Good morning. Welcome to the Waters Corporation Second Quarter 2022 Financial Results Conference Call. All participants will be in a listen-only mode until the question-and-answer session of today’s call. This conference call is being recorded. If anyone has objections, please disconnect at this time. It is now my pleasure to turn the call over to Mr. Caspar Tudor, Director of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone and welcome to the Waters Corporation second quarter earnings conference call. Before we begin, I will cover the cautionary language. During the course of this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company. In particular, we will provide guidance regarding possible future results of the company and commentary on potential market and business conditions that may impact Waters Corporation over the third quarter of 2022 and full year 2022. We caution you that any and all such statements are only our present expectations and that actual events or results may differ materially from those indicated in the forward-looking statements. For a detailed discussion of some of the risks and contingencies that could cause our actual performance to differ significantly from our present expectations, see the risk factors included in our annual report on Form 10-K for the fiscal year ended December 31, 2021, in Part 1 under the caption Risk Factors and in our most recent quarterly report on Form 10-Q for the quarter ended April 02, 2022 in Part 1A under the caption Risk Factors, both of which are on file with the SEC as well as the cautionary language included in this morning's press release. We further caution you that the company does not intend to update any of its predictions or projections, except during our regularly scheduled quarterly earnings release conference calls and webcasts or as otherwise required by law. During today's call, we will be referring to certain non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are attached to our earnings release issued this morning and in the appendix of our presentation which are available on the company's website. In our discussions of the results of operations, we may refer to non-GAAP results which exclude the impact of items such as those outlined in our schedule titled reconciliation of GAAP to adjusted non-GAAP financials included in this morning's press release and in the appendix of our presentation. Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the second quarter of fiscal year 2021. In addition, unless stated otherwise, all year-over-year revenue growth rates, including revenue growth ranges given on today's call, are given on a comparable constant currency basis. Now I'd like to turn the call over to Dr. Udit Batra, Water's President and CEO. Udit?

Thank you, Caspar and good morning, everyone. Along with Caspar, joining me on this morning's call is Amol Chaubal, Water's Senior Vice President and Chief Financial Officer. In the second quarter, we continued to deliver excellent results, led by instrument growth of 12% with continued broad-based strength across our end markets and geographies. I would like to take a moment to, again, acknowledge the unwavering efforts of our teams who have persistently worked through the challenging environment to deliver for our customers. We saw this with our China team whose dedication and agility through the lockdowns in Shanghai drove exceptional results against this quarter, which came ahead of our expectations. But importantly, we've seen this commitment across all our teams and regions, and it truly reflects the indomitable spirit we have here at Waters. Turning now to Slide 3, we have three messages; how strong commercial momentum is driving great results in markets that remain healthy. This is reflected in the broad sustained growth we are delivering across our products, geographies and end markets. Customer demand remains robust with orders that again outpacing sales as our strong momentum continued with double-digit sales growth again in the second quarter. Innovation is contributing meaningfully to our growth. Our refresh product portfolio is highly competitive and providing key benefits to our customers, which is again driving stronger option of these new products, as well as market share gains. Over time, we expect that the strong instrument placements and resulting expansion in our install base will drive growth in recurring revenue, tied to these instruments. And thirdly, we have a robust business model serving an attractive and resilient base. Waters serve end markets with sustainable growth drivers that are linked to key demographic areas, such as fill [ph] count population growth and increasing regulatory…

