus. For those of you who have been paying attention to us, we used to say it's a $12 billion market. Now we've added $7 billion as we enter the faster-growing adjacencies, and we've gone from mid-single digit to mid-single digit plus as promised. Starting on the left-hand side is the pharma market, grows high single digits, more recently being driven by the need for biologics and large, large molecules. Traverse to the next column is clinical. We're focused on specialty diagnostic applications for LC-MS, where our tools are being used for early disease detection. At this point, we have no interest in entering the high-volume IBD market. I think that's a question I'm sure likely will come up later. Next is the food and environmental market, a mid-single-digit grower, more recently helped by PFAS testing. As you traverse your eye to the fourth column, it's materials, materials testing, largely the domain of our TA business grows mid-single digits and again, been helped more recently by battery testing. And then finally, our smallest end market is academia and government, really growing low single digit over the long term, but goes up and down quite a bit depending upon the stimuli that come from various government authorities. So large regulated markets where there are significant unmet needs that Waters is trying to satisfy, $19-or-so billion in TAM, mid-single-digit plus growth. In this attractive market, Waters has a simple and repeatable business model. Starting on the left-hand side of this chart, we spend a lot of time trying to understand the unmet needs of our customers. And we spend roughly 10% of our product sales taking complex instrumentation from post-doc labs from academic institutions and converting them into simple systems that are compliant and efficient and that can be used in high-volume regulated applications. The right-hand side summarizes our business model. And this piece will appear again and again, and again in my presentation and that of my colleagues because this is -- this encompasses the business model of Waters. It has four parts. We take these complex instruments. We convert them into sophisticated yet simple instruments that you and I can use. You had the chance to experience them earlier. Very simple instruments to use, but there's a lot of sophistication in them. That's why you need the colleagues that we had explaining them to you earlier. Roughly 170,000 of those are installed in laboratories around the world, get replaced every 7 to 10 years, very repeatable business model. The data from these instruments goes into compliant software. Our informatics business consists of the market-leading chromatography data system called Empower. 80% of the novel drugs filed to regulators use this software. And the critical success factors are data integrity and an audit trail. As you move to the bottom right, it's chemistry. Our industry-leading chemistry traces the complexity of the molecules that our customers are trying to purify, be it more and more complex biologics or more and more complex PFAS, PFAS molecules or biomarkers. Our chemistry team is the world-leading team because we have all the capabilities required to develop these columns and manufacture them in-house. We're the only manufacturer that can do that. And this is extremely important because our customers demand exquisite quality control from one batch to the other of different columns. This team will come back later. And finally, this whole business model works because we have the industry-leading service team, the industry-leading service team of about 2,000 or so colleagues around the world that make this wheel work, right? So a simple and repeatable business model in a highly attractive market. The fact that it's repeatable and simple allows us to grow 6% has allowed us to grow roughly 6% in the pre-pandemic era. This is 6% in the 10 years prior to the pandemic starting. And the fact that it is repeatable and simple allows us to command the highest margins in the industry. Our margins are high not because we have the best operational excellence systems in the world. They're high because our business model is simple and it requires low SG&A. Amol will talk a bit more about that later. So industry-leading margins. So to summarize, a $3 billion business, growing 6% over the long term, almost 60% in gross margin, industry-leading margins, $0.25 of every dollar sold turns into cash. Give me that business any day. It's a fantastic business. It's run by a team that you've had a chance to meet. We're all in the room. We're united by our love for science. We're all nerds at heart, no matter where we and how we got trained, and you can see that as you talk to my colleagues. We have the love for putting one step ahead of the other. We're conceptually very strong, but we are focused on the next day, the next minute. We focus on execution, and that's shown -- that's been shown through our results in the last few years. And finally, there's a lot of experience in transforming different types of organizations and integrating them in this team. So I'm incredibly humbled to have the opportunity to lead this team and many other colleagues that you met today. So a leader in downstream high-volume applications. Over the last few years, we've spent time getting this leader back to its podium position where it belongs. For many, many years, Waters used to set the standard in the industry. From 2015, '16, '17 to '18, we sort of trailed the market both in terms of growth and total shareholder return. And we've worked very hard to turn that around to come back up to the top of the podium. I want to give you a brief insight into that before I get into the third chapter. We've done this by enacting a transformation program that has three parts: regaining our commercial momentum; second, revitalizing our innovation, the heart of Waters; and third, deliberately allocating disproportionate resources to enter faster-growing adjacencies where our simple business model is relevant. Let me just give you some proof points. You've heard me talk about this slide many times. In 2021, I shared this slide with you first. I promised we will retire this today, and Rob will present to you a new version. But for the last time, let me talk to you about the commercial momentum and how it was gained by replacing instruments that's still 15% from that initial fleet for those of you accounting yet that have yet to be replaced. Second, we took our service attachment rates from 43% to 50%. Rob will talk about the new targets. E-commerce adoption for chemistry went from less than 20% of the portfolio going through e-commerce to over 40% today. We'll increase that target as well. Contract organizations, less than 15% of our revenue used to go to the fastest-growing segment in pharma at the time, which is contract organizations. Now that revenue is over 25%, and we tend -- we want to increase that even more. And lastly, we spent a lot of time looking at the products that you see now, Alliance iS, Xevo TQ Absolute, MaxPeak Premier Columns. And we said, can we launch them with excellence? Can we fulfill the promise of these products, the differentiation that they bring to our customers. We did that with a lot of care and a lot of passion, and that has helped us return our commercial momentum. Second, we said, look, Waters has always been known as an innovative company that created categories, go back to UPLC. How can we return back to the podium position? We launched -- after Arc HPLC, we launched the Alliance iS. This is the single most meaningful advance in HPLC and QC spaces over the last decade. It is not just a new box. Everything inside the box is new. It reduces errors in the QC space by 40% for our customers, a significant unmet need. And that particular product has constituted roughly 20% of LC revenues in the fourth quarter alone. So very, very quick and good uptake for this instrument. Second, mass spec, not to be left behind. We launched the most sensitive tandem quad in the industry with the Xevo TQ Absolute. And it coincided, as James would have told you, with the more sensitivity -- the higher sensitivity required to do PFAS testing, right? And that has allowed this particular product to constitute over 50% of the sales of all tandem quartz for waters in the fourth quarter. Huge success. And the third one is columns. Our chemistry business, I know Erin Chambers described that to you earlier. Our chemistry business, I think I can take many examples, but let me pick the MaxPeak Premier technology, which was launched a few years ago. I think fourth year after its launch is still growing over 40%. It speeds up experiments by 17x while increasing the sensitivity of the outcome. This has allowed us to win and win market share and displace our competitors in key fast-growing areas. So returned back to commercial growth, revitalized innovation. And then we said, look, strategically, where can we take this simple, repeatable business model and still be successful, right? So you remember on the left-hand side, it's a $12 billion TAM that we've shown in the past, growing mid-single digits to high single digits. And it has spaces like pharma QA/QC, late-stage drug discovery, food and environmental testing. And we said, look, what other areas can we take this business model and apply it. And we picked five. I've shown four here. Bioseparations, we increased our R&D spend to over 70% for biologics and novel modalities. For bioanalytical characterization, we purchased Wyatt to build that business. For clinical LC-MS applications of LC-MS and clinical diagnostics, we made disproportionate investment in that business and took it from a low single-digit grower to almost a double-digit grower over the next 3 years. And battery testing has been growing very, very well. It still requires a bit of nurturing. The one that's not on this chart was #5, sustainable polymers. We've reintegrated that business into the base business. It does not require any more disproportionate investment at this point in time. So over the last 4 years, we've revitalized our commercial momentum. We've revitalized our innovation. We've regained our commercial momentum, and we've entered faster-growing adjacencies. That sets us up very well for the new era of growth that is in front of us. And I want to spend a few minutes summarizing what you've already heard from many of my colleagues. As we enter this new era of growth, we want to accelerate the benefits of pioneering science by doing three things: there's a subtle but important change. We've executed extremely well over the last few years in a turbulent time, but we want to embed this excellence in execution, as you heard Allen Yanicki talk about in one of the poster sessions. Second, we want to deliver -- continue to deliver pioneering innovation. And third, we want to scale up our position in high-growth areas. We've entered these high-growth areas. We want to scale up our position. I'm going to talk about number three in this plenary. Rob and Jianqing will talk to you about embedding execution excellence and delivering pioneering innovation. So with that, let me jump into scaling up in high-growth areas. It starts with immediate results. We saw in Q3 of 2024, growth come back after 6 quarters of declines. Q4, the momentum picked up and we grew 8%. And this was not just 8% in one geography, it was across the board. It was not in one portfolio segment. It was across the board, both recurring revenue and instruments grew high single digits. And most importantly, pharma grew double digits for us. During a time when you see sequestration upstream in drug discovery and in some academic labs, we saw pharma grow double digits and the instrument replacement cycle began in earnest. So fantastic results to get the momentum started. How are we going to carry this forward? Over the near to midterm, we have an excellent setup for growth. So as you look at this chart, it's a waterfall that starts at 6%, our historic growth. I'm going to walk you through each of the buckets, and I'll do a deeper dive on a couple of them. Then you see the bar, which delineates our idiosyncratic water-specific growth drivers, right? India, generics, Anil talked about this, 70 to 100 basis points of additional growth every year. GLP-1 testing, I know Tim would have spoken to you about this, adding 30 basis points of additional growth. Biologics, both bioseparations and bioanalytical characterization. In the past, we've spoken about 40 basis points of accretion due to the acquisition of Wyatt. So combined, we say 40 basis points a year as you enter this faster-growing space. Number four, PFAS testing, adding 30 basis points of growth every year, right? So add that all up, 170 to 200 basis points of additional growth that is specific to waters, very deliberate decisions to get into these categories and build a position. I'll describe that in a minute. Add on top 100 basis points of additional pricing versus the past due to operational excellence initiatives and highly differentiated products. Amol will talk to you a little bit more about it, and you heard it from my colleagues earlier. Then, of course, not everything is hunky dory, right? China is not going to be accretive according to our assumptions going forward. We think it will be dilutive, growing low to mid-single digits without the stimulus over the next few years. That's in our assumptions. You add all that up, 6% looks like it's a high single-digit growth for the business. And then finally, you add up. Finally, you see the last bar, which is the replacement cycle, which has just begun. But over the next 2 years, we expect 100 to 150 basis points of accretion from the replacement cycle that has just started. That usually lasts 2 to 3 years. So that's why it's a separate bar. And for the next 2 to 3 years, there is enough arithmetic on this chart to suggest that we should be able to traverse in the high single digit to the high single-digit plus category. Why it is 100 to 150 basis points? Instruments are roughly 40% to 45% of our business. 