Good morning. We are going to start the webcast here in just about five minutes with Patrick talking, but I wanted to go over some logistics for the day and also just some common questions. First of all, for everybody on the back of your name tag, you will find the instructions for the Wi-Fi access, so you can scan the code for your phone or you can enter the password for your laptops. If you have not found them yet, the bathrooms are located over kind of where the breakfast is, and there is another set of bathrooms downstairs, right at that main check-in desk. The obligatory safety commentary.
In case we need to leave the building for whatever reason, you just go straight down the stairs that we came up to, go outside into the parking lot, and we will gather by the flagpoles out there. Later on today, we are going to be within our facility doing some workshops and rotations. If something were to happen during any one of those, one of us will guide everybody out through the exit doors, et cetera. In terms of the agenda, Patrick is going to give an update on our strategy here in a couple of minutes, then Shawn will provide a financial overview, and then we are going to have plenty of time for Q&A as outlined on the agenda here.
We will take a short break, and then we are going to have an update on our product inspection business. Here in Tampa, this is our main facility for our product inspection business, and our leader, Oliver Wittorf, will provide an update on that business. We will take a short break and then divide up into three groups to go into our workshops. After that, we will come back here, we will have box lunches, and then we will have plenty of time for a second Q&A session.
During the workshops, we will have enough time for one or two questions in each one, but if you want to just kind of keep them to yourself and then we can chat over them over lunch, and then we are going to depart for the airport exactly at 1:30 so that everybody can catch their flights. If anybody has any questions, I will be in the back of the room over there, and we will get the day going.
Thanks, Adam. Do you want to wait until 45 to get the webcast started, or? We still have two minutes.
Wait two minutes.
Okay, then we wait two minutes. Let me see if all the logistics work here. Okay. Adam, could you close the doors? Thanks. As you would expect for a Swiss company, we start right on time, right, 45. Okay, I think we're ready. Good morning to everyone here in the room, and thanks for those joining us on the webcast today. We are really thrilled to host you from our product inspection facility just outside of Florida, Tampa. We have an exciting agenda and are looking forward to spending the morning with you sharing our enthusiasm about Mettler-Toledo's future. Before we get started, please note our disclosure regarding forward-looking statements in the slides.
Our agenda for today is to provide you an overview of the business and review our strategy, and then dive into the many exciting growth opportunities ahead of us and how we are uniquely positioned to capitalize on them. Later this morning, those of you in the room will be able to see firsthand the many new innovations our product inspection business has introduced to the market in the recent years, and also hear about how this facility is a unique competitive advantage. We will also showcase several of our automation and digitalization approaches across our laboratory and industrial product offerings, and how we are also leveraging advanced digitalization and artificial intelligence technologies across our business to drive value. Here are the key messages I'd like you to leave with today. It's okay.
Oh, then they are forwarding here, so let's see. Sorry, we have a little hiccup here, so this is working. Let me go back into presentation mode. Sorry for that. Is it advancing now? Okay. Sorry, let me go back here to the slide. Again, here are the key messages I'd like you to leave with from today's event. First, we have many significant competitive advantages and market-leading positions. We have also made investments important for our long-term growth during challenging market conditions in recent years to further enhance our competitive advantages. Second, we have accelerated investments in innovation and our digitalization and AI platforms, which have increased our value proposition with customers and have strengthened our future growth prospects. We are very well positioned to capitalize on the many exciting growth opportunities ahead of us.
And finally, we expect our unique growth strategies and culture of operational excellence will drive sales growth, excellent margin expansion, and earnings growth, and compounding long-term shareholder value creation well into the future. For those of you who are not familiar with our company, we are a global market leader in precision instruments used in laboratory and industrial applications around the world. In 2026, our sales will approximately $4.3 billion, and about 80% of our sales are in segments in which we have a number one global market share position. We have over 18,000 employees and are unique in our industry that about half of our colleagues are in a sales, marketing, or service role. We are truly a global organization and sell into about 140 countries around the world, supported by a highly competitive global supply chain.
We also operate a direct sales model and have local market organizations in about 40 countries. Additionally, I am very proud that almost 10% of our workforce is in a research and development role, helping advance our status as the innovation leader in our market segments with a robust platform for digitalization. Another one of our strengths and competitive advantages is our very diverse product offering that covers our customers' entire value chain. We operate approximately 25 strategic business units, each one representing a major product area. This broad portfolio enables us to deliver comprehensive solutions that support customers from research and development through scale-up and quality control, all the way to production, final inspection, and logistics. Our portfolio is skewed towards supporting our customers' production and QA/QC facilities, which will enable us to capture onshoring investments that I will discuss later this morning.
Now, this breadth is a competitive advantage and creates a unique opportunity to help our customers innovate and gain insights, automate processes, drive productivity, maintain compliance, and reduce waste throughout their value chain. This is particularly important as we are well-positioned to support our customers' increased focus on automation and digitalization and applying AI to drive their business results. Our exposure to attractive end markets and applications is an important contributor to our growth profile, and we target sectors that prioritize solutions requiring highly reliable and accurate measurements and that facilitate our customers' automation and digitalization transformation. We estimate that approximately 70% of our sales come from pharma and biopharma, food manufacturing, and specialty chemicals. Additionally, bioprocessing is a very attractive segment for us, and we support these customers with a comprehensive range of laboratory and industrial solutions.