Thank you, Udit, and good morning, everyone. Udit already covered the breakdown of our sales growth for the quarter, so I will now cover the remaining elements of our non-GAAP financial performance versus the prior year. Gross margin for the quarter was 57% and compared to 58.9% in the second quarter of 2021, driven primarily by foreign exchange headwinds from the strong U.S. dollar as well as higher instrument mix. Pricing for the quarter was over 300 basis points, successfully offsetting the impact of material and freight inflation. Operating margin for the quarter was 28.4% compared to 29.2% in the second quarter of 2021. This represents 70 basis points of margin expansion in constant currency before 150 basis points of foreign exchange headwind. For the first half of the year, operating margins have expanded 120 basis points before 80 basis points of foreign exchange headwind. Our effective operating tax rate for the quarter was 14.1%. Average share count came in at 60.5 million shares, which is about 1.6 million less than the second quarter of last year. Our non-GAAP earnings per fully diluted share for the second quarter increased 6% to $2.75 in comparison to $2.60 last year. The foreign exchange headwind lowered our EPS growth by 11%. On a GAAP basis, our earnings per fully diluted share was $2.72 compared to $2.69 last year. A reconciliation of our GAAP to non-GAAP earnings is attached to the press release issued this morning and in the appendix of our earnings call presentation. Turning to free cash flow, capital deployment and our balance sheet. We define free cash flow as cash from operations, less capital expenditures, and excludes special items. In the second quarter of 2022, free cash flow was $67 million after funding $39 million of capital expenditures. Excluded from free…

Thank you, Amol. So in summary, we are pleased with our sustained broad strength for the quarter which was driven by our strong commercial execution and the impact of innovation in our highly competitive refreshed product portfolio. Demand has remained strong across our end markets as we've continued to capture growth opportunities in both large and small molecule applications, food and environmental testing and battery material analysis, which each have long-term durable growth opportunities that we're well positioned for. To reflect our strength, we're raising our full year constant currency sales growth from -- sales growth guidance from 7.5% to 9% to 9.5% to 10.5%. Meanwhile, we have delivered great operating results despite the challenging macroeconomic environment. And for EPS, our strong results for Q2 and our increased full year growth outlook are expected to offset the impact of foreign exchange headwinds. With that, we will now begin the Q&A session. Operator?

[Operator Instructions] The first question comes from Vijay Kumar with Evercore. Your line is open.

Congrats on the quarter. Udit, maybe my first one for you. You did mention orders were about of revenues in the quarter. Can you give a little bit color on where the order strength is coming from? Which customer segment, which product class? And any comment on order growth rates, if you will. I think in the past call, there's been some debate on instrument pull forward, so color on orders would be helpful.

Sure. So firstly, thank you, Vijay. Really, it's been another fantastic, fantastic quarter. And the growth has again been driven by instruments really leading the charge. Orders came in ahead of sales again, which increases our backlog. From a demand perspective, it's really very much broad-based. I mean, pharma grew 10%, industrial 8% and you also saw academia grow 16%. And for the first half of the year, all three of our end market segments are now in the double-digit range, right? So pharma is 14%, industrial and applied is at 12% and academic and government at 10%. So we see really broad-based demand across our end markets. And from a geographic perspective, again, nice momentum across the board. The U.S. and India sort of leading the chart. The U.S. at 14%, India at 24%. And very nice to see China really in the high single digits at 9%. And again, first half of the year, Americas at plus 20%; China, mid-teens; India, again, in the 20s. So really broad-based strength across customers and geography. And we see really no sign of any sort of slowdown.

That's helpful, Udit. And maybe one for Amol. I think FX, Amol, you said incremental $0.50 plus. So what is the total impact now? I think it's close to $1. And I think your guide implies back half gross margin step-up. Why would gross margin step up if you have this FX dynamic? And I think you're also assuming tax rate steps up in the back half. First half has been sub-15%. So any color will be helpful.