2 years after the replacement cycle initiates, you have 2% to 3% higher growth than average, right? So that's the algorithm, right, on growth. And I'm going to walk you through each of these bars. I want to start with the right-hand side of the chart, the instrument replacement cycle, which is the near-term opportunity. Over the last 5 years, instrument growth has been roughly 2%, which is well below the average of 5% that we've seen in the pre-pandemic era. Any time after a trough in replace -- trough in instrument growth, we see 2 to 3 years of excess growth by about 2% to 3%, right? So the 5% becomes 7% to 8% for the 2- to 3-year period. That's what's happened each time we've had a trough in a replacement cycle in the past. Now let me talk through each of the different idiosyncratic drivers. The first one is India, India generics, in particular. Anil described this to you in a lot more detail, and I'll try to do justice to what he's told you. India is going to add 70 to 100 basis points per year of growth versus that historical growth average. Over the last 5 years, roughly 27 blockbusters have gone off patent. During this time, our India business under Anil's leadership has grown in the high teens. Over the next 5 years, $250 billion of revenue is going to go off patent, roughly 55 or so blockbusters will be responsible for that. Small molecules alone, if you look at the green part of the chart on the left-hand side, goes up by 40%. So 40% more blockbusters that are purely small molecules will go off patent over the next 5 years. That 19% should be even higher growth, but we've signed up for about 15-ish percent to say that we get to the 70 to 100 basis points of accretion to our growth over the next 5 years. every single year. And this is driven by just the application of our business model that you see on the right-hand side. I told you this wheel will appear again and again, and again, it's very straightforward. We have a disproportionate market share in the HPLC and the UPLC market, especially with generics customers. In fact, many of the top managers in these generics companies grew up with Anil and his team. Anil's team of direct reports have 20 years of tenure in the company. They've grown up with many of our customers and the service attachment rate. So they owe these customers a lot. So they -- in terms of relationships, they end up helping them service their instruments a lot more than anywhere else around the globe. So over 65% attachment rate of service, which is the highest in the industry. Virtually every one of them uses Empower to submit data to regulators. And in fact, when regulators visit these generics manufacturers, often the manufacturers are trained by our service engineers. So a fantastic application of our business model in a highly successful market led by a very competent leader has led to a high teens growth over the last 5 years. Over the next 5 years, we're saying, let's say it's mid-teens, even though the tailwind is higher, that's how you get the math of 70 to 100 basis points a year. Second, staying with pharma and high volume. The category that's going to add the largest to the volume growth of pharmaceuticals over the next 5 years -- original pharmaceuticals over the next 5 years is GLP-1s, right? I think we can all agree to that. We have a best-in-class -- we have a set of best-in-class solutions to serve the needs of our customers. Again, traverse your eye to the right-hand side of the chart. You saw Tim and team talk about the use of not just HPLC and UPLC instruments in QC, but our PATROL system. Our PATROL system allows customers, the two large GLP-1 customers to perform in-line testing and titration of different fractions of peptides so they can come up with an end product. A mouthful, but it's the only at-line system that they use and is sanctioned by regulators. Both of them use Empower. And we have dedicated service engineers to each and every site for these customers. But I want to dig a little bit deeper and describe to you what we've done on the columns side. I'm sorry if I'm repeating what Tim and Erin would have told you, this is such a fantastic story. On the left-hand side of the chart, you see the first box where you see different peaks. The peak that goes into infinity is the peptide peak, the active drug molecule. The one in the shoulder, one that looks like a small blip is an impurity. If you don't have the right type of column that gives you a precise separation, these two peaks converge. And this is a problem that one of our top GLP-1 customers was confronted with. They called us right before they filed the drug and they said, hey, can you come up with a solution that allows us to separate this impurity from the molecule of choice. On the right-hand side, you see the solution. We have vastly improved resolution when they used our CORTECS premier columns. This required a cross-functional collaboration across the company with folks from technology in sales, service engineers, and we were able to displace a competitor to gain 100% share in GLP-1 testing for our columns with one of the key manufacturers. So over the next 5 years, we expect GLP-1 testing to add roughly 30 basis points a year to our growth. This does not include the generic semaglutides. This does not include the orals. So this is just the two large manufacturers of GLP-1 testing who are producing peptides. Staying with the theme of pharma. Remember, I told you we made a deliberate effort to move towards large molecule and novel modalities. We increased our R&D spend in chemistry, in columns -- in column development to over 70% of our total R&D spend in that particular business. This has resulted in an industry-leading portfolio across different types of novel modalities. So on the left-hand side of this chart, what you see is different sizes of molecules, ranging all the way from 125 angstroms that A over 0 is angstroms, 125 angstroms. These are small peptides and proteins, all the way up to specific columns to separate lipid nanoparticles, mRNA molecules and plasmids. A very wide range of chemistries that you can only separate if you know how to modify the morphology on the surface of the particles, the chemistry on the surface of the particles and pack them in a reproducible way like we did with the GLP-1 testing example, a fantastic, fantastic achievement. On the right-hand side, you see bioanalytical characterization. David and Clarence would have described this to you earlier. There are two parts to this ambition. First, we want to make sure that all instruments that our customers want to use for biologics characterization are compatible with Empower, especially in late-stage development and in manufacturing. So they can submit whatever data they produce directly to regulators. right? And that's what they want to do, and we're working very hard to upgrade the tech stack of Empower, and I'm sure Clarence and team also spoke to you about how we're going to think about the commercial aspects of it. That's initiative number one on bioanalytical characterization. Second, we said, look, not only do we want to have Empower be the highway by which the data is sent to regulators, we want to either own or collaborate with others who have the best bioanalytical characterization tools, right? For small molecule, this is UV and mass detection. But as you traverse from the left to the right -- on the right panel of this chart, UV mass detection, capillary electrophoresis are all compatible with Empower today. By the way, capillary electrophoresis belongs to a competitor of ours, right? So we're open to collaborations as long as it satisfies the need of our customers. Number four on this list is Wyatt, the largest acquisition in the history of our company. So we allocated inorganic attention towards an area where we had a clear strategic insight. This multi-angle light scattering instrument and this data will be compatible with Empower, say, mid this year, and we're working very closely with top customers to adopt it. Mass spec is a work in progress. Likely next year, BioAccord will be compatible with Empower. And you can let your imagination roll and see how many other instruments one could add to this armamentarium. It's not many more, but a few more, and that gives you the road map for our investments. So biologics, bioseparations and bioanalytical characterization, a faster-growing market will add at least 40 basis points a year to our average growth. And finally, moving into the industrial segment is PFAS testing. We expect this to add roughly 30 basis points a year to our growth, where over the last 2 years, the market has grown 20%. The best we can size it today, it's roughly $400 million. And that is basically on the back of what you see on the left-hand side. It's a rather complex chart where you see the X-axis is the different geographies. The Y-axis are different end markets. Today, the regulations are set only for drinking water across the globe. at least in these four geographies that we show on the chart. But they are evolving in food testing, they're evolving in wastewater testing and in consumer products. So this market is going to grow. Each time we speak, we'll likely be increasing the total accessible market as regulations evolve. In this market that's been growing 20% over the last 2 years, not last quarter, not the quarter before, over the last 2 years, Waters has grown over 40%. And this is no coincidence. This is on the back of market-leading sensitivity with the Xevo TQ Absolute that James described to you. The MS Quan software that takes the data from this instrument and makes it compatible and trustworthy for regulators. This is the Empower of PFAS testing. The ability to deal with the complexity of the molecules doesn't stop with biologics. It also translates to PFAS molecules. There are roughly 40 molecules that are identified in -- identified by the EPA for remediation already. There's another 1,400 that are fluorocarbons that have yet to be characterized. So there is a long, long runway for this market to evolve. And finally, true to what we do with our key customer segments, we have our service team dedicated to the top customers. So as this wheel works, we expect this business to continue to grow in the 40% range, adding roughly 30 basis points a year of growth. So to bring it all home, in the near to midterm, we expect the 6% to become high single digits on the back of our idiosyncratic growth drivers that I just took you through. 100 additional basis points of pricing that Amol will talk through, the headwinds that we've talked about, at least in the near to midterm with China. And then in the short term, 100 to 150 basis points additional growth as the replacement cycle kicks in. So as I close and as we go into the new era of growth, there are 3 objectives. We want to embed this excellence in execution, this idea of putting one step in front of the other across the organization with systems and processes. Rob will talk more about it. We'll give you some examples. We want to continue to deliver pioneering innovation. You had the chance to talk to several of our colleagues. I'm sure they talk to you about what we're trying to do as we go forward. And then finally, I hope I've given you the synthesis of what you've heard from many of my colleagues on how we're going to scale our position in high-growth areas. So with that, let me ask my colleague, Rob Carpio, to come to the stage and talk to you about the Waters division. Rob?