Our business mix has improved over time as Spinnaker has guided our sales teams toward the most attractive opportunities and as we have expanded our portfolio into faster-growing segments. For example, in 2025, life sciences represented approximately 40% of our sales, up from approximately 1/3 of sales 10 years ago. Our broad portfolio positions us to benefit from automation and digitalization across the customer's value chain. With approximately 70% of our business in manufacturing and QA/QC labs, we are well-positioned for onshoring and region-for-region supply chains. Service and consumables together are approaching 40% of our business, which is highly attractive given their recurring nature and higher growth rates. As mentioned, our revenues are very diversified geographically. Emerging markets are about 1/3 of our sales and have been an important element for our long-term growth strategy for many years.
We have longstanding, dedicated market organizations across China and emerging markets worldwide. Our market organizations are a significant competitive advantage, allowing us to stay close to customers and better understand local market needs. We have dedicated growth plans for each major country, and we leverage our broad portfolio of solutions to meet the varying customer requirements. We have an excellent track record in China, where we continue to see important opportunities in life sciences, in new energy and batteries, and advanced materials. We compete very well in China, where we also design and manufacture products specifically for the local market, and where approximately 70% of our sales are to local private companies. We believe we are well-positioned to capture growth opportunities related to governmental priorities and investments in life sciences, technology, new materials, and clean energy, as well as trends in automation and digitalization.
Emerging markets outside of China account for approximately 18% of our sales and have long been an important component for our long-term growth strategy. India, Southeast Asia, Eastern Europe, and Latin America offer excellent growth opportunities as these markets continue to develop and benefit from global investments and nearshoring initiatives. We see excellent growth opportunities in biopharma, semiconductor, food, and other hot segments. This slide highlights the competitive advantages behind our confidence in long-term growth. These remain unchanged, but we continually strengthen each one of them to support our future growth. First, on the left column, we highlight our global market leadership, which starts with our long history of innovation and comprehensive product offering, which is critical to our success and has helped us become the global market leader across the majority of our business.
We have an excellent brand recognition, and our installed base of over $16 billion of instruments in the field is an important competitive advantage that provides steady service growth and continuous instrument replacement opportunities. At the same time, we serve highly fragmented and diverse markets, and our overall market share is in the range of 25% or more, and it still provides ample room for continued growth. Our average selling prices are relatively low and are generally less than $10,000, and our customer base is highly fragmented, with no one end customer representing more than 1% of our sales. In the second column, we highlight our global capabilities. Having a strong direct sales force in 40 countries with excellent application expertise is an important competitive advantage. Our global service network ensures that our customers can rely on us to support them through the product lifecycle.
We have a direct presence in most of the fastest-growing emerging markets around the world. Lastly, our global supply chain and manufacturing footprint provides considerable flexibility at the lowest cost. Our corporate programs are another powerful competitive advantage. Over 20 years ago, we started developing our proprietary sales and marketing excellence program called Spinnaker that allows us to effectively target the most attractive segments of the market with our direct sales force of about 3,000 employees. The Spinnaker program continuously evolves by integrating innovative approaches to our sales and marketing strategies. Our platform is enabled by Blue Ocean, which harmonizes data and processes worldwide via a single instance of a global information technology infrastructure. It provides us with rich data, analytics, and business insights so we can execute with speed.
SternDrive is our operational excellence program for manufacturing and back-office activities and is an important source of savings each year we use to reinvest in the business and expand our margins. Our GreenMT program guides our sustainability priorities within our organization, our operations, and our products to meet customers' and workforce expectations for sustainable business practices. Finally, but most important, we have a unique culture of collaboration, continuous improvement, and focused execution that we have nurtured over many years that has built resilience and agility across our organization. "Who we are is why we win" captures the spirit of how we work. Our strong foundation and competitive advantages have translated into a long history of strong financial performance. Over the long term, we have consistently delivered attractive local currency sales growth, expanded our operating margins, and delivered best-in-class earnings growth and shareholder returns.
This performance reflects a business model that has demonstrated resilience through multiple economic cycles. The environment since the pandemic has been unusually dynamic. The industry experienced a surge in demand during and immediately following the pandemic, followed by a period of softer market conditions, supply chain disruptions, higher inflation, geopolitical challenges, and unfavorable government policies, which created additional uncertainty across our global markets. During this period of reduced market demand, we continued to invest for the future and implement strategies with a good balance of initiatives focused on growth, innovation, and operational excellence. We accelerated innovation through initiatives such as JetStream and our R&D accelerator program, while significantly increasing our R&D spending. This has resulted in an increased differentiation versus competition, more product introductions, and agility to meet specific market needs and a portfolio that better supports the needs for automation and digitalization.
We have also expanded our digital capabilities, which provides a strong foundation for AI and has increased our organizational agility and productivity. Our growth investments comprise several dimensions, including the launch of our latest wave of Spinnaker, which further increased our digital capabilities to identify and pursue growth opportunities and have advanced our customer engagement programs and digital experience. We also have launched a new service growth program. We evolved our manufacturing and global supply chain setup to increase our organizational resilience and agility while further improving customer delivery times and to help successfully offset incremental U.S. import tariffs. Importantly, these investments have strengthened our competitive position and better prepared us for our next phase of growth. Let me now turn to our strategic framework for long-term value creation, which starts actually with our culture.