Yes. So let me take those 3 one by one. So on exchange rate, the full year guidance last time was about $0.45. Now it's 9% adverse, so $1.01. So incrementally $0.56 worse. And that plays out across our Q2, Q3 and Q4. And so if you see, we are covering that $0.55 with a better business performance. $0.33 -- $0.31 of that already came in Q2, because Q2 versus our previous guide, the exchange rates were worse off roughly by $0.18 and we delivered $0.15 higher than our guidance midpoint; so a total of $0.31. And then in Q3, when we guided last time, there was embedded assumption of $0.08 FX and now it's $0.26. So that sort of creates a $0.18 headwind on Q3 which is reflected in our guide for Q3. So that's the story on FX. Coming to gross margin, so look, I mean, typically, in the second half of the year, we have more sales and that reduces volume leverage, both in terms of our operations and absorption. And also in the first half of the year, 2 things happened, right? One, there was more activity around spot buys and that flowed through the P&L. We expect that activity to somewhat slow down. I mean the whole supply chain situation is improving but improving in baby steps. We are clearly not out of the woods, but it feels a little better than before. And the second piece is the exchange rates moved so quickly that you have transaction and translation gains and losses that also flowed through our cost of goods which is reflected in the gross margin. So net of those things, we think in the second half you will see a better impact on the gross margin side. And then the third question on the tax, yes, the tax rate for the first half of the year is lower than 15.5%, but that's driven by one-off discrete items which we don't think will repeat in the second half. And there will be some catch-up Q1 sort of how our phasing of the profit is across the year. So at this point, 15.5% is a prudent guidance for tax rate.

So maybe just one sort of summary comment on really the very precise and nice description that Amol has given. I mean our top line continues to do extremely well, right? And we've just guided to a double-digit growth for the full year after printing a 6% -- 16% growth for last year and then 16% in Q1, first half of the year in the teens. So top line momentum continues. This flows very nicely through the P&L. And the EPS on an organic basis is in the high teens, right, even for the full year in the guide, right? On an organic basis, it's in the high teens, which basically sets us up really well as we go into next year, right? And in our trends, in our sort of results, there is no benefit of COVID or M&A embedded, right? So it's a very clean number that you can build off for the next year and shows the strength of our business provided we continue to deliver on the top line. And with resilient end markets with great innovation and such a good team executing, we feel very good about where we stand.

Exactly. And just to build on that. The $0.55 sticks with us in the baseline and the $0.55 adverse effects, once the currencies recorrect, it will come back.

Our next question comes from Luke Sergott with Barclays. Your line is open.

So I want to follow up, Udit, what you were just talking about, with the kind of the jump-off point you guys are doing like high teens right now from an instrument perspective. And then how should we think about that being able to continue to run here? You gave some backlog commentary. You're starting to build on the high-end mass spec and on from a new upgrade cycle. So just give us how -- give us a sense of how you guys think that, that continues to progress throughout the rest of the year and even early into '23 in a potential recessionary environment.

Luke, firstly, thank you for the question. I mean, we're very pleased with our performance. I'll start with the back end of your question and answer your instrument question as I go through the answer. Relatively speaking, when we look at our competitive environment, I mean, we're performing extremely well, right? And instrument has been a big -- instruments have been a big part of -- a big part of the story, where in the first half, as you mentioned, instruments are growing close to 20% and overall 13% or so growth and orders again being higher than sales. So yes, we read a lot about the macro challenges. But if you look at what we've been through from an execution perspective and now less than 2 years -- I joined slightly less than 2 years ago, we've gained our leading position, that, too, during a pandemic. Innovation is starting to contribute meaningfully to growth. So I have a lot of faith in the team that has been able to pull this off. So if at all there is a downturn, which we don't see from what we have as visibility to our end markets. And across our end markets, we are extremely well positioned. Even back in 2009, Waters was one of the few companies that showed a positive EPS growth. And today, we are even better positioned, right? So if you just look at our portfolio, at that point we had 40% recurring revenues, today, it's over 55%. Our end markets where we're seeing incredible strength, especially with large molecules in pharma, our end markets, we're over 60% levered towards pharma, and that, too, in late stages of pharma which is super resilient. In applied industrial and applied, over 50% is in food and environmental. And in the…

It does. It does. And then on China, can you talk about -- I mean, you guys are guiding to 200 to 300 basis points in the quarter, it came in at 9%. So talk about how that kind of paced out versus your expectations. And then the low to mid-teens guide is essentially there already with the first half performance, so how should we think about China in the back half?