Thank you. Thank you, Udit. Good morning, everyone. My name is Rob Carpio. I'm the Senior Vice President of the Waters division. I joined Waters about 9 months ago, genuinely excited about helping to usher in a new era of growth. I bring decades of leadership experience from a fairly diverse professional background from leading soldiers as an officer in the United States Army after graduating from West Point to working as a strategy consultant at McKinsey & Company after earning an MBA with distinction from the Harvard Business School and after leading private equity-owned life science businesses after a brief stent in aerospace. But what's common about that very diverse set of experiences as diverse as it may be, is a consistent focus on purpose, on surrounding myself with great people, building great teams who want to solve problems that matter. And frankly, that is what led me to Waters. Over the last 9 months, I have spent a lot of time on the road. I've met with thousands of people on my team from sales and marketing to product development to service. I've spent time with literally hundreds of our customers across every single one of our major geographies. And I've spent hours training in our labs on our instruments, appreciating firsthand from a customer perspective that which makes Waters great as well as that where we have opportunities to innovate and improve. So what I want to talk to you about this morning is what I've seen, where we are and where we're going and hopefully do justice to telling the story of the 4,300 people on my team in the Waters division who work so hard each and every day to accelerate the benefits of pioneering science. First, let me give you a brief overview of the Waters division. I'm not going to spend too much time here as I think Udit did a very nice job. But I want to orient you to the top left. And there again, you see our very simple, repeatable business model that we leverage in the Waters division to bring a market-leading product portfolio to bear in support of downstream high-volume applications in the attractive life science sector. Across the top, you see our attractive product portfolio from analytical instruments on the left to our informatics portfolio to our consumables portfolio. Today, we have almost 125,000 active system installations in the field and roughly 420,000 active users of our Empower chromatography data system, which I'll spend some time later in my section sharing more about because I think Clarence and others hopefully generated a lot of interest about the exciting innovations underway there. At the bottom, given our late-stage and development focus, we enjoy higher barriers to entry and natural volume drivers that help to provide durable growth over time. So in short, a very attractive business with very attractive secular tailwinds. But as Udit mentioned, we're entering a new stage of growth. And as I hope to share with you over the next 20 or so minutes is the mindset and the approach that I'm helping to accentuate in the Waters division around growth mindset. And so Udit spoke to you at length about the third bullet on this slide, which is scaling our position in high-growth areas. So what I want to talk to you most about is how we're embedding execution excellence and how we're delivering pioneering innovation across the Waters division. So let's begin with execution, a topic near and dear to my heart, given the environments that shaped who I am as a leader, whether in leading soldiers in forward deployed military environments or leading private equity-owned businesses competing in highly competitive niche markets. Being able to bring a team of people together with a strong systematic approach to execution to where they own that system helps to drive repeatable results and frankly, deliver what it is that we're after in ways that can scale as our business grows. Those are both -- it's both paramount as well as a competitive differentiator in the marketplace. And so that really is my aim, and that's what I want to talk to you in terms of how we get there. Before we look forward, though, I think it is important to reshow this slide, Udit said it would be the last time, and so I've already pushed us back on that. But I think it is important just to take a quick moment to again take stock in where we've come from to appreciate where it is that we're going. And I also want to share a few of my observations over the last 9 months, if that's okay. So observation number one is that I am stepping into a team that knows how to execute. We said we would deliver -- we said that we would revitalize instrument replacement. We've done that. We said that we would deliver service plan attached growth, e-commerce adoption in our chemistry portfolio, growth in contract organizations and that we would revitalize launch excellence. Check, check, check, check and check. And so when -- while that team is a strong, focused execution-oriented team and while we've made great progress, we are for sure, for sure, not yet as good as we can be. And my focus is to help lead us there. The second observation I want to share before I talk through the five things that we will be focused on. The second thing I want to share is an observation that there's two parts of this slide that I feel very strongly are embedded back into the bedrock of our business, and that's instrument replacement and innovation and launch excellence. It's not to say that either of those two things is not consequential to our go-forward plans. They absolutely are, and we continue to stay focused on them. But what I am trying to communicate is that from an instrument replacement standpoint, that is squarely back into our operating cadence into how we do business each and every day, each and every week. And from an innovation and launch excellence perspective, embedded squarely back into our strategy process and our go-to-market planning in ways that allow for consistency and repeatability, right? And so what I want to talk about are the breakthroughs, the headline initiatives that still require intense levels of focus because they're not yet part of our operating rhythm. Before I jump over to the next slide, and I promise I'll throw the pitch, instrument replacement, as we think about the opportunity that exists in front of us and maybe just to add some color to what Udit shared, given our revitalized instrument portfolio and that proven execution track record, we feel incredibly well positioned to take advantage of the opportunities that are there, not only on the instrument replacement side, but also on the expansion side. These volume growth drivers that Udit spoke about and that you heard my colleagues speak more about, will continue to help enable us to earn the right to grow alongside our customers and accelerate the benefits of pioneering science as a result. And so that is an area where despite me shifting it from the slide, will never become a side project. It's just back into the operating cadence, not something that requires the breakthrough performance that it once did. So what I do want to talk about and spend the rest of my time with you this morning speaking about is what we will be focused on. The five initiatives that do require the breakthrough performance because we see opportunities despite our strong progress to level up. And you see those five on the left-hand side of the slide. The first three carryovers from the slides of the past. Service plan attached, yes, has gone from 43% to 50%. But I objectively, together with my team, see an opportunity for 500 basis points expansion over the next 5 years. And I'll talk to you in just a moment about how we get there. On e-commerce adoption, we've doubled the amount of our chemistry revenue flowing through our e-commerce channel. That's something that we should all be excited about, but it's not something that we're complacent. We see another opportunity for 15 percentage points improvement in flow through that channel, and I'll speak about how we get there and why we think that's important. Next, contract organizations. We'll continue to be a partner of choice for some of our customers. And there, we want to grow from 25% of our pharma revenue to 30% over the next 5 years. And then adding two additional breakthrough KPIs to this chart, chemistry percent of large molecule, where today, we're back to market growth rates and see an opportunity to outpace market over the next 5 years by going from 40% of our chemistry portfolio dedicated to large molecule applications to 50% by 2030. And then last but not least, and you may be asking yourself the question, why would this be a breakthrough initiative to sustain our 150 to 200 basis points price contribution, but it is. It is an incredibly complex environment. I had a chance to meet with many of you beforehand. And I don't need to tell you that we're living in a world of terrific uncertainty. Competitive intensities are growing, macroeconomic uncertainty continues to grow. And so as I assess this business over the last 9 months and understand the things that make us great and the things that are going to continue to allow us to reinvest in growth, this being front and center and how we continue to deliver despite all that complexity, 150 to 200 basis points of price contribution is something that's incredibly important. So let me step through each one of these individually. I'll start first with service. where we want to grow from 50% plan attached to 55%. But I can't help myself but to take another victory lap on the incredibly strong service organization that I am fortunate to inherit in the Waters division. Comprised of over 1,400 field service engineers and supported by another 550-plus service-focused support staff, our global service team is ranked #1 in customer satisfaction among all analytical and life science instrument suppliers to companies around the world as rated by third-party researchers. And that's the graph that you see there on the right. Now of course, everything is earned, nothing happens by accident. And so this result is due in large part to the quality of our tenured team. 80% of those field service engineers hold scientific degrees with meaningful bench experience. Furthermore, the average tenure of our service team is nearing 10 years, 10 years of average tenure. And this is a pool and asset -- a team where we see opportunities to move people in and out of our service organization into other roles, whether they be science-related roles or sales-related roles. So key takeaway, we are starting from an incredibly strong #1 position. But again, happy never satisfied, right? Because we objectively have the opportunity to grow our plan attach by another 500 basis points over the next 5 years by making improvement in these three areas. Area number one, we have meaningful opportunity to grow our plan attach in China and APAC. And that alone will deliver half of the improvement that we're after. Our teams are working on thinking creatively about the tailored models, service models, the products that we need to offer to customers in those areas, given their unique needs and given their unique preferences. And we couple that with a revitalized sales process to ensure that we're bundling service repeatedly with instrument quotes at point of sale. We've seen this progress already occur across the fourth quarter with tremendous success. And I'm confident that with continued focus and continued investment, we see those trends continue. And then lastly is to strengthen our partnership with third-party organizations outside of top metro areas. We've invested heavily in our indirect channel in this part of the world. And it's important that we augment that with the right service delivery model so that any customer who owns Waters equipment, who were fortunate enough to convince to take on Waters equipment is able to maximize their uptime and benefit from the expert service that we have to offer. So that's the first. Second, transform our ability in our approach to contract renewal. And this is really all about leveraging analytics and artificial intelligence to do a couple of things. Number one is to create a more analytically approached segmentation model that enables our service sellers to go after the highest probability of success opportunities. and then feed that back in to learn so that the model is continuously updated and continuously improved. The second is to use artificial intelligence to help facilitate increased expertise amongst our field service teams. And look, this is as much about productivity as it is about customer experience because the team that's in the field that's more expert, right, that is able to get to resolution faster is a team that responds to a service request more quickly. And it's a team that brings an instrument back to service more quickly, which is more time for our customers to do the value-add work that they do in advancing science. Those products already underway, already being utilized by a significant portion of our field service team. And we see, again, the ability to combine those two together to drive incremental plan renewal and increased plan expansion contributing 150 basis points to our improvement. And then last but not least, the ability to take share from third-party providers. A significant portion of the business has gone to intermediaries to simplify and reduce complexity in the way that they purchase service. And in most of these cases, Waters is a subcontractor. We've developed an incredibly strong direct-to-expert value proposition. As you know, our service technicians are fully focused on waters gear. We bring unmatched expertise in how to fix, maintain and improve waters liquid chromatography instruments, mass spectrometers and increasingly our Wyatt portfolio that customers who have to go through an intermediary simply experience significant step change improvements in response time and therefore, speed to resolution, which drives more time, more throughput, more productivity. We've also augmented our team to allow for this to occur, right? So our team, the product -- the way that we approach it and the way that we have designed our products for these enterprise customers, making great headway, already have credible examples in the bag and are excited about what this will bring for us in the years to come. So pretty good clarity with great ownership about driving those -- that 500 basis point improvement despite 700 basis point improvement in plan attach over the last 5 years. Next is growing our e-commerce channel to add 15 percentage points of improvement in chemistry revenue flowing through e-com. Why is this important? Customers prefer to buy through e-commerce. And it's a growing field as generational preferences shift. And we too need to meet the needs, the evolving needs of our customers. It also drives a greater level of stickiness and a greater purchase price, right? So the basket grows as purchases are made through e-commerce. We've doubled that revenue over the last 5 years. And the goal here to get us to the next horizon of growth is really all about enhancing the e-com experience. And that starts with really improving that customer buying journey from pre to post purchase. We've leveraged third parties who've helped bring expertise to bear in exactly how we do this. Our teams are investing heavily in making those improvements so that when customers arrive and are seeking to make an e-commerce purchase through our channel that they're getting exactly what they need. Second, dramatically improving search. And this is from very basic best practices like search engine optimization that we have the opportunity to increment, but also in leveraging conversational AI to allow customers with very complex method needs to find the exact right column, which may or may not be the column they were searching for. right? We obviously have thousands of SKUs in our column chemistry. And so making sure you get quickly to that right column speeds up method development, speeds up productivity and ultimately creates a stronger stickiness as we do that. And then, of course, last but not least, nothing happens without a great team. So augmenting that team with a full stack engineering capability to deliver and sustain an enhanced e-commerce platform improvement. So really confident about how we go achieve that. Third, CXO growth. Again, strong foundation of improvement, fruit at the bottom of the tree picked over. Now we go to the fruit of the top, going from 25% of our pharma sales to 30% over the next 5 years. And again, through three areas. The first in strategic account penetration, where we've targeted in terms of the companies there that we think we have a right and a compelling value proposition to win with and also how we've modified roles and responsibilities and how we've changed review cadence to ensure that we're integrating the entire global network from strategic account owners to individual site leaders to create a superior experience for customers in this area. We think that has the chance to add 200 basis points to the growth that we're seeking. Next is improving our market development and again, analytics-based segmentation to ensure that we're bringing a very compelling value proposition to bear with persona-like monitoring and focus in areas that today we're just essentially underpenetrated. And then last but not least is leveraging collaborative innovation. This isn't necessarily from an instrumentation standpoint, but much more from a workflow perspective. particularly in high-volume CXOs where there's interest in automating sample prep and there's interest in ensuring that the service offering is consistent with their expectations, be that on-site or remote service support. But really challenging the sort of approach that we've taken for many, many years to ensure that we're delivering unique value to these CXO customers. We see those as being the three key ingredients to driving that 500 basis point growth over the next 5 years. Fourth is chemistry percent of large molecule and growing that from 40% today to 50% over the next 5 years. And as you look at the left-hand side of the slide, you can hopefully gain a fairly decent appreciation for the journey that we've been on. just to quickly orient you to the graph. The bars represent Waters -- the percentage of Waters chemistry sales to large molecule applications. So in 2019, 20% 2024, 40% and our ambition in 2030 is 50%. The line graph represents the percentage of worldwide drugs that are in large molecule, right, that are large molecule drugs. So simply put, you can see in 2019, we woefully lagged the market by about 10 percentage points, right? Market was at 31%. We were at 20%. Thanks to very focused investment and part of our indomitable program over the 2019 to 2024 period, we were able to get back to market. So we're moving in a good direction. But our goal is not to just stay at market. Our goal is to grow ahead of market because as you see on the right-hand side of the slide, we do have a leading position as a premium innovator in large molecule applications. So how do we get there? It's already started by realigning our business to capture that growth. Any time you have a good strategy, the very next conversation is does your structure match your strategy? And so with our biologics business unit that David Curtin is leading in our bioseparations portfolio now under a single leader, we see the opportunity for not only focus but for intimacy, right? And I use that word intimacy intentionally because it's one that we typically reserve for our most private relationships. But here, it's about being able to predict the problems that our customers are going to face and predict the kinds of challenges that we're going to need to help them overcome as years move on. So the investments and the progress we've made have contributed to a really tangible and really exciting biologics-focused portfolio today. But much more importantly, it's about what that portfolio will bring to bear in the years to come. You heard Udit mention the way that we've reallocated resource to drive even more of our R&D investment, right? 20 percentage point improvement in R&D spend in large molecule. We're very excited about the product portfolio that exists there. We're very excited about the partnerships that we'll be able to garner through our Biologics business unit, feeling again very, very good based on the nuts and bolts of how we go deliver these ambitious outcomes. And then last but not least, sustaining our price advantage, because it is all about profitable growth. And again, here, we feel very confident about being able to consistently deliver 150 to 200 basis points of price contribution. And it starts with the strength of our recurring revenue business, which is what you see on the slide. So on the left, our chemistry portfolio, which is about 20% of our business. And there, we see about a 5% year-on-year stick rate on like-to-like SKUs. And on the right, our service business, where about 40% of our revenue, and we see about a 2.5 percentage point stick rate on a year-to-year basis. Each of them individually contributing 100 basis points, 200 collectively to sort of start the year. Now again, I don't need to tell you this, nothing is earned, nothing is guaranteed. We always need to ensure that we're earning these price contributions. But the key message is that we don't start the year from zero. We start with an incredibly strong floor on pricing. We augment that. That's number one. We augment that with very focused investment in value selling. We are not a cost-plus business. We create a lot of value for our customers and the products that we innovate, and it allows us to share in the value that we create. And it's important that every single one of the thousands of team members across the Waters division and across Waters Corporation feel very good about their ability to sell value and to capture value. And so together with just the way that our business functions today, coupled with the investments that we make in our human capital, that 200 basis point price floor gives us a lot of strength. Your next question is what about instruments, Rob? And there, for sure, we see opportunities in like-for-like instrument price improvements. But the market is going to be, I think, increasingly uncertain in the years to come. And so what we don't want to do is take the ambition too far and lose trust in not being able to consistently deliver. What this floor provides us is the top cover to weather whatever storm comes our way so that even in the toughest of times, we can deliver at least 150 basis points of price that we then obviously use to generate trust, reinvest in our business and continue to deliver the profitable growth that we're after. So hopefully, that gives you a feel for what we're doing to embed execution excellence into our DNA. There's a lot that we could talk about in terms of systems, processes, tools. We're not going to get into that today. But there is great clarity on the areas of breakthrough in our business, how to sustain those that are in the bedrock and ensure that our cadence allows consistent identification of problems and speed of problem and issue resolution. And I'd like to then move on to how we now deliver pioneering innovation. So here, you see recently launched products and new products across our product portfolio of informatics -- excuse me, instruments, informatics and consumables. Each of them tied to their respective strategic initiative to strengthen our core and expand into high-growth adjacencies. Now these products [Technical Difficulty]