We have a strong culture of teamwork, collaboration, and focused execution that is a critical asset of the company we have nurtured over many years. Our continuous improvement mindset is a hallmark of our organization, and we are focused on driving innovation throughout our portfolio and operational excellence. This ensures that we deliver an exceptional customer experience at the end of the day, which in turn drives above-market organic growth and a powerful compounding return to our shareholders. Our various corporate programs summarized on this slide are hallmarks of our business mode and strategy enablers, driving excellence throughout our organization and are facilitators to our success. Let me now turn to our strategy for driving growth. We are confident in our ability to drive 6% or better long-term sales growth because we benefit from multiple growth drivers.
These include our leadership position in diverse markets and our ability to gain share via our sophisticated Spinnaker sales and marketing program, as well as our dedicated initiatives to increase services in our significant installed base of instruments, which is also ripe for increased replacement demand after some years of subdued instrument replacements. We have high exposure to attractive growth industries and fast-growing emerging markets and hot end market segments. Lastly, as a leading company that has invested in industry-leading technologies with significant exposure to production and QA/QC labs, we benefit from several megatrends related to nearshoring, automation, digitalization, and rapid growth provided by artificial intelligence, semiconductor, and new energy innovations. Importantly, these drivers reinforce one another and create numerous opportunities for us to gain market share and leverage our competitive advantages.
Over the past decade, our exposure to faster-growing and more attractive end markets like life sciences has increased. Our business has grown from about $2.5 billion- $4.3 billion, and faster-growing segments like life sciences have become a larger share of our total revenues. The life science industry is an important contributor to our growth algorithm. It is our largest end market with approximately 40% of sales and provides attractive long-term growth drivers, driven by an aging global population and growing demand for new therapeutics. Artificial intelligence has the potential to significantly increase the number of new drug candidates developed each year, and our laboratory solutions and LabX software are critical enablers for deploying related technologies at scale. LabX is a key competitive advantage, as we also sell approximately 40% of the instruments on a typical QA/QC lab bench and help automate, digitalize, and ensure compliant workflows.
Our portfolio is uniquely positioned to capitalize on growth drivers across the industry. Innovative biologics are an important growth driver of the biopharma industry, and our solutions are integral to process development and production of large molecules. These applications require highly accurate measurement and comprehensive software solutions, stringent process control, automation, and regulatory compliance, areas where Mettler-Toledo is exceptionally well-positioned. GLP-1 weight loss drugs are another important growth driver for the biopharma industry, especially as companies around the world work on new developments and generics of this drug class. This has been a particular hot segment that our Spinnaker program has been actively identifying opportunities and guiding our sales teams to capitalize on these investments around the world. Here is an example of how our portfolio of laboratory instruments and LabX software, process analytics, and industrial technologies support the entire value stream for our biopharma customers.
Our solutions are highly valued by our customers, helping accelerate innovation, optimize their processes, minimize batch variability, accelerate method transfer, and maintain integrity and compliance from initial R&D discovery through commercial manufacturing. We are also excited about the many emerging growth opportunities across a variety of hot segments we target. For example, onshoring initiatives, artificial intelligence, and new energy investments are driving substantial investments in semiconductors, power infrastructure, and data centers. Similarly, investments in batteries, clean energy, and advanced materials are also growing strongly. While these end markets are relatively small proportion of our total revenue, they grow quickly, and each one requires sophisticated analytical instruments, process analytics, technologies, and industry weighing solutions throughout development and production. As these industries scale globally, we expect to benefit from the increase in requirement for precision, automation, productivity, and compliance.
What is important is, in these hot segments, is our ability to identify opportunities early and shift resources quickly to capitalize on them. We have processes in place that have proven successful in identifying these opportunities and an organizational structure that allows us to guide the sales force toward them. Collectively, semiconductors, data centers, batteries, and advanced materials represent approximately $250 million of our sales and are expected to grow double digits for the foreseeable future, contributing over 0.5 percentage point to our growth annually over the coming years. Automation and digitalization trends continue to accelerate from the needs of onshoring, as well as increased customer priorities to accelerate time to market, confront inflationary pressures, enable their AI and automation programs, and ensure regulatory compliance. Our automation and digitalization technologies are uniquely positioned to meet our customers' needs.
As mentioned earlier, we have a broad portfolio of laboratory instruments used in R&D and QA/QC labs, which is a significant competitive advantage, and many of them can be connected to our LabX software. LabX is trusted by almost 15,000 labs in the world, enabling workflow automation and seamless integration with other data systems to optimize lab operations and data management in R&D and QA/QC, which is also a key enabler for our customers' AI programs. LabX furthermore connects our automated laboratory instruments together with robotic solutions provided by partners to create fully automated workflows or AI-driven method development and experimentation while supporting regulatory compliance and data integrity. In a production environment, our industrial solutions allow our customers to integrate our digital weigh modules into their factory automation systems.