Yes. Firstly, incredibly proud of the team. I mean, if you'd asked me in April and May where we were going to land, I mean it was -- it was the headwinds that we talked about. In June, incredible, incredible performance from the teams to be able to ship the products that we did and get them to our customers. So I feel very good about what we achieved. And for the back half of the year, I mean, the full year, we think will be in the mid-teens for China. So no real slowdown. Again, strength across all end markets. And also in the TA business, right? So strength across, especially where we see our instrument replacement cycle doing very well, Arc HPLC doing very well. Increasingly the biopharmaceutical applications for our premier technology, ACQUITY Premier, doing very well. So across the board, China feels extremely good from a demand perspective. So mid-teens for the full year, barring any significant shutdowns in that geography.

Yes. Just one thing to add. Last year, we had shipment issue in Q3. And so close to $12 million of sales moved from Q3 to Q4. So the baseline for Q3 is somewhat lower. And so you will see a more pronounced growth in China in Q3 with a more subdued growth in Q4 because of last year's shipment dynamics.

I mean it's a lumpy sort of environment, as you can see, quarter-to-quarter. But I mean, overall, look, 16% growth last year, mid-teens already at the middle point of this year, and we feel very good where we sit today.

Our next question comes from Daniel Brenna with Cowen. Your line is open.

Congrats on the quarter. Maybe -- just first question, just kind of back to the answer that you just provided in terms of the macro. You guys sound very confident which is great. Just the perspective that we have is like, I guess, in '08, you guys were up 4.5%. In '09, you contracted around the same amount, so a 9-point swing. And as you mentioned, business is dramatically different plus all the commercial initiatives that you guys are executing on, so -- as well. I don't think -- hopefully, most of us don't expect another recession like we had back then. But net-net, to the extent that the economy does continue this level, presumably borders won't be immune from that, so could you just give a little more color about like the sensitivity or lack thereof across your different businesses? what might be a decent starting point to think about if in fact the economy does worsen how you would react in that in '23?

I mean, firstly, Dan, thank you for the question. Look, it's similar to what I just mentioned. I mean, let's just take each of the end markets in turn and the composition in each of the end markets, right? So in pharma in particular, amongst our peer group, we probably have the highest exposure to late-stage 1pharma QA/QC, which is -- which is more proportional to pill count. And recession or no recession, people don't stop taking medicines and they don't stop -- they don't want -- the pharma companies don't stop manufacturing their medicines. If anything, the R&D funding starts to slow down, right? So being levered more to QA/QC in pharma is very helpful, both in small and in large molecules. Second, if you look at our industrial and applied segment, over half of it is now food and environmental. Again, food safety, especially in our food PFAS testing with our renewed portfolio, is a strong, strong growth driver, both in food and environmental testing. And then in the TA business, that, too, starts to look quite different, right, with the batteries testing segment becoming larger and larger. So we're looking at more secular drivers across the end markets. And the growth is broad-based. The business is geographically quite disparate, right? So we have significant presence ex U.S., I mean, which, of course, when the U.S. dollar strengthens, we have to offset quite a significant FX impact. But it's much more diversified and it's much more helpful than when you see changes across different geographies happening at different pace. So feel really good about where we stand in terms of our end market exposure. Second, this market responds to innovation. And you've seen that already, right? So back when I joined less than two years ago, people were telling me, "Hey, Waters is levered towards the small molecule QA/QC segment and this is commoditized." Well, we've just shown quite the opposite with Arc HPLC coming in, with better performance, without having our customers refile their processes and revalidate their testing and we've shown that segment grow. So this market responds to innovation, and we are in a very, very good place from an innovation standpoint. And finally and most importantly, we have a team here with us that has navigated through the pandemic, through macroeconomic challenges, while eight out of nine of us are now new in our seats, right? So I'm very, very confident that whatever the economy throws at us, we'll be able to deal with it. And we are in a very good position versus what you saw back in 2008 and 2009, even then Waters was able to navigate pretty, pretty effectively. I hope that gives you more color.

And our next question comes from Matt Sykes with Goldman Sachs. Your line is open.