[Technical Difficulty] grow our chemistry reagent business much faster and at a double-digit growth rate. As a result, we are able to transform our business profile-wise to be more resilient with recurring revenue from 51% to 56%. So that's the business result here. Let me also share with you that in the last 3 years and also to share with you our conviction why LC-MS technology is the future for clinical chemistry. And we have -- in the last 3 years, not only Waters has had a lot of advancement in technology, also the broader industry, you already know that there are newcomers in the LC-MS diagnostic area. So with those movement advancement, we are seeing LC-MS is getting closer and closer to be the future of clinical chemistry market, which is a $30 billion to $40 billion market. And this is because of the inherent technical advantages. So let me just highlight, it's because it's much more sensitive. So you have a much lower false negative rate. It's much more specific. So you have a much lower negative false negative rate. And more importantly, it's inherently multiplex testing. So it gives you the cost of efficient cost of benefit there. So I'm going to use three examples to highlight how this technology is going to help patient care and help the health care by providing earlier detection, more accurate diagnosis and more effective diagnosis here. So the first example is on newborn screening. Newborn screening world has been an evolving world. After 20 years, it's already -- the screening test is already not only multiplexing, it's a high-plex test with about 20, 30 disorders being tested in one test. But throughout the years, it's continuously evolving. After a few years, you always have one or two new disorders being added to the test when the treatments are available. So the story I'm going to share with you is, recently there is a GAMT disorder being added to the existing newborn screening test. And a few months ago, we had a very happy father of a newborn baby boy came to us that because your system supported the lab to have disorder being added to the test, his baby boy was the first patient being diagnosed with GAMT deficiency. And then with this treatment available, now his baby boy can grow healthy without experiencing later in his life, mental deficit. So this is a life-changing diagnosis when you use LC-MS for newborn screening. The second case I wanted to share with you, this is more about from a business management standpoint of view. In the traditional clinical chemistry immunoassay world, the endocrinology tests are high-volume tests. But very often, you have to do one analyte or one steroid at a time. And very often, those tests have challenges, not stabilized or not reliant -- not reliable results. So with LC-MS is becoming the gold standard for endocrinology test, and I have customers now very happy not only they can have a reliable test results, they can also do multiple steroids in one test to drive efficiency. So the third example I wanted to share with you the benefits of LC-MS technology is therapeutic drug monitoring. And this is actually one of my colleagues. His father has gone through chemotherapy and relies on day in, day out, every day twice very accurate monitoring of the multiple drugs that he was using. With those accuracy of the testing, he was able to have the best and personalized treatment plan, and he has recovered very well. So I'm using those three examples to highlight LC-MS technology with its inherent technical advantages to become the future for clinical chemistry. Now with this, I'm actually going to share with you in addition to technical advantages. So what is really the LC-MS diagnostic business is about. So the LC-MS diagnostic business is a razor-razor blade model. And very often, people only think about it's the mass spec alone. No, it's not. It's not the mass spec alone in the third column of the slide here. So let me just highlight three things for you. The LC-MS test, it's a sample in result out. That's why it's a razor and razor blade model. Let me quickly walk you through how sample in result out as the first point. And then secondly, to highlight where the razor blades are. And then thirdly, to highlight to you, what's the most critical factor to make this razor-razor blade model effective and sustainable. So very -- on the slide, we did a little bit of carton to share with you, LC-MS can handle multiple different sample types, whether it's dried blood spots or whether it's a serum tube, and we will use reagents to automately purify the sample. And then you get multiple targets, analytes. Those multiple analytes will go through the columns of the solvents to be separated out. Once each one is being separated out, you go through mass spec to be fragmented, to be detected to be quantified. And then we generate the results of the concentration, measured against the reference range of a normal patient population. That's where the report out. So that's the workflow of LC-MS diagnostic test. In this workflow, now it's very apparent the razor blades comes from the reagents we use to purify the sample and the columns solvents we use to separate the analytes. But to make it a critical factor to make the razor-razor blade model sustainable is you have to have your assay to cover both your purification method, your separation method, your mass spec method and your data analysis. That's what it makes it a consistent LC-MS test, diagnostic test. When it's consistent, you can run high patient volume. That's where the razor-razor blade model will stick. So I took a few minutes to went into the details. The point I wanted to highlight to you is Waters is uniquely positioned to deliver this end-to-end LC-MS diagnostic tests because we have three key areas with technical advantages. We did highlight it, we have the industry-leading precision medicine -- precision chemistry. That's where with the precision chemistry and with many scientists you have talked to today, we have -- in the last 20 years, we have developed the broadest method library in the industry, covering 250 analytes already. It's end-to-end method library. And in the last couple of years, we have started to take some of the high-volume method to develop them into assays. So they launched in the market, the immunosuppressant drug that's for transplant patients and also the endocrinology kit, where we have -- we cover 8 to 12 steroids there. So that's the first advantage that our Waters has technically and experience-wise. The second one is we know data. We know the data coming out of the LC-MS, and we have expertise to automate the data analysis. We also launched a QUAN review for IVD. I talked about the toxicology areas. For a toxicology lab, what they do is they usually want 100 samples on one plate, close to 100 samples. For each sample, you want to test 50 to 60 analytes. And for 100 sample, it takes 3.5 hours to review the data. So us with expertise we provided for toxicology, we are able to reduce their review time from 3.5 hours to 1.5 hours. So these are the two areas of expertise that we usually don't talk about because we often just talk about mass spec. Of course, we have the broadest IVD cleared LC-MS instruments in the industry. So these are the three critical areas that will drive a consistent, I keep mentioning consistent, that's what matters for diagnostic world. Consistent test performance from user to use, from lab to lab from site to site. And Waters is uniquely positioned for this. So with this, I think we already shared during the discussions that [indiscernible] shared how and we did also emphasize in the last 3 years, how we have been expanding our capabilities with the additional investment, both from an R&D perspective, instrument software, reagents, but also from a manufacturing standpoint of view. Lot-to-lot variance is going to be critical for diagnostic tests. From a manufacturing, supply chain, logistics standpoint of view, we have expanded our capability. And coupled with that, we have expanded our sales service applications support because for high volume that diagnostic customers, you have to have a reliable support so then they can keep the test running. So I wanted to share with the technology advancement, with the capabilities we are building, we are not only have been busy generating results, we also have been busy developing our future LC-MS diagnostic platform, the offerings. Now before I get into what our offerings are, the value proposition of it, I wanted to share, first of all, we were very happy there are newcomers to the LC-MS world, particularly leading IVD vendor coming to LC-MS with fully integrated, fully automated LC-MS analyzer here. Here, I wanted to share that we take a different approach. We take an approach because we truly understand what LC-MS lab, what the customers are going through and what the technology itself, we take an approach, we go with a modular system design. And of course, we will have automation. Of course, we'll have a broader set of routine test menu because that's what razor-razor blade model works. But we -- in addition to this, we have a modular design. So it's flexible, allowing the customers in addition to routine test menu, they will still be able to run the specific tests their clinicians ask with open channel. And because it's a modular design, it's a complex size, it's half the size. So that you can -- the hospitals can decide where do they want to put the instruments with the automation there. Do they want to continue with their current specialty labs? Or do they put in the middle in the core lab. So give them the flexibility where they manage their patient volume, patient sample flow. Ultimately, it's very critical that you get the total cost of ownership per test low. That's a fundamental reason that you not only can get a better analytical performance with total cost of ownership low, you can drive adoption. So these are the three key elements that the approach we are taking differently just because rooted in our deep understanding of customers and the technology itself. So with this, we are ready to looking at how we work with the broader industry, drive collaboration, drive fast adoption. So this is the clinical business, the progress we have made and where we are going. So with this, I'm going to also share what we are -- the progress we are making on the TA Instrument division. And it's equally exciting if you -- I'm sure that you have already sensed from my colleague, [indiscernible]. TA business, TA itself is a leader in materials analytics applications, and we serve a broader customer base ranging from scientists, including Nobel Prize winners to R&D engineers to also quality control engineers as well. And we have a broader portfolio. This is one of the key reasons because we have a broader portfolio. This is a busy picture here. You can see on the top, this enabled us to provide a total solution for materials analytics solutions to the customers and also enabled us to provide greater customer service. So we have great loyalty from the customers and enabled us to have a high degree of cross-selling. As a result, TA business is a very high profitable business. Now in the last 3 years, we also shared with the broader end markets we are serving with TA Instruments, we focused on a few 3 high-growth segments batteries, advanced materials and life science. So with that execution in the last 3 years, we are also able to change -- transform the TA business from a 2% growth historically now to 7% growth in the last few years above our peers. And also same thing, very importantly, we are transforming our business with more exposures to the high-growth segments. So we have more sustainable growth for the future. Here is just a quick recap. The four -- the three high-growth segments, batteries, life science and advanced polymers. Now what I'm going to do is to share just double-click using batteries, double-click to share how we have been executing because we will be there using that model to scale up the growth for the future. So I will use two slides. One that you are already familiar with, two slides to double-click. First double-click is commercially how we have been able to develop a strong position in the battery value chain across from components to the end the electrical vehicle manufacturers, the entire value chain. So with this, we are able to grow the business from $5 million to $20 million. It's still small. That's good because there is a huge room to grow here. Along with this journey, the piece very, very strong for us is we have developed a strong network of top players in the battery value chain from a component manufacturer to cell manufacturers such as CATL, BYD, LG Chem to Tesla to electrical vehicle companies like BYD, Tesla, BMW, General Motor, Geely, all these, we have developed a strong network. And with this, we have good exposure to what the challenges they are facing, what the application they need to do. As such, we were able to just in those 3 years, launched six new products, along with our portfolio, developed 22 specific battery-related applications to help them solve problems. And throughout the journey, we also trained our salespeople who now can speak battery industry language to be able to work with the battery customers. So that's one double click. The second double click, I think that I will go quickly because you already had a chance to have a discussion with my colleague about the new innovations. How with the strong network we built, we drive innovations in R&D, I want to point out one more thing here to highlight because we have visibility in R&D, our top players in different parts of the battery value chain actually invited us to tell us what the problems they are facing in their production. What are the problems, what's the low yield they are facing in their battery electrode slurry. So that's the reason we actually developed the DCR, that's the one in the middle, the Discovery Core Rheometer to make it easy to use, but to give the customer insights during the quality control. So here, I double-click on both the business model of batteries and the innovation model with the batteries. With this, we will scale up to all the other two high-growth segments that we are working on for advanced materials and also for life science. We already started with new product introductions. With those additional introductions solving the customer problems, we'll be able to replicate the model to continue to drive the growth here. So putting all this together that what I have shared is the execution of the strategy we developed how to transform the clinical business from low single digit to high single digit, close to double digit and then also batteries business. With this, we will be able to continue, like Udit mentioned that leverage our execution credibility, driving innovations so we can scale up both clinical business and the TA instrument business. So with this, let me invite our CFO, Amol to come to the stage.