Our high-speed digital weigh modules and terminals deliver plug-and-weigh performance in a cyber-secure manner that allows it easy to integrate our solutions with pre-programmed algorithms. We work closely with end users, with system integrators and fabricators, EPCs, and machine builders to deliver scalable automated solutions, also empowering their AI approaches to drive productivity and process improvements. We are well-equipped to capitalize on onshoring investments globally. Companies around the world have committed to significant investments in the U.S. and elsewhere to diversify and de-risk their global supply chains. For the U.S. alone, global biopharma companies have announced more than $0.5 trillion of investments commitments, and these projects create significant opportunities across our portfolio, including laboratory, process analytics, and core industrial weighing solutions.
Because our portfolio is broadly used across our small molecule and large molecule environments, from R&D through scale-up, production, and quality control, we are extremely well-positioned to benefit from these investments. We have already identified many new investment sites related to onshoring across various industries, including biopharma, semiconductor, and others, and we check each project individually by our TopK program to ensure our sales teams have the knowledge they need to prioritize and engage with customers throughout the project. We have seen a large increase in activity over the past two years, which will then translate into sales opportunities over the next several years as the projects progress and from the planning phases into implementation. This is where Mettler-Toledo is uniquely positioned. We do not simply wait for demand to come to us.
We identify where growth is happening, where capital is being deployed, and where our products are most relevant. Whether it's a biopharma customer scaling up a new GLP-1 process, a semiconductor manufacturer expanding globally, a materials company investing in new process line, our tools and our teams help us identify those opportunities early and respond quickly. We systematically direct and educate our sales teams through those opportunities with unique insights via sophisticated Spinnaker sales and marketing program. This is a major differentiator for us. This advantage comes from our products being used throughout the customer value chain, while our installed base and market knowledge allow us to identify early signals of these activities. We are also encouraged to see the growing need for instrument replacement following the accelerated replacement during the pandemic.
Historically, equipment replacement has generated approximately 80% of our instrument sales and contributed to the consistency of our revenue growth. We believe replacement demand will pick up further over the coming years, as an increasing number of the instruments we sold during 2021 and 2022 reach replacement age over the next few years. I spent quite some time, and will spend also quite some time outlining several exciting growth opportunities. I'd like now to focus on our unique capabilities to capture these opportunities via Spinnaker. Spinnaker is our sales and marketing excellence program that, as I said, over the past 20 years has evolved into a sophisticated set of processes, tools, go-to-market approaches, and digital capabilities.
It increases the effectiveness of our sales, marketing, and service processes by identifying, guiding, and preparing our direct sales force specialists towards the most attractive growth opportunities across our 40 market organizations around the world, allowing us to gain market share in our highly fragmented markets. Spinnaker has been developed in waves over the years, and our most recent wave has expanded our digitalization and big data analytics capabilities to enhance lead generation and sales force guidance. TopK is an excellent example of the unique internally developed capabilities of Spinnaker. TopK targets our most attractive customer segments and identifies and summarizes specific customer investments and penetration opportunities with individual alerts for our sales teams upon external and internal data sources.
We recently integrated new capabilities and sophistication that allow these growth opportunities to be dynamically updated and integrated into our CRM systems and sales force guidance activities throughout our global organization. These alerts highlight high-growth targets with significant opportunities, including investments in GLP-1 therapies or other biopharma innovations, CDMOs, semiconductor capacity expansion, new material development, and reshoring investments. TopK also helps identify cross-selling opportunities, which is important given our broad exposure to our customers' value chain. In addition, TopK provides essential information on each opportunity that improves the effectiveness of our sales teams and increases lead conversion rates. We expect that TopK will generate approximately 170,000 investment and cross-selling alerts for our sales organization this year, with a notable increase in onshoring opportunities.
We are also introducing additional digital tools to increase the effectiveness of our sales organization and elevate our customer experience, including digital sales rooms for seamless online collaboration and enhanced features within our customer portals. This allows us to engage with our customers through the entire journey, from generating awareness of our solutions, working collaboratively with our sales specialists and technology application experts, to supporting our customers with post-purchase support and various services, support, and training collaterals. An important component of our value proposition is a comprehensive service offering that helps our customers maintain reliable readings from our instruments, maximize uptime, and maintain regulatory compliance. Service represents more than 25% of our sales and is an important competitive advantage and excellent growth opportunity.
We believe we have the largest service network amongst our direct competitors, with over 3,000 technicians delivering a very professional and consistent service experience to customers throughout the world. Our customer satisfaction ratings for our service business and our Net Promoter Scores around 70 are excellent and are at record high levels. We aim to grow our service business faster than the company average over the medium term and are making dedicated investments in field technicians, telesales, data analytics resources to support our growth aspirations. Our largest opportunity is servicing a greater proportion of our installed base, which represents approximately $3 billion of total service revenue potential.
We have penetrated about 1/3 of this opportunity, and given the vast amount of data we possess about it, like when the instrument was sold, who's using it, in what application it's being used, we can create targeted sales campaigns to service them specifically tailored to their needs. Our services help ensure that the measurements from our precision instruments are reliable, optimized, and help prevent costly downtime while maintaining regulatory compliance. We have maintained our focus on selling more service packages at the point of new product sale. Over the years, we have also made important enhancements and differentiation to the service levels of prepaid contracts to meet the varying needs of customers.