Congrats on the quarter. Maybe the first question, Udit, I know you've talked in the past about the academic government market and that was an area of focus for you going forward. Clearly, some of the initiatives that you did there have paid off with the growth that you saw this quarter. Can you just maybe talk about what was the inflection for that end market this quarter? Was it Waters-specific initiatives? Or is there something going on in that particular end market that results in that growth? And how sustainable is that in your mind?

Matt, thank you for the question. We're very happy with where we are with academic and government. I mean, first half of the year, double-digit growth. This quarter, 16% or so growth. But I'll remind you that this is a lumpy market and we have a low base from last year, right? So if you look at a three-year stack growth rate, we're roughly 40-ish percent inorganic growth rate in that segment. It's very heavily levered towards instruments and instruments did extremely well this quarter and the last quarter. So still rather volatile segment because -- or lumpy segment because of the heavy instrument portfolio that we have in that segment. That said, we are -- we have initiated our focus and our turnaround in that segment but we are far from done, right? So we still have work to do on increasing our e-commerce presence and e-procurement presence. I mean, that's going well but not yet done. From a commercial standpoint, we are reinitiating and -- reinitiating our KOL contracts which help with our high-resolution mass spec portfolio. Even though the portfolio is renewed, from a commercial standpoint, we still feel we have work to do. So while we are happy with the results, I would not declare victory yet.

The next question comes from Josh Waldman with Cleveland Research. Your line is open.

Just one for Udit and one for Amol. Udit, orders again outpaced sales. Can you provide more context on the backlog at this point? I guess the magnitude of the backlog and the level of visibility you think that provides into the second half and maybe even into '23. You had previously commented you didn't think orders are benefiting from pull forward. Is that still your sense?

Yes. So Josh, thanks for the question. No pull forward, orders are still higher than sales. All end markets, as I said before, are doing -- doing well. So we feel good about where we stand from a demand perspective. And it's too early to talk about 2023, right? So there's a balance of the year to navigate in a turbulent environment. That said, the demand drivers are still there. Innovation is doing very well. And we feel that where -- our commercial presence is -- and our commercial execution is helping us grab opportunities and differentially so versus our competition. So thank you for the question, but no pull forward, feel very good about where we stand from a demand perspective.

Got it. And Amol, I guess, in light of that and in light of kind of the stronger-than-guided Q2, the backlog build, the second half guide, organic guide, seems a bit conservative. I guess can you comment on the considerations that went into the updated organic growth guide? Maybe where there might be opportunities for upside, maybe risk to the downside. And then the guide seems to assume a lighter Q4 is -- I mean is there a concern around budget flushing or anything like that, that's being reflected in the guide?

Look, our Q3 guide is 8% to 10%. Adjusted for the shipment issue is like 6% to 8%. The implied Q4 guide is sort of 5% to 7%. Adjusted for the shipment is 6% to 8%. So again, I mean, at this stage, we have visibility in our pipeline for Q3, Q4. We feel good about it. But at this stage, it's good to be prudent, especially for Q4. So we feel good about where the guide is at this stage. And our teams continue to execute flawlessly and continue to beat our expectations.

And then I think I didn't address your backlog question. I mean the backlog is at healthy levels, right? Waters did not have for a while, I would say, a healthy backlog. We feel more than feel at least a bit better that we have a reasonable backlog. It's not -- it's reasonable, but it's not super, super substantial, right? It's reasonable it allows us to navigate through any sort of turbulence. A lot of visibility into Q3, and we feel good again about how we will end the year.

The next question comes from Rachel Vatnsdal with JPMorgan. Your line is open.

So first up on pharma, drug pricing reform continues to be a headline topic. So can you just walk us through how you see that impacting Waters' portfolio especially given your unique exposure in small versus large molecule in QA/QC. And then have you started to have any conversations with your pharma customers regarding that drug pricing reform and do you expect that it could have any impact on your pricing power?