Good morning, good afternoon, everyone. I mean, this morning, you had a great opportunity to speak with a lot of our colleagues, and you heard about the fantastic growth opportunities that lie ahead of us. And you also got to know more about our pricing and margin focus. And then you heard from Udit about how we've outperformed our transformation goals as well as the fantastic new era of growth that lies ahead of us and how exceptionally well positioned we are to capitalize on these opportunities. You also heard from Rob and Jianqing on their relentless disciplined execution focus as well as how we are pursuing category-defining innovations. So what I'm going to do today is bring this all together in terms of our value proposition and what this means for our value creation model, right? So first, I mean, all of you know this, Waters occupies a very unique model within life science tools space. We take complex technology, convert it into sophisticated yet simple-to-use instruments. We fortify it with compliant informatics. We put innovative differentiated chemistry and provide dedicated service. And what that does over time is allows us to play in the downstream part of pharma and applied value chain. And why is that important? Because downstream parts of the value chain are high volume, they are recurring, they are regulated. And that then allows us to deliver industry-leading best-in-class financials with highest margins, $0.25 on every dollar we sell is free cash flow, and this business grows 6%. Now within that, if you look at our journey over the last 4 or 5 years, we've said -- these are our goals. That's what we did at the beginning of our transformation journey. We've consistently outperformed those goals. So our commercial execution momentum is back. We've delivered really great innovation that has been vertical commercial success, be it MaxPeak Premier Columns or Arc HPLC or TQ Absolute or Alliance iS. And we said we will nurture higher growth adjacencies, and we've already started to put runs on the board, be it bioanalytical characterization, bioseparation, clinical diagnostics. And over and above these three things, we've also nurtured fantastic idiosyncratic growth drivers like GLP-1s, like India generic. Also during the same time, we've moved our footprint of large molecule from a little under 20% when we started this journey to as much as 35% of our pharma revenues are now large molecule. Also during this time, we've delivered fantastic, highly differentiated outcomes on pricing and margin expansion. And during this time, we've delivered the promise we made on Wyatt, where pretty much we have come in before or above the goals we set out in a market where pretty much every other deal has struggled to live up to its expectations, right? So we feel really good where we are today. And now let me sort of bring together everything that you heard over the last sessions in terms of what does this mean in terms of numbers. So look, I mean, from a value creation point of view, we look at it in a very standard way, right? Growth, our operational discipline and how we deploy capital. Let's start with growth. So look, growth is back, right? We saw this in Q3 and Q4. We grew 4% in Q3. We grew 8% in Q4. When you contrast this with our peer group, highly differentiated performance. We have the peer ranges there. And instrument growth is back. Instruments grew high single digits in Q4. Pretty much every region grew. Pharma grew 9% or almost double digits in Q4. China returned to growth in Q4 as well, right? So I feel really good where the market momentum is. And that is on the back of really good innovation, right? All our launches are doing exceedingly well. Alliance iS is now 20% of our HPLC revenue. TQ Absolute, a resounding success. This is our highest selling tandem card. MaxPeak Premier columns, I mean, don't need to speak about it last 3 years has been blazing the trail. So where we stand today, we really feel good. And if you sort of step back and look at our business, pre-COVID, this business grew 6%. But there are amazing tailwinds that will accelerate the growth of this business. It starts with volume. I mean, if you look at the forecast for prescription volumes in the years to come, prescription volumes are expected to accelerate growth in the next 5 years versus the last 5 years. There's going to be more regulations, and that's going to be tailwinds for things such as PFAS. There are going to be new applications, particularly in large molecule and novel modalities and then pricing, and we'll go through each one of them. So starting with idiosyncratic growth drivers. I mean, I won't spend too much time on this because you've heard it from a lot of our colleagues as well as from Udit. Really fantastic, very unique differentiated opportunities for Waters that we've capitalized on. We expect in both the GLP-1s. We're growing twice as much as the market on PFAS, not just in a single quarter. And then the India generic opportunity is real, right? Because the number of small molecule blockbusters going off the cliff is 40% more than what we saw in the last 5 years. And in the last 5 years, we grew high teens. Even if I underwrite this at 10% to 15% growth instead of high teens growth, I get to 70 to 100 basis points of accretion. So this is all real. On top of it is the biologic opportunity, right? I mean no -- people thought Waters as a small molecule company. 5 years ago, that was true. Not today, we are 35% large molecule and growing. And that is a meaningful tailwind. We underwrote Wyatt with 40 basis points of accretion to our top line. So Wyatt alone should add 40 basis points. On top of it, there is bioseparations. On top of that is bioanalytical characterization. I'm not even counting the fantastic work that you've seen on clinical and batteries in this. And then we talk about pricing. When we talk about pricing, we say like-for-like price, like-for-like SKU, like-for-like geography. And there, people ask me like, how come you are doing 200 basis points in these down cycles. The answer to that is very simple, as Rob covered, right? Chemistry, we are highly differentiated, gold standard in quality, gold standard in innovation. So when we do a 5% price increase, we get almost 100% stick rate. And that's 20% of our portfolio. So that puts 100 basis points already on the board. Service, it's a mix of two things: break/fix and software. Break/fix, again, we are very meaningfully differentiated. Top NPS scores, lowest attrition, highest attachment rate. On software, you know we have a very unique position with Empower. So when you put those two things together on a 5% price increase, we get at least 50% stick rate. And that's almost 40% of our business. So that puts another 100 basis points, right? So when you put those two things together, you begin the year with 200 basis points floor on a like-for-like SKU, like-for-like geography. Anything that you do on instruments is incremental, right? And then the most critical thing with us is, I mean, anybody can talk a good game on pricing, and everybody does. But -- if you can't deliver it on gross margin, then it's noise. You should ignore that. In our case, our numbers speak for themselves. In the last 2 years, we've grown our gross margin by 280 basis points on back of this when you exclude FX. Even if you include FX, we've grown our gross margin by 140 basis points. So if you hear a good game on pricing and don't see it in gross margin when people complain that, hey, we lost it on mix, that's all noise. And that's how we hold our general managers and our country managers accountable. If they cannot expand their gross margin, whatever they say on price is noise, right? And that's like-for-like. Now let's talk about upsell, right, because we don't count the upsell in the like-for-like pricing. In the upsell, historically has contributed 1.5% of our growth when we moved people to the newer instruments versus base. And that is on the back of 7% to 10% better price on a newer instrument versus the old one. But now with instruments like TQ Absolute or instrument like Alliance iS, where we are solving a meaningful unmet need, that is allowing us to command 15% to 20% better price. So that's twice what we historically did. So that's going to be accretive to that 1.5% historical contribution from upsell, and we are super excited about it. Then turning the page to recurring revenues, right? I mean, in this sector, we've always said, hey, recurring revenues are more resilient. You see companies saying we have 80% recurring, 90% recurring revenues. But last 2 years have painfully taught us, no two recurring revenues are alike. It depends what you are indexed to. Are you indexed to experimental volumes upstream? Or are you indexed to pill count downstream? That really defines what is more resilient. And you see these portfolios that boasted 80%, 90% recurring revenues have struggled in the last 2 years, and they've been at best flat, if not negative. Our recurring revenues, good times or bad times because we are indexed to pill count, have always been 6% to 7% growth. And that really creates a great floor for us because that's almost 60% of our business. And then instrument replacements, right? We are at the beginning of the instrument replacement cycle, whichever way you look at it, area under the curve, stacked CAGRs, average life of the fleet, they all theoretically point to, hey, instruments have overaged. Certain customer groups, large customer groups like large pharma, CDMOs are actively discussing replacement. All through course of last year, we've gathered momentum. That's reflected in our funnel strength, that's reflected in orders and our results in Q3 and Q4. So typically, when an instrument replacement cycle is on, you grow 7% to 8%. Q4, we were already at 8%, right? As we now look into our guide for 2025, you start with that 7% to 8%. We have included a good 4% to 5% prudence given the macro uncertainty in the guide to come to more or less like low single-digit instrument growth. On top of it, you add about 1.25 percentage of idiosyncratic growth drivers. That takes us to the midpoint of our guide, which is at 4.25%. So that allows us to begin the year with a good amount of prudence if some of these uncertainties because of the macro were to get realized. So then bringing this all together from a growth point of view, as Udit summarized, when you add the idiosyncratic growth drivers, the incremental pricing contribution, even if you account for headwinds from China, if China sort of continues to grow low single digits outside of the stimulus, some small headwinds for us from A&G and biotech because we don't play there much. Even if you account for all of this, our underlying growth profile should get elevated to high single digits. And then there will be years like the years that we are facing '25, '26 when instrument replacement cycle will be on, that would add another 100, 150 basis points to the underlying profile allowing us to do high single-digit plus growth. So that's on growth. Let's talk about margin. And when I started, everybody would say Waters is the top margin. How far can you grow from here? And I would keep telling them that, look, Waters margin is high, not because we've squeezed every penny. It's high because of our business model. And our business model plays into downstream high-volume recurring and regulated settings. What does that mean? Sales and marketing is not as intensive as you would need to be when you're selling upstream into drug discovery because the business is highly repeatable. Also downstream, you get amazing service attachment rate. Almost 40% of our revenue is service. Service doesn't need R&D. 10% of your revenue is not locked in R&D on service. That naturally allows you to deliver industry-leading margin, right? Now that we've put amazing runs on the board for the last 3 or 4 years, a lot less people ask me about this question, whether there is room for margin expansion for Waters, right? But then let's go through this. Look, last 2 years have been tough. We've had FX headwinds. We've had negative volume leverage. We have had inflationary pressures. But you look at our scorecard, we've risen up to these challenges through productivity gains. We were one of the first companies to realign our cost base to the new reality. We've done exceedingly well on pricing even during these times, 200 basis points every year. And that has allowed us to offset the impact of these headwinds. And the numbers speak for themselves, right? Gross margin, we've expanded by 140 basis points. Operating margin, we've expanded by 80 basis points. If you exclude FX, gross margin is up 280 basis points. Operating margin is up 240 basis points. When you contrast us with our peers, we are leading the pack when everybody else, most of them have dropped their margin, barring one who had a shipment delay, right? So clearly, the runs are on the board. And our margin algorithm is pretty simple. When we grow more than 5% it produces 50 basis points of volume leverage. Why? Because, look, in this business where you have this fantastic gross margin, if sales grow 5%, sales and marketing grows 4%, G&A grows 3%. So your SG&A only grows 3.5% or 3.7%. That more or less drives the volume leverage. You get a little bit of volume leverage on cost of goods. There's a little bit of fixed cost there. You don't get much leverage on R&D, but it's a very clear path to get to 50 basis points of volume leverage. Then as installed base grows, and our installed base doesn't grow that rapidly because 75% of what we sell is really replacement. But as that installed base grows, you get more recurring revenue, which is more accretive to our margin profile. That, coupled with our pricing discipline should allow us to put 25 basis points of margin expansion through price and mix. And then we have a set of clearly defined 12 programs, things that other companies have long done that we embarked on 2, 3 years ago that are starting to bear fruit. And those programs will deliver about 300 basis points of margin expansion over the course of 8 years, 2023 to 2030. And when we say 300 basis points, this is not a gross number. A lot of times, people quote these savings in gross numbers. Those are not relevant because you have to account for merit increase. You have to account for inflation. You have to account for depreciation from investments to unlock those savings. What we quote here is a net number, net of all those costs, right? And so that should allow us to get to 100 basis points of underlying margin expansion. And when we started this journey on higher-growth adjacencies, we said, look, 70 to 80 basis points is what we need to reinvest. And that level of reinvestment is starting to come down because, one, these adjacencies are starting to produce revenue. And two, we've sort of scaled them at a level that they don't need as much investment. So in the near to midterm, say, 60 basis points, and that should allow us to put 40 basis points on the board each year, plus or minus FX. And this is where the focus is. I mean you heard from [ Sean ], you heard from Allen, you heard from [ Brooke ], 12 really focused programs across procurement, across process excellence, across network optimization and across digitization. That have already started to deliver. They were the backbones of why our margins did so well in '23 and '24. And each of them have very discrete sort of goals very discrete sort of outcomes. I mean the slide doesn't show well on this screen. But if you see, each program has a goal, and that goal is net of inflation, net of merit increase, net of investment depreciation. And here, you roughly see the time line at which that program will start to deliver, when it will peak delivery and when it will fade out. And you see it basically is fairly even when you add everything up over the course of 8 years. Now you would say, if I divide 300 by 8, I should get to 37.5%, why are you only committing to 25%? You first deliver and then you sort of get to your maximum number. Having 37.5% gives me a comfort that we can at least deliver 25% each year. Some people who watch the posters, then they sort of said, hey, why can't you do all of this today and get all the 300 in 2025. I mean there are interdependencies. You need to have SAP upgraded to really unlock service digitization or sales digitization. So things take time. And that's a good problem to have because these things will offset a lot of investments that we are making in higher growth adjacencies. And by the time they tail off, the higher growth adjacencies are producing accretive margin impact, right? So that's a great problem to have in terms of your margin expansion journey. And so then how does this all add up, right? So we are roughly at 31%. When you put this volume leverage, when you put this mix and price, when you put this productivity gains, less the investments we need to make, we should be able to get to 35% operating margin by 2030, plus or minus FX. And that's what we aspire towards. That's what our goals are, and that's what we are working towards. So then turning the page on our focused capital deployment, right? And starting with Wyatt. So Wyatt became accretive to EPS in fourth quarter after close, exactly as we promised. Pretty much on every synergy, the base synergies like geographical expansion, attaching our LC seamlessly to the Wyatt instrument or attaching our columns with Wyatt instruments, we were ahead of schedule by at least a quarter on each of those KPIs. On the go-get synergies, like bioanalytical characterization or taking light scattering into Empower. Again, there, we were ahead of plan. We released the beta version of multi-angle light scattering on Empower almost 2 quarters before we said we would. So we feel really good, and you see that in our numbers, too. Every number we said we've hit on why, right? And this is probably the only deal in the last 2 years that's hitting all its numbers where every other deal is sort of blaming the market. So we feel really good that we've built really good M&A muscle strength, and we've demonstrated we can do good M&A. As we look into the future, we are extremely well positioned. We have amazing free cash flows that allow us to delever pretty rapidly. You saw that with Wyatt, right? We are already back to pre-Wyatt level debts. Two, our portfolio is fairly unique. So when it comes to doing deals, we can close those deals relatively quickly because we are -- we don't have much overlaps. What's most critical is we are absolutely focused on the industrial logic and the financial discipline. And that's what makes it tougher because at this point, we could have done five more deals. But the focus on industrial logic and the focus on financial discipline comes first. And that makes it tougher to thread deals in this market, but we remain absolutely committed to those two elements. sound industrial logic, absolute financial discipline. And you saw that with Wyatt, right? We take base synergies, we risk adjust that and we measure it. We don't share anything from the go-get synergies with the sellers. We try to get all possible benefits like tax capitalization, and we deliver outstanding outcomes based on that. So then sort of if you say, what does this all add up to, right? Historically, Waters capital model was 6% to 2%, 6% top line growth, 2% from margin expansion and 2% from capital deployment, which was largely share buybacks. And that sort of gave us 10% EPS growth. So clearly, I hope -- I'm sure when you heard everything today from my colleagues, from Rob and Udit and Jianqing, you're getting more and more convinced that the growth ahead of us is a lot more than 6%. We think our underlying profile has now got elevated to high single digits. And during replacements, it could be high single-digit plus. With everything that we've done on margins and the runs that we've put on the board and with our plan, more and more people are getting convinced on the potential for margin with Waters. I get a lot less questions on people saying, hey, you're at the top margin, you squeezed every penny. And with Wyatt, I think you're getting more and more convinced that we have the M&A muscle and we want to remain disciplined and create value. So when you add all that up, that meaningfully elevates what our EPS growth would look like in the years to come. So look, future has never looked as promising as it does for Waters. We are entering a new era of growth, and we are exceptionally well positioned to capitalize on this new era of growth. So with that, let me invite Caspar to bring us all together and facilitate our Q&A session. Thank you.