Additionally, we continue to benefit from our actions to improve the productivity of our service organization and increase its capacity to serve customers, including increased efficiencies with new AI and software capabilities to provide faster response times. Examples include large language model knowledge sharing support for our technicians, scheduling efficiencies from automation, and the ability to estimate service durations, and utilizing expanded call triage capabilities to resolve service requests remotely.
I'd like to discuss innovation, which is a hallmark of our success, and we have a long history of technology leadership to help our customers generate new insights, improve workflows through automation and digitalization, and capture more precise and reliable measurements. Our dedication to bringing new innovation to market strengthens our value proposition, stimulate replacement demand, gain market share, and support price premiums in the marketplace. In recent years, we have significantly increased our spending on research and development and have focused on accelerating new innovation and developing new growth platforms and entering adjacencies.
R&D spending has increased 32% in constant currencies over the past five years and has translated into more new product launches, a stronger value proposition, and increased differentiation versus competition. A significant portion of our innovation investments involve supporting our customers' automation, digitalization, and productivity needs. Our strength in software across the bench of our portfolio is a unique competitive advantage, and our global team of experts that can develop software in a cyber-secure and cost-effective manner, leveraging the latest AI tools. On this slide, you will see several examples of recent innovations across our portfolio. Our team has continued to lean into our customers' needs for automating processes and workflows, and we are uniquely positioned to support them with their needs for high-quality data capture and analysis from our instruments.
Our corporate program for innovation provides a structured process to identify, validate, and document customer needs and support rapid development to launch hidden market opportunities, to capture hidden market opportunities. While no one product launch is material to our results overall, given the significant diversity of our business, we believe we are well-positioned and poised to benefit with our innovative portfolio to capture even more market share as market conditions continue to improve in the future. We are well-known for our strong culture of operational excellence, focused execution, and agility to drive cost leadership in our industry. Our broad global footprint with manufacturing facilities around the world is a strong competitive advantage. In recent years, we have expanded our in-region, for-region manufacturing capabilities and have further enhanced our global supply chain function.
This has enabled us to react with agility during last year's changes to U.S. import tariffs, and today, we have fully mitigated tariffs by leveraging a combination of optimization strategies. SternDrive is our corporate initiative to drive operational excellence in our manufacturing, global supply chain, and back office operations. Several hundred SternDrive projects are underway at any one time to improve productivity, realize savings, and continue to drive operational excellence across the organization. These initiatives make an important contribution to our productivity and margin improvement. We are currently on our third wave of SternDrive, and this wave of initiatives is focused on driving increased value engineering and drive material cost savings, as well as deploying semi-automated and automated smart manufacturing processes across our operations.
One example I'd like to share with you today is how our teams have automated a tedious task in our laboratory balance manufacturing processes. After we have assembled our balances, we need to test them for accuracy and reliability using test weights. This was a manual task that took technicians a lot of time to place and replace test weights and then manually record the results in our quality systems. The team developed a robotic solution that fully automates this process, including opening draft doors, capturing the values, moving the test weights, and so forth. This was particularly challenging because we offer over 130 different models of laboratory balances of varying sizes, shapes, minimum weights, and resolution. Automating our testing process resulted in higher throughput and shorter lead times for customers, and also improved quality as we removed manual data capture processes.
Now I would like to switch gears and discuss our digitalization and artificial intelligence strategies, which are integral to driving growth and productivity and enhancing the value proposition to our customers. As we think through our growth and productivity initiatives, it is important to recognize that Blue Ocean, our global process harmonization program, is a key enabler to our ability to evolve these initiatives and successfully implement them. Blue Ocean is enabled by a single instance of a global IT infrastructure that provides meaningful, real-time information and visibility across the entire organization, which has become particularly important in rapidly changing market conditions. Agility is a key ingredient of our success, and it would not be possible without the rich data and transparency provided by Blue Ocean.
This was, for example, evident last year as we navigated changing U.S. import tariffs, and we were quickly able to adapt our global supply chain organization. Blue Ocean is also a key enabler for process optimization and productivity, and provides a great platform for automation. Blue Ocean is an important backbone for our various digitalization initiatives and has allowed us to rapidly deploy new technologies such as artificial intelligence tools globally across our global organization. As we think about our digitalization and artificial intelligence initiatives and related use cases, we group them into three categories. First, we are focused on leveraging digitalization in our product innovation. This includes embedded digital and AI capabilities and software solutions that provide increased insights and productivity to our customers.
We also have a unique opportunity to facilitate our customers' AI programs, as we provide highly structured data throughout our customers' value chain that we collect with our broad set of instruments and provide this data seamlessly with our solutions such as LabX software or our industrial terminals. As previously mentioned, we also use AI solutions internally to accelerate the pace of our innovation. Second, we are using digitalization to further increase our customer experience. This includes improving our ease of doing business with increased digital interactions and engagement. We also provide interactive digital showrooms and personalized customer portals that also facilitates our asset management, and in certain cases, we also provide remote diagnostics via our digital service offering. Lastly, we leverage digitalization and AI internally throughout functional areas on a global basis to gain insights, improve decision-making, increase our effectiveness and productivity, and drive continuous improvement.