Rachel, thank you for the question. Really no impact that we have seen. No discussions from a customer perspective on what they're expecting. I'll remind you, we are, again, focused more on the late-stage part of -- late-stage part of the pharma value chain, right, QA/QC. And our costs are such a small portion of pharma, it usually does not impact us, right? So we don't expect that to be a discussion. COGS is such a small portion of most pharma companies sales that it's not a place where they look for costs. So we have not seen that in the past when pricing discussions have come up. And we don't expect it -- and we don't see any signals right now and we don't expect it to be in the future given that we're in the QA/QC domain in COGS is such a small portion of their cost base. Now in the early stages of research, perhaps there could be an impact, but we -- as I said, we're very levered towards QA/QC.

Our next question comes from Derik De Bruin with Bank of America. Your line is open.

So I'm just curious, really good growth in India, 24%. But I do recall that a few years ago when the dollar appreciated strongly against the rupee that some of your customers in India didn't have enough money budgeted, so they didn't have the purchasing power as for go out and do it and it sort of delayed orders. The combination of FX and price increases, are you worried at all about some emerging economies, particularly India, to be slowing in demand because a bit on the budgets?

I'll start off, Derik, and I'll let Amol comment a little bit on the FX piece as well. Really, India has been doing extremely well given the demand for small molecule production, again reviving, and some of this has to do with the government initiatives in India that were initiated last year and us being so heavily focused on that part of pharma, QA/QC for genetics, QA/QC for small molecules, in India, we've seen an outsized benefit and that's continued well into this year. So it's a fundamental demand driver that we can explain based on government policy and again driven heavily by instrument growth. Consumable is doing well but driven heavily by instrument growth. Amol, do you want to comment on the FX piece?

Yes. No. And just to build on what Udit said, right? I mean we have a fantastic team in India. And if you go back to the second quarter of last year when India was going through a very tough COVID environment, the team executed flawlessly and had a great growth in second quarter of last year. So the baseline was already high. And then again, this year, you see 24% growth in the second quarter. So a lot of confidence in that team. And then when you couple that with how we've sort of handled pricing through inflation, we've provided excruciating detailed transparency to our customers on what's happening on the semiconductor side, on the freight side. And that's allowed us to have the customers share the burden of pricing. And I think the same processes that we build, the same systems that we build are going to start playing a role in explaining the impact of exchange rate and U.S. dollar and where our cost base lies. And I think not just India, but there are other markets that are impacted by this and our commercial teams are doing a great job of providing this transparency to the customer so that we can work this through hand in hand.

The next question comes from Puneet Souda with SVB Securities. Your line is open.

So first one for Udit, just wondering if there are any changes in the M&A approach that you talked about at the Investor Day, Udit. Just wanted to get any updated thoughts given the valuations you're seeing in the market here.

Puneet, thanks for the question. Look, I mean, our capital allocation priorities remain the same. Growth is still where we are focused, right? And it starts with organic growth, right? So that's where we allocate capital first. And that is going extremely well. And we're funding internal innovation, we're funding our high-growth adjacencies, seeing really nice results. I was at AACC last week with the team on LC, MS for diagnostics, and there is a clear value proposition where as customers discover new biomarkers, mass spec has a meaningful role to play. And that reaffirmed -- we took our R&D team, we took our commercial team and we had many different workshops there with different customers. And so really feel good about what we're doing from an organic perspective and want to fund that set of adjacencies, bioseparations, analytical bioprocessing as well as batteries and LC, MS and diagnostics, so we want to fund that first. Second, from an M&A perspective, really what you should take away is, I mean, we are, of course, on the lookout for things that fit into our strategic priorities. But there's really no rush, right? I mean we've announced a few collaborations. They're going extremely well, especially the one with Sartorius on the bioanalytical characterization space, especially upstream. But really no rush. And from an M&A environment perspective, lots of discussions ongoing. We are, of course, on the lookout. But again, super financially disciplined, right? So really nothing has changed from the time we spoke. And as we have conversations, I mean, of course, people still have memories of their 52-week highs in certain areas, but look, our organic business is performing very well and the focus remains on that, on partnerships and we have a list of -- and a nice pipeline of M&A targets that we're looking at now constantly.