All right. We will now begin the Q&A session of our presentation. I will moderate this section, and we'll call on those of you in the audience for questions. If you'd like to raise a question, please raise your hand. When we accept analyst. We have John from our IR team with microphones. So we'll find their way to you when I -- once I identify you. So our first question today comes from Puneet Souda at Leerink.

All right. Great. Thanks, Caspar and Udit, Amol and rest of the team, and Rob, thanks Jianqing. Thanks for the excellent presentation today. Udit, I want to get to the key point in your presentation is that this is the new stage of growth for Waters. And I don't think it's lost on anyone that you are delivering this and promising this growth at a time when the markets are volatile, backdrop is tough. This is 300 bps, if my math is right, above that 6%. Could you maybe elaborate two quick questions there. Why does this not raise the guide for this year? That's number one. Secondly, each of the drivers that you mentioned have upside. You pointed those out, especially, for example, in GLP-1s, you are not including new drugs that are emerging, generics that will emerge in 2026. So what is holding you back on that despite what appears to be a very strong number that you're putting out for growth?

Thank you, Puneet, and thank you for asking one question with many, many, many parts. But that said, look, even though we've executed well in the last few years, even though innovation is going the way we think it is, even though as Amol summarized so well, Wyatt is doing pretty well. There is a bit of an error bar in each of these calculations. And I think one must have a bit of humility when you look left and you look right, I don't mean on the stage, but when you look left and right amongst your peer group and you say, look, maybe we're missing something. And there is an error bar that you associate to that and not anything else, right? But that's, I mean, that's why we were very precise very granular because we have conviction on each of these initiatives. And you met several of our colleagues, and I'm sure you agree that each one of them is a master of their domains. And they're executing these initiatives, and they have resources to do it. We've allocated disproportionate resources to bioseparations and bioanalytical characterization. We've allocated disproportionate resources to the clinical BU that Jianqing is leading. We see proof points across all of these different initiatives that we put forth. So that's why we were very granular in showing you what we are thinking and where there is upside as well. But that said, there's a bit of risk adjustment. Now to the question that you asked about the year, I'm always pretty clear on drawing the bridge between the high single digit or the high single-digit plus and how we have somehow said there's prudence. And as I said, look left, look right, there's a bit of turbulence in the market. We're no strangers to turbulence. We've -- look, I joined the company when we were in the middle of a pandemic, right? And most of the colleagues that you've seen today have been with us throughout that time. We've gone through ups and downs together by just focusing on the next step. But once we deliver a conceptual plan, we aligned, we delivered on the next step. So we're no strangers to the turbulence. That's why we wanted to be granular in this presentation to give you conviction and have you meet the people who are driving these initiatives because it's at the end, it's about the success depends upon the folks that we have in the team, right? And so I hope that gives you some flavor. I'm not going to give you an exact mathematical bridge on what the prudence is that Amol had. Do you want to comment more on the prudence that you?

Yes. Look, it's the beginning of the year, you want to be cautious, especially with the noise that's out there. And it's about 4% to 5% versus the typical instrument replacement cycle. That's the built-in prudence in our midpoint of the guide.

Great. Our next question comes from Tycho Peterson at Jefferies.

Just curious if you can touch a little bit more on Empower. You touched on SaaS. You've talked on going multi-omic. How do you think about those opportunities over time? And it feels like you're already dominant today, but how much bigger could that platform get?

It's the beginning of the journey, Tycho. Like everything else, when we started the other growth initiatives at the beginning, we sort of were a bit fuzzy and we said, hey, this could be like this or like that. It's like an impression is painting at the beginning. With Empower, yes, we have clarity on what the installed base is. Yes, we have clarity on the commercial model. Yes, we have clarity on the specific initiatives. But until we start to put runs on the board, at least I'm not comfortable saying exactly what the outcome is going to be. It seems like it's going to be great, but I just want to do it one step at a time. And I know Rob is going to elaborate on that. He's very keen to tell you a little bit more about what we're up to on Empower. Go ahead, Rob.

Yes. I think I'll say two things. The first is as we -- as you think about the impact of increasing the number of analytical instruments on Empower, there, the opportunity is to essentially eliminate the diverse set of other software solutions that customers are needing to use for characterization and for purity analysis downstream. So there's a bit of a market-making component there, we believe, right, that can drive some of that and to be quantified as we get deeper and deeper into the mix. But the other is on -- as you think about the subscription model and there, Tycho, we expect to continue to deliver Empower on-premises, right? So we don't see that in the very near term shifting to the cloud. But through augmenting that with cloud-native applications, enhancing packaging that will essentially allow us to create the sort of value that drives conversion decisions that would only be available through, in some cases, a subscription model, right? So as we increase that value in those novel packages that our team is working on. And look, by the way, we've -- we're not the first mover here in perpetual license to term license. We've spent an inordinate amount of time talking with companies, both in and outside of our industry who've done this. So we feel pretty good about the path there. But in creating that value for customers, it obviously opens up the opportunity for us to share in some of that.

Yes. I mean take a full step back, right? There's a short-term opportunity to monetize the installed base, right? And we started that by implementing the instrument control license regime that we talked about a few years ago. We have a pretty significant installed base. We know the number of users that are using Empower. We have not monetized that sufficiently. So Rob is being a bit modest because he's going to be held accountable to look at each and every user, each and every instrument and figure out what monetization potential we have for the R&D that we spend on Empower today. Then there is the transition that Rob talked about to an on-prem -- from an on-prem to a subscription model, what benefit that brings and then to the SaaS model. I'm sure Clarence gave you a lot more information as you were telling me as we were coming into the room on what we are planning to do. But very confident. And as per Waters approach, we will put runs on the board and talk about it in the rearview mirror.

Our next question comes from Matt Sykes at Goldman Sachs.

Thanks. And thank you for the work you guys put into this today. It's very helpful. Amol, maybe just on the margin on the reinvestment rate. You talked about being around 60%, coming down from 70% to 80%. I guess my question is, how much flexibility do you have in that? Like how much of these reinvestment plans are planned out over the next couple of years? And how much can you toggle that reinvestment rate as you move forward in order to either preserve or increase margins in any given year?

Yes. Look, I mean, you have amazing flexibility to toggle, right? I mean when we went through down cycles, you're like, hey, let's cut high-growth investments. It's not what we do because this is like our college fund. We don't touch it because this is our future. We're not going to jeopardize that for a near-term result. And in the process, if we have a tough year and we cannot deliver a particular year's margin, we will not touch because this is driving what Waters is going to be, right? And that's how we treated it last 2 years. We did everything else. We accelerated productivity programs. We accelerated pricing, but we didn't touch this.