ChatMT, which is our on-premise large language knowledge management model, is particularly powerful as we benefit from our rich data and significant information across the organization and various corporate programs. In recent years, we have deployed a number of exciting AI use cases across each of these three categories. Let me highlight a few of these examples. In our automated chemistry business, we recently introduced our AI-powered iC Vision software module that uses high-resolution images from our video microscopes and automatically spots, classifies, and measures thousands of particles per second for real-time reaction monitoring. Another example is AIWizard, our software for thermal analysis instruments. AIWizard enables customers to automate experiments, interpret results, and generate insights almost instantly, making sophisticated analysis much easier. We have also recently launched an AI-powered knowledge hub for our service teams.
By drawing on our extensive database of historical service activities and internal product-related documents, it helps field technicians troubleshoot more effectively and provide faster, more consistent support to our customers. In addition, we developed AI tools that estimate the duration of service visits and automate scheduling, improving both the customer experience and productivity of our service organization. Finally, one of our earliest AI use cases in software development has become a meaningful driver of productivity in recent years. By assisting developers with coding, testing, and documentation, these tools enable our teams to work more efficiently while accelerating innovation across our businesses. We also have several use cases with over 100 projects to increase insights and drive productivity in each functional area, including leveraging agentic AI to help automate certain order entry tasks.
We're also very excited about the important role that we play in supporting our customers' own AI and digitalization programs. Our instruments and sensors are at the core and provide high-quality data that is structured, validated, and compliant, and supports their research and development activities all the way to production and quality labs. Our partnerships with leading robotics and software companies allow our customers to establish self-driving labs, and our advanced weighing technologies enable better data capture as IT and OT environments converge. Our instruments and sensors are connected via software solutions and terminals and provide the data aggregation layer and interface to our customers' digital programs and AI implementations in a very efficient and easy-to-integrate setup.
Accordingly, we expect our customers will, for example, be able to increase the number of drug candidates in the biopharma industry, but more importantly, then also bring new drugs to market faster, and that will result in an increased drug production that we will then additionally support with our solutions across their value chain. I'd like to also touch on our acquisition strategy, and as you have heard me discuss today, we are fundamentally an organic growth story. We are the market leader across highly fragmented markets with ample room of market share expansion. We also believe we are an excellent bolt-on platform for small to medium-sized companies with technologies or product line adjacencies in the life science tools industry that would benefit from our corporate programs, our global sales and marketing organization, and global supply chain.
Additionally, we would also like to expand our geographic and direct sales and service footprint through distribution acquisitions. Lastly, we are also very interested in expanding our service capabilities, including adding new value-added services for our biopharma, food, and chemical customers. Now, before I conclude, I'd also like to touch on GreenMT, which is Mettler-Toledo's corporate responsibility and sustainability program, which is highly rated by outside rating agencies. We are committed to responsible and sustainable growth, building a resilient business that delivers long-term value to our shareholders, customers, employees, and the communities we serve. We continue to strengthen the integration of environmental and social priorities within our organization, operations, and products to meet customer and workforce expectations. In 2025, we achieved several of our key environmental goals, including maintaining 100% renewable energy sourcing and carbon-neutral operations, as well as zero waste to landfill.
Our teams continue to embed sustainability into product design, including sustainable packaging, digital-first documentation, and sourcing lower-impact materials. As previously mentioned, people and culture are at the center of our strategic framework, and we have a strategic program to develop our skill sets for the future while continuously improving our employee experience. These initiatives align with our belief that a positive, high-performance culture is foundational to business success.
Now, with that, I would like to thank everyone for joining us today and hope you share our enthusiasm for our future, as we have many competitive advantages and are really well-positioned to grow and further enhance our leadership position. We have a strong financial model that supports efficient capital allocation, and I would like now to hand it over to Shawn, who will walk us through how all of this translates into our financial expectations. Thank you.
Shawn?
Okay. Well, hey, thanks, Patrick, and good morning, everybody. It is really great to see everybody here today. Thanks for making the time and joining us. I would like to spend a few minutes reviewing our Q3 results, our initial outlook for next year, and then provide an update on our long-term financial expectations, with most of our time spent reviewing the many drivers supporting our confidence for the future. Starting off with our results we announced last week, we had an excellent third quarter. Our local currency sales growth was 6%, above our guidance of 4% growth, and our growth was relatively broad-based across our portfolio and included 13% organic growth in Asia, rest of world. We are encouraged by improved market conditions and benefits from customer automation and digitalization trends. This translated to 13% adjusted EPS growth with good margin expansion.
We also provided guidance for the fourth quarter, with local currency sales expected to increase approximately 5%. Operating margin is expected to increase in the range of 100 basis points, and adjusted EPS is forecast at 11%-13%. Looking ahead to 2027, we are exiting this year with good momentum and have excellent growth prospects for next year. While there remain uncertainties in the external market, we believe we are very well-positioned to deliver excellent growth in 2027. Accordingly, our initial guidance for 2027 is approximately 5% local currency growth, sales growth, and adjusted EPS growth of 10%-12%. As Patrick mentioned, we have a strong long-term track record for delivering solid financial results.