Our next question comes from Brandon Couillard with Jefferies. Your line is open.

Udit, you launched the new QTof at ASMS. It's been a long time since you refreshed that product line. Could you just talk about the importance of that introduction, whether you think it's a needle mover for the mass spec franchise overall relatively near term?

No, absolutely, Brandon, thanks for following up on that. Look, it's a workhorse instrument in that segment. And now along with the instrument being upgraded, you also have the waters_connect software, which is a compliance software, that allows not only for us to introduce new applications, but allows us to transition methods from upstream more powerful tops [ph] to BioAccord directly downstream, right? So that's a significant benefit. And that product has done very well, right? It's already doing extremely well with our customers. I mean the orders are again outpacing the sales. I mean, within the first few days, significant backlog developed, right? So we feel very good about what we've done there. And as I said, it's not just the instrument being more powerful in those segments, but it's also the launch of the waters_connect software, the informatic software that allows for an easier transition into the BioAccord in late stages. So again, really consistent with our long-term strategy of doing analysis upstream and making it seamless for the customers to transfer that analytical method downstream, especially as you look at larger and larger molecules.

And our next question comes from Patrick Donnelly with Citi. Your line is open.

Maybe just a follow-up on kind of the M&A one earlier, a different angle. Udit, you talked about the large molecule growth kind of outpacing small molecule, even double the rate. Can you just talk about, I guess, balancing inorganic versus organic investments in that piece? Again, obviously, a big growth area you guys are kind of pouring into. So can you talk about, again, the internal strategy and then also kind of the inorganic opportunities on that front.

Thanks for the question, Patrick. Look, I mean, again, it starts with the organic piece, right? So let's just take the bioseparations and the bioanalytical characterization, high-growth adjacencies, right? On the bioanalytical characterization adjacency, we started with our collaboration with Sartorius, with our work with the University of Delaware, developed a deep understanding of upstream bioprocessing, downstream bioprocessing. The team has taken and learned that area really well. And I insist, I mean, before we make any meaningful moves in that area, we must organically develop that business well. And I feel very good on what we've been able to do in the last year. Again, learning a lot from what Sartorius does, learning a lot from what's happening at University of Delaware. So significant resource allocation there. We're not -- we're not sparing any expense as that business grows. We've already developed 4 workflows for the BioAccord for upstream characterization and 1 that is doing extremely well is cell culture media analysis upstream for bioreactors. I mean, there are 3 or 4 other workflows that have also been implemented that have been received very well. So the organic part of the business is doing very well. Now if you look at the M&A aspects of it, that opens up a whole bunch of M&A ideas, right? I mean for sampling, for data analytics, for other analytical characterization methods in upstream and downstream bioprocessing. And you'll hear more about that as we go along. And now double-clicking on bioseparations. There, we have world-leading capabilities in separating small molecules. We've already developed some nice applications with the MaxPeak Premier technology with our columns, right? So to separate oligonucleotides, to separate larger molecules better. We think there's a long runway here organically. The team is being built up quite substantially on that front. But it also opens up avenues inorganically as we learn more about that segment. So it would be nice to be able to work with somebody who has deep capabilities in reagents that are larger molecules, right? And I think that's the sort of thing we're looking at really carefully. So the organic piece is first, it opens up, it educates us on what is possible. It opens up many possibilities and that's the sequence of events. And we are, as I mentioned earlier, quite active in that area. We have quite a few ideas. And they're in different stages of pursuit at this stage.

Thank you. And now back to you, Caspar.

Thank you very much, and thank you for all your questions. You'll agree with me that we've again had a tremendous quarter. The team continues to execute in a turbulent environment. And thank you for your participation. And on behalf of our entire management team, I'd like to thank you for your continued support and interest in Waters. Thank you, and have a wonderful day.

Thank you. And that concludes today's conference. You may all disconnect at this time.