We wouldn't be having the conversation we're having today about the growth opportunities, bioseparations, bioanalytical characterization, clinical with batteries. We've made disproportionate investments in these areas. And we have told our division heads, you have this and you are also not allowed to touch it. You're only allowed to allocate these funds to these specific initiatives. And yes, if the year slows down, I mean, as we've shown in 2023, we take difficult actions, right, across the globe. And we did it probably well before everybody else even talked about it. And because we could see the -- we could at least conceptually see what the worst-case scenario was, and we acted. Today, it's a different world, right? I understand all the volatility that you see outside. It's a different world for Waters. We are in the downstream portion of the business. The replacement cycle is beginning. There are granular initiatives where we have line of sight over the next few quarters on what we are going to do to deliver value, and our customers are signing up for that value. So it's a very, very clear tactical plan that we're signing up for.

And this is not free money for Rob and Jianqing. We operate this cycle we see. They have very specific 3-months, 6-month, 9-month, 10-month milestones on each of these programs. If they don't hit those milestones, me and Sean say, no, you're not getting those money.

No, I love that. He's my colleagues, and he's not the CFO of the company that I'm a business head in.

Our next question comes from Jack Meehan at Nephron.

And I'll follow up on Matt's question also on margins. So you talked about in the forecast for 2025, some of the prudence that you built in, in terms of the instrument forecast. If the upcycle is stronger than you think, maybe can you just talk about like what incrementals you think you could drop that down over the next couple of years to maybe do better on the margin front?

Yes. So look, I mean, replacement cycles happen in two places on the LC side as well as on tandem card side, right? Both of which are slightly accretive to our overall gross margin. So that already puts us in a great spot. And the general way to look at it is, yes, when we grow 5%, sales and marketing grows 4%, G&A grows 3%. If we grow 7%, sales and marketing will grow 6%, G&A will still grow 3%. And roughly, it's 70-30 between sales and marketing versus G&A, and that gives you the math on the leverage.

Our next question comes from Patrick Donnelly at Citi.

Udit, maybe one for you just on the India backdrop. Obviously, a really attractive market. You guys were early there. You're not the only ones talking about it now. It seems like some others are playing catch-up and putting it in the script a little more. I guess what are you seeing? It was encouraging to hear the attach rate. It sounds like the attach rate highest there out of all your geographies. So that speaks to the market share. But what are you seeing there? Are you seeing increased competition? How do you think about the share going forward? Because again, it is a really high-growth market, as you mentioned. And you're probably seeing some folks, hey, China is fading, why don't we focus more in India? So curious about it?

So several parts to that answer. I think the simplest thing you need to take away is it's Anil and his team who have relationships in the market for over 20 years, right? And I was not joking, Anil has the least tenure in his team. He's been in the company since 2009. All his direct reports have been in the company over 20 years, right? And this is not atypical of Waters as you probably saw, saw today. So deep relationships in the market. We started very early, a disproportionate share in QA/QC. Everyone uses Empower, and they all value great advice, especially before there are inspections because 40% of the generics produced in India are exported to the United States, right? So that relationship, that set of relationships very good technology, superb attachment rates allows us to be -- allows us to be as well positioned as we are in the market. Locally, of course, others are noticing, right? And I've seen it in the script of many of our competitors since we've talked about India. But I think the relationships, the technology advantage allows us to continue to maintain the share we have. As we look at it further, there is nothing that India asked for that is not given, right? When Anil and team asked for more resources in the field, more resources in service, more resources in IT capabilities to help them, we've not said no. Rob, do you want to add anything?

I'll add to -- well, I'll say three things. One, I'll reiterate, people still like doing business with people they like, right? That hasn't changed. And I think I've had the chance to -- I've been in India multiple times in the past 9 months. And I've visited, I don't know, 12 or 15 customers together with our team. And you can tell very quickly whether there's a differential relationship there, and I do see that very clearly. The second thing I would add, there's a process that we think about with regard to investment and Amol touched on it. We have invested unevenly in ensuring that we stay out in front of some of these growth opportunities with our customers. So it's not to say that, that is incremental to the investment that we're making elsewhere. But India is getting a disproportionate size of the share to enable that growth to occur. And so we're really excited about what that will offer. And obviously, as some of these -- the competition comes in, we find our ability to thirdly, integrate the best practices from across our business. So I'll give you an example on GLP-1. That's a hot market, as you see semaglutide in particular, coming off patent next year. And there, we're very rapidly pulling together team members from literally every geography, from every single portion of our product teams, from our marketing teams. And so not only is Anil getting the investment that he needs, not only does this team have the terrific relationships, but we're bringing the best of Waters to bear on these opportunities right away to ensure that while our competitors are formidable, it's going to be uphill, uphill battle.

And to the second part of your question, I wish there was a way to copyright everything that we say or do, but we can't. But it's great on two fronts. One, it's a great validation of the thesis that we laid out when others follow. And two, it's very comforting that we are one step ahead.

Yes. And I think, I mean, to not harp on the competition, these are good competitors, strong, strong competition across the industry. And I've been in the industry over a decade, I have deep respect for everyone. So you will never ever see us deride any of our competition, right? We have deep respect and they've also been part of this industry creating categories. At this point in time, yes, we have a bit of an advantage being downstream, and our teams are working super, super hard getting back to what Waters is really good at, which is innovation and creating new categories.

Our next question comes from Rachel Vatnsdal at JPMorgan.

I haven't seen Caspar be so popular across the room.

Fighting for the microphone. So I wanted to ask around some of the assumptions related to the replacement cycle. You talked about high single-digit growth in a normalized environment and that 40 basis points of net margin expansion. But you're assuming high single-digit plus during the replacement cycle. So how should we think about the opportunity for margin expansion during that replacement cycle? Can you drive it well above 40? Or is that kind of the ceiling in and out of the cycle? And then lastly, can you just remind us what's your latest thinking on how long the replacement cycle will last?

I'll answer the second part of the question. And on the margin, I just -- we never said 40%. Just so we clear the air.

40 bps.

Oh, 40 bps. Okay. Usually, the replacement cycle, the peak portion above the 5% last 2 to 3 years. right? This time around, we think it's a bit longer than the 2-year time frame that we've seen in the past. I mean, given that not all end markets are recovering at the same time, right? So biotech is still under pressure. drug discovery is still under pressure. CROs are slowly recovering, but not as fast. And then China remains low to mid-single digits, right? These are not in our assumptions of the 2% to 3% over a longer period of time, right? So I think that hopefully gives you some math. And that also informs the prudence that we've built in, right? And we've always said, we'll look in the rearview and we claim victory, then we'll keep going. But historically, on a fact base, on the fact basis that we have, usually, you see 2% to 3% of outperformance versus the 5% average and it lasts 2-ish years. And this time, we've assumed a slightly prolonged replacement cycle, Amol?

Yes. And look, broadly speaking, on the margin algorithm, the one component that changes is the volume leverage. And as I said, G&A doesn't change. Sales and marketing will slightly go up as sales goes up. And so you will see a little more volume leverage when we grow 7%, 8% versus 5%, right? And then keep in mind, when we guided, we guided 20 basis points of both gross margin and operating margin expansion for '25, and that is 60 basis points of underlying expansion less 40 basis points of FX headwind. So we've already signed up for the higher end of the range in a way for '25.

Our next question comes from Doug Schenkel at Wolfe Research.

Really just on capital deployment, Amol, Udit, what would it take for you to resume the buyback? Is that largely a function of waiting for a more favorable rate environment? And sort of related to that, from an M&A standpoint, Wyatt is a very logical, solid adjacent acquisition that makes a lot of sense in terms of your ability to generate more revenue in areas where you're already playing and investing more. From an M&A criteria standpoint, should we expect more like that? And kind of by extension, what criteria should we use as we think about either adjacent or potentially moving into new vertical as you deploy capital?

So let me start with the strategic part. Amol will talk about the financial implications on the capital deployment, including share buybacks and how we think about that in the future. From a strategic standpoint, we've been clear about what we're trying to do, right? We have that wheel that I keep showing. I mean there are instruments, chemistry, service and informatics. It's not more than that, right? And we're saying, look, we want to strengthen our core. So if informatics, Rob comes back and says, hey, look, I think there is this acquisition that we could do and that could accelerate our journey in -- on the on-prem to subscription journey or to the SaaS journey, we'll look at it. There are several ideas in that space, not massive, but several ideas in that space. There are ideas in this space of bioseparations. We have made disproportionate organic investment. I insist that we start with the organic journey first. And if we show success, then we have confidence in Erin and her team, and they come in and say, look, if I had more biology capabilities, I could even accelerate this journey further. We would absolutely support that, then there are several ideas there, right? You move -- they go down that list, bioanalytical characterization, we talked about. We're very transparent. And if you pay attention to that chart, there are several instruments and there's dot, dot, dot. That doesn't mean only three. There are several others that we can look at to bring into the fold to attach to Empower. Alternatively, we'll collaborate with a best-in-class instrument, but we want to own the highway. Anybody who comes into the highway has got to pay some toll, right? And then finally, in the clinical space, we believe there are some small things that we can do to enhance the success that already Jianqing and her team have shown to improve the sample -- especially the sample prep and the automation areas. Battery testing is too early. I would like to see more runs on the board organically. I'm very confident with what you Jianqing and the team are doing there, but I want to see a few bit more runs on the board. So I mean, we've been very open about what we're trying to do. We're not veering off into areas. And when I joined the company, I don't know if I told you the story, I joined the company, the first thing that came across my desk was a bioprocessing asset. People said, hey, you come from a bioprocessing heritage, you're an engineer. It's great. We should acquire a bioprocessing company. And they said, okay, great. So show me the value creation and the numbers were there and said, who's going to run it? Well, we have you. that's a problem. If I'm the expert, that's a big, big problem. So we don't wear off too far away from our known and publicly advertised areas.

Yes. And look at the current interest rates and current share price, it's roughly even on EPS. So it doesn't make a big difference on EPS accretion. And if it doesn't make a big difference, then you rather better off gaining more strategic flexibility. So we continue to pay down debt. Now as we get into July, August, we would have pretty much paid our Wyatt revolver. And then what's left is fixed term debt, which is thanks to John Lynch is amazingly well priced, right? So we won't want to touch that. And so if we are not able to thread a deal in a way that the industrial logic is amazing and financially checks out, then we'll start buying back shares, right? Our focus is we don't hesitate to go up to 2.5 as we've demonstrated with Wyatt because we can rapidly delever. And if it checks all the boxes, amazing industrial logic, financial outstanding, then we don't even mind going full investment grade because we know we can delever below 2 pretty rapidly.

And accountable people to run that business. We need to have one pair of eyes that we can look at and say, are you going to deliver? Are you going to deliver or not? And only then we pull the trigger.

Our next question comes from Eve Burstein at Bernstein Research.

On price, you talked about how your gross margin grew 280 bps in constant currency over the last couple of years because of price, and that's important because if price doesn't pass down to gross margin, it doesn't really matter. But when I look at your guide going forward, just to make sure I'm doing it right, it looks like you're expecting price to add about 150 to 200 bps of incremental growth. versus 50 in the past. And yet you only expect mix and price to contribute 25 bps to operating margin. So I'm assuming COGS goes up, but you also mentioned that you have 70 bps of margin expansion plan from procurement. So can you just kind of help us square that...

A lot of people ask me on this one. So look, at the end of the day, when you get 100 basis points on price, what are you spending? Maybe 5% R&D and some 2%, 3% commissions. The rest of it all flows through operating income. So one should expect a lot more than 25 basis points from mix and price, right? And that's what we've done the last 2 years. But when we set goals for long term, we just want to risk adjust them and which is our biggest risk adjustment is on mix and price. A lot of times, people do the math and they catch me. But look, last 2 years' numbers are on the board.