Despite the volatile market conditions we have faced since 2020, we have still delivered approximately 5.5% sales growth in constant currencies, with 13% adjusted EPS growth over the past 10 years, and are very pleased with our strong culture and organizational agility during this period. These results also reflect the significant focus on resource reallocations that were enabled by the transparency we gain from our Blue Ocean program. As you also heard, it was also very important for us during the past few years to continue to invest and position ourselves for the future. We are well-positioned to continue to drive strong financial performance and extend our successful track record in the future with sales growth of 6% or more, which translates into mid-teens adjusted EPS growth and free cash flow conversion of approximately 100%.
Although we are the global leader approximately 80% of the time, we still serve highly fragmented markets with an average market share in the range of 25% or so. This means we only need to capture a very small percentage of market share annually to meet our financial targets, which reflects the essence of the Spinnaker program. To help quantify this opportunity, each half a percent of product share gain adds approximately 1.5% to sales. At the same time, we have a significant opportunity to better service our installed base of instruments, as we currently only service approximately 1/3 of our $3 billion serviceable iBase. In the past few years, we have launched a new program with resource investments to target this opportunity, in addition to our ongoing initiatives.
To also help quantify this opportunity, increasing our service penetration of our installed base by approximately 1% adds approximately 70 basis points to sales. Our financial model is ultimately driven by sales growth and starts with the markets we serve. Over the past 10 years, we have increased our exposure to life sciences, which we expect to grow high single digits in the future and represents approximately 40% of our sales. Overall, we expect our markets to return to more normalized purchasing patterns and grow approximately 4%-5% over the long term. In addition to life sciences, we will also benefit from faster growth hot segments such as semiconductors, new energy and batteries, power and data centers, and new materials. These hot segments collectively represent approximately $250 million of today's business and should grow significantly, contributing a half a point to our overall growth.
We believe we can grow sales in constant currencies by 6% or more over the long term. As we look to the past, our historical algorithm was largely based upon gaining a little market share each year via Spinnaker and customers sticking to their replacement cycles. As Patrick described, our customer replacement cycles have been thrown off a bit during COVID, with accelerated replacement during 2021 and 2022, and more recently deferred replacement in recent years that creates an interesting opportunity over the next few years. In addition to life sciences and other hot segments, we also believe emerging markets will be an important growth driver and will benefit from global nearshoring initiatives. China and emerging markets represent approximately a third of our business, and we expect China to grow around our corporate average and other emerging markets to grow faster over the long term.
Finally, we have several new growth opportunities. Many of us have been in the business and industry for a very long time and have never seen so many exciting incremental opportunities that we expect to see over the medium term, with investments in onshoring, accelerated spending in automation and digitalization, new energy and batteries, and benefits coming from our customers' investments in their own AI programs. It is difficult to quantify the magnitude and timing of these opportunities, but we would expect to see incremental growth versus our historical business, with activity picking up in 2027 and beyond. This slide provides a breakdown of our growth expectations. While things may change from year to year, we expect over the longer term higher growth in laboratory and other emerging markets, which has a large mix within rest of world.
Service and consumables together will start to approach 40% of our business, which we also expect to grow high single digits over the long term. We also have a strong track record of expanding margins and are very pleased with our agility to mitigate challenges, including tariffs, in recent years. We believe we can expand our operating margins in excess of 100 basis points, especially with our strong incremental margins as volume growth normalizes, and our fastest-growing businesses are also our highest-margin businesses. Pricing also continues to be an important part of our story, giving our strong foundation of innovative products and services, a brand that is synonymous with quality and precision, and a significant portfolio of personal instruments. Given our relatively low average selling price of less than $10,000, our instruments are often purchased by the end user who understands and appreciates our value proposition.
We further ensure they understand our value proposition with our direct sales force of application specialists who are also trained on value selling. Overall, we expect our price realization will approximate 2% over the long term and will vary by year depending on the inflationary environment. I will also spend a few more minutes on pricing on my next slide. SternDrive also continues to be an important contributor to our margin expansion, with savings and productivity from several hundred projects completed each year. SternDrive has also been successful in creating a more agile supply chain, shortening customer delivery times, and also helping to mitigate tariff headwinds, and is an excellent example of our continuous improvement culture.
We also look forward to our team spending more time on SternDrive going forward, as they have been highly focused on responding to various challenges and building additional resiliency in our global supply chain since the onset of COVID. Lastly, Blue Ocean continues to be an important enabler to our ability to expand margins. The single-instance IT infrastructure with harmonized processes facilitates benefits from shared service centers, automation, and new technologies such as AI. We have accelerated our deployment of AI technologies, which benefit significantly from our rich Blue Ocean data and information provided by our corporate programs such as Spinnaker and SternDrive. Each functional area has several use cases that increase productivity, but more importantly, helps us gain insight and better into our business while further increasing our agility and bringing more value to our customers.
I'd like to share my perspective on the success of our pricing program. At the end of the day, it's all about how we create value for our customers with our products and services. Innovation is the hallmark of our success, and as previously mentioned, we have increased our investments in R&D to further enhance our value proposition, which also increases our customers' willingness to pay. As mentioned, we also provide value-selling tools and train our direct sales organization of specialists to ensure they are properly equipped to articulate our value proposition to our customers. Since we started our pricing program nearly 20 years ago, we have introduced several sophisticated analytical tools to not only optimize our pricing and reduce leakage, but to ensure we have the right price based upon specific customer needs.