Our next question comes from Sung Ji Nam at Scotiabank.

This one for Jianqing. You talked about -- if I understood you correctly, you talked about LC-MS Dx being very close to encroaching into the clinical chemistry market. And so would you guys -- would you be able to kind of give us more detail in terms of kind of what percentage of the total clinical market that could be addressable in the early days? And also, there is a major diagnostic player with a very big clinical chemistry presence that's also developing, I think, end-to-end or sample-to-answer LC-MS capabilities. So just kind of curious from a competitive standpoint, kind of how you are thinking about approaching that market?

I think the second question is the one that's on everyone's mind. So you might want to start with that and then get to the clinical chemistry question.

So looking at from just a market segmentation point of view, the currently, the clinical chemistry immunoassay market size in the core lab is about $25 billion to $40 billion. And the clinical chemistry, immunoassay, there are a lot of tests can be eventually upgraded to LC-MS business. And so that's one piece of the market. The second piece of the market is today for the hard-to-do tests currently already running in the LC-MS specialty diagnostic labs, which usually sits next to the core lab, it's about $1.5 billion already. And both markets would be able to continuously grow in terms of upgrading to the LC-MS technology once the automations are being more implemented and more regulatory approved tests are being released to the market. So that's from an overall market standpoint of view. And if we're looking at the leading IVD players, they are entering to the -- using LC-MS to the core lab. This is a very good push for the market. So then the core lab customers can embrace the new technology from LC-MS with a better diagnostic results and the leading IVD players will be able to do a great job actually educating the core lab people. So then there will be additional fast adoption in that area. Now for LC-MS specialty labs, we will also leveraging the automation, make it easier to use. So then the routine tests can also be able to currently already done on LC-MS. Those routine tests can be automated, so you can drive more volume there. And in addition, there are always specific -- hospital-specific tests that can be regulatory cleared as well will continue to drive that growth as well.

And just to add to that, right? I mean a big diagnostic player coming into mass spec as diagnostic is one, an amazing validation of our thesis that mass spec can be a great diagnostic tool. And the reason there, if you sort of step back and say, why? Mass spec TAM is like a wafer-thin diagnostic TAM today that sits between NGS and immunoassays. Those big players are not coming here to chase that small TAM. They're worried that over time, mass spec will eat into some of the immunoassay time, especially as some of the diseases as we see with endocrine starting to need multiplex and multiplex immunoassays struggle. So even if mass spec was to take like a fraction of, say, 5%, 10% of immunoassay TAM, that's like 5 to 10x mass spec TAM today. So that's a huge opportunity if you're a mass spec diagnostic player.

Our next question comes from Dan Leonard at UBS.

I was hoping you could talk a bit more about the importance of China to your growth algorithm. A lot of your presentation bridged from the 6% legacy CAGR. China was a big part of that. What would that number have been excluding the big growth from China? And what can you do to accelerate growth in China going forward?

So let's first answer the question mathematically. 6% on average growth, China was 100 basis points accretive. So China added 100 basis points. So otherwise, it would have been 5% up to 2019. 2019 to 2022, the post-pandemic or the early parts of the pandemic and the recovery, China was not accretive. China was 9% CAGR as was the rest of the world as we started our transformation process. And then '23 and '24, China has been dilutive, very significantly dilutive. So we have staved that off. We still showed an 8% growth in Q4. Going forward, we've assumed that China will be low to mid-single digit without a stimulus. While we expect a contribution from the stimulus, we've just said, look, let's be conservative, let's make it low to mid-single digit. If you assume that, China is 100 basis points dilutive, right? You've taken that off from the past. But equally, we've put other specific growth drivers that more than offset it, right? So the rise of India, where we've been a bit conservative, GLP-1 testing, PFAS testing and the biologics piece that didn't exist in the pre-pandemic era for Waters and then, of course, the 100 basis points in pricing. So we feel reasonably confident that we're able to offset any dilution that we would have seen from China while remaining confident. And I think anybody who tells you that China -- and again, I mean, this is a more philosophical point. Every day, we're inundated with what seems to be popular negative news. I was talking to one journalist and Kristen Garvey, who heads of Communications for us, told me that, look, they all want to get bad news because bad news sells, right? And we don't have a heck of a lot of bad news, so it doesn't sell. But bad news sells, and that's what we read everywhere. China is going down here and China -- this is wrong with China. DeepSeek came out of China. For those of you who cover the pharma market, you know that the largest number of biotech companies that have been bought by Western players, AstraZeneca and GSK come from China, right? So innovation is not dead in China by any means. So over the mid to long term, we expect China to recover nicely, but there is an air pocket in the middle. There is some time where we think it's going to be low to mid-single-digit growth ex stimulus and stimulus should help us to bridge some of that gap, but not entirely. So I hope that tells you how we're thinking about it. We're more than offset it with other growth drivers. But we think over the long term, China is going to be, again, a dynamic market. And again, I would urge us not to just get seduced by the negative news that you even see with Europe. Europe, I mean, Germany has slowed down, but we don't talk a lot about Southern Europe. Southern Europe is growing very nicely for us and for many other companies, right? Spain, Italy, Greece. Greece is growing nicely in the double-digit arena for us and for many other -- many of our competitors. So I think it's easy to fall prey to all the negative news.

And Udit, maybe just to add a couple of points on what we're doing to invest. So we continue to invest in our team, phenomenal team in China. We're fortunate to be a great attractor and retainer of great talent. That continues. Second, our localization has increased over the last few years as Udit and Amol have spoken about publicly, we're really proud of that fact being able to make liquid chromatography instruments and mass spec locally, which clearly is going to give us an advantage as time moves on. And then third is channel coverage. We've dramatically expanded channel coverage. And so we think that the combination of those 3 factors helps to drive the numbers that Udit spoke about.

And I think just one other point. Jianqing, do you want to talk about the collaboration we have with the local diagnostic player?

Yes. So as I shared that to take LC-MS to the mainstream of the diagnostic industry, you're really looking at how to collaborate. So we are collaborating with the local IVD players in China, looking at how to -- how we together localize the products and also co-develop the products with automation and then to have more broader access to the market as well in China.

Yes. So think about one of the large players in IVD that shall not be named, who's entering in the IVD mass spec market, think of that happening in China. We are collaborating because we have the mass spec. We have a wide range of assays. They have the sample prep capability and automation capability, and we are creating the boxes that you see another large player that shall not be named is doing in Europe and in the United States. So we're not sitting still. In China, too, we see opportunities. And having visited China almost every quarter in the pre-pandemic era and now quite often, I still think there's a lot of innovation that remains untapped that at least a company like Waters can benefit from, and we're not stopping.

We have a minute or so left for one final question. Dan Arias at Stifel.

Just to take one more maybe because Luke has been raising.

I think if people are hungry, of course, food is served and they can bring it back in if you're not -- but let's take a few.

Let's take a few. This is for you.

Okay. I'll be quick. Udit, to your point before, each of these instrument cycles seems to be a little bit different than the last. So when you look back historically for context, which I'm sure you do, what has been the portion of the installed base that you have successfully turned over? And then when you think about this current one, what portion do you realistically think that you can get at given some of the unique elements that are at play, China, IRA, India, et cetera?

So very difficult question to answer to take a few cycles from the past and say exactly what's going to happen in the future. We've done the best we can within error bars, right? So the projection is with its error bars, and that's why there's a bit of prudence in the projection. But to your question at the end -- or to your comment at the end on IRA, right? IRA impacts drug discovery. We don't have a large installed base in drug discovery. We're downstream in late-stage development and QA/QC, whereas instruments are used and we're strong in generics, we're strong in CDMOs with our LC placements, where with a lot of usage, these instruments have to be replaced over a 7- to 10-year time frame, right? And no matter how you look at it, you can look at the CAGRs. We're at a 2% CAGR over a 5-year period, and so overdue for replacement and the replacement cycle has begun. We've had conversations with all the top pharma companies. Every single one of them is planning a replacement irrespective of where their early-stage pipeline is. I think, again, we sometimes conflate issues when they announce restructuring, it's restructuring and discovery. There's no restructuring happening for marketed compounds and there's no restructuring happening in late-stage development when you have compounds that are going to hit the market. Having been in pharma the early part of my career, you don't touch that piece of the business even while you're doing restructuring, right? So with those sorts of qualitative factors as well as the fact that we're downstream, we believe it should be not much different than what we've seen in the past, right? Basically, a 2% to 3% outperformance versus the 5% average, just a longer cycle because there are some segments like -- some segments and some geographies like China where we think the replacement will be in the latter part of this time frame. And so I hope that gives you a semi-analytical answer. I don't think it makes sense at this point to go and slice and dice it even deeper and do standard deviations. And if you're interested in that, I'm sure Amol...

Yes. And broadly speaking, export generics in India has always replaced. So there's not a huge catch-up opportunity there. Large pharmas are absolutely at the table. Funnel is growing, orders are growing. CDMOs are a couple of quarters behind large pharma. So that's very healthy. The 3 people who are not on the table are CROs, biotechs and sort of China branded generics.

Luke, by popular demand, we will end the Q&A session with you. Luke Sergott at Barclays.

So I just kind of wanted to dig in on the generic opportunity and how it's growing in India, and you guys keep talking about that. What needs to happen from an industry perspective? Do they need to have a massive build-out like we saw in China for the branded generics perspective? I'm just trying to think of how the timing would work with -- as that capacity gets out to meet all those volumes coming off of patent, like should we expect an acceleration on your India growth? Or is that kind of baked into how you guys are looking at?

It's happening right now. Over the last 5 years, the manufacturing capacity in India has been built up quite dramatically. It's going to have to be built up even more over the next few years given how many drugs are coming off patent and how many are small molecules that these folks have filed ANDAs for, right, with EMA and with the FDA. So they're looking to introduce all these new products. And the way you can tell this, and you can do this yourself as well, you can look at the ANDAs that these companies file, and that gives you an indication of which companies -- which generic companies are getting prepared to launch generic drugs. And this -- our estimates don't include biosimilars. Our estimates don't include semaglutides. Our estimates that we've shown don't include China -- sorry, Canada and Brazil also for semaglutides. So there's a lot of upside on the genericization. And we think as we track the number of ANDAs, as we track the manufacturing capacity expansion, those are largely the incumbents. There are no new players coming in. So the Sun Pharmas of this world, Glenmark, Lupin, et cetera, are expanding their capacity. So we feel pretty well positioned, but there is publicly available data that you can look at. McKinsey recently filed a report. Bain has a report on this as well, where you can look at the number of ANDAs that have increased over time. You can look at the manufacturing capacity, and it is expected to actually accelerate, if anything.

Yes. I mean, look, for 15 blockbusters in the last 5 years, we've grown high teens. For 21 small molecule blockbusters, we are saying we'll grow 10% to 15%, which gives 70 to 100 basis points. So we think we've added adequate prudence to that number.

Great. Well, thank you so much for joining us today and for your continued interest and support in the Waters story. Udit, I'd like to turn it over to you to deliver our closing remarks.

Sure. Firstly, thank you all for being patient. We ran a bit over on our prepared remarks, and thank you for asking the questions you did. Huge thanks to my team who've put together a poster session far away from Milford, brought in a lot of instruments for you guys to see and of course, to Caspar and his team for organizing such an engaging, engaging session. As we leave you, I want to remind you, going forward, we'll be talking about embedding excellence in execution, continuing to bring pioneering innovation to our customers and scaling up in the faster growth areas that we have touched upon today. I want to thank you on behalf of my team for your time and attention. Thank you.