An example is our active price guidance tool that recommends a price based upon machine learning and data correlations of a customer's order to the optimal price. As we continue to methodically roll out this tool throughout our global organization, we consistently see an increase in win rates as well as slightly higher pricing, which implies we're getting to the right price for both the customer and Mettler-Toledo. We also leverage several other tools such as value price maps and pricing signatures to ensure we have the right strategic positioning and benefit from several KPIs, including win-loss information to keep a close eye on the market. Most importantly, the success of our pricing program allows us to reinvest in our business with increased investment for innovation and growth to help us further continue the cycle of value creation for both our customers and Mettler-Toledo.
Before I conclude, I'd like to also reflect on our strong history of cash flow generation and return on invested capital. As you can see in this chart, our free cash flow per share CAGR has been 13% over the past 10 years, while our return on invested capital is nearly 50% and has increased 1,500 basis points. Cash flow generation has always been important to us and is very much part of our DNA. It also reflects our focus on continuous improvement throughout our end-to-end processes. As we think about capital deployment, our views remain unchanged, and we expect to maintain a net debt-to-EBITDA leverage ratio in the 1.5x range. While we continue to have an exciting organic growth story, we also believe we are a great platform for bolt-on M&A, as described by Patrick.
We also continue to believe our share repurchase program is an effective way to indirectly distribute our capital to shareholders, given the long-term consistency and compounding nature of the program. As you are aware, we do not try to time the market and will continue to repurchase shares every day. In summary, we are well-positioned to continue to drive strong financial performance and extend our successful track record with sales growth of 6% or more, which translates into mid-teens adjusted EPS growth and free cash flow conversion of approximately 100%.
That concludes our public presentation, and would like to now once again thank everyone for joining us today and hope you share our enthusiasm and confidence for our future.
All right, everybody. Now we'll get into the Q&A session. If you have a question, just raise your hand and I'll pass the mic over to you.
Thanks, Patrick and Shawn. I guess we will start off here with the LRP. You guys kind of showing some acceleration underlying market growth. You have it coming up in for 2027 and then beyond that. Kind of walk us through the buckets there as you see. You talked about some hot segments coming out. You have emerging markets continuing, the agility of Spinnaker. Just lay out there kind of what the acceleration you see on particularly the labs business going back up to high single digits. Just trying to understand the dynamics of how much is just market recovery, better exposure to some of these higher growth markets versus the innovation that you guys have really gone in to attack.
Yeah, good. Maybe I start with the lab piece of the business. As you have seen in Q3, we really saw increased momentum in Q3 in lab and also guided Q4 to a higher growth rate, and also see for next year definitely in a high single digit, mid to high single digit growth rate range. There are several vectors that really support that. Number one, we see strong investment in pharma and biopharma, but also in other applied industries using our unique technologies that we launched over the last several years. We launched a lot of new great products in the lab space as well. Driven by the connectivity with LabX, it puts us in a really unique position in the market to capture market share.
On the macroeconomic side, I would say it is the momentum we see in China coming back geographically. That really has picked up over the last quarter as well. Looking forward in Q4, we think that it will be even higher in Q4 than what we have seen in Q3. But also the U.S., we see a lot of really good engagement of our sales force, looking into our portfolio and saying, "This is the right product portfolio we want to own in the future.
Yeah. I think too, like one of the exciting things about lab is how we support customers throughout the value chain, right? You heard that a lot in Patrick's presentation. For those of you with us today, you will see examples of that in the workshops. If you think about like this year, the beginning of the year, bioprocessing was doing quite well, right? By Q2, we started to see QA/QC picking up, so we saw strong results in analytical instruments, laboratory balances. Then by Q3, we started seeing research activity improve with some really strong results in liquid handling and pipettes. I think going forward, we are just really well-positioned throughout the value chain.
Then you start to layer on customer needs and automation, digitalization, how we support that. We feel like we are well-positioned. We have been investing into these trends quite a bit. When you just think about external trends about new modalities and all these other types of topics, new therapies, GLP-1s, et cetera. We participate globally. If you just think about even what we talked about with China, tremendous growth opportunity. We feel very positive about that end market going forward for us.
I guess just turning to that framework from a growth perspective, but when you are thinking about the 100 basis points of margin expansion, can you bridge the components between mixed benefit, obviously with labs, like you said, high singles, but on top of the operating leverage that you have been getting, and some of the SternDrive cost outs and digitization. Just walk through how the components of your traditional [OM ex] would make out from going that 5%-6% like you did in the past, to now you are getting a little bit more juice on the margin side.
Yeah. So, I mean, for me, it starts with volume growth, right? Organic volume growth, which is an area where we have been struggling in the last few years. Our incremental margins are very strong. There is a very significant benefit from that. I am not going to give specific basis points, but I will give a little bit of direction. You saw, like, we were able to hang in there with operating margin expansions despite the volume. But going forward, that is going to be a really key attribute. Pricing, you can kind of do the math, right? Every 2 points is probably about 100 basis points if it all were to go to margin. Then we get benefits from mix, SternDrive. These are all things that are going to add.
We continue to think internally about how to have annual productivity, like in whatever, like the 2% kind of a range. We look for pricing. We say 2%, but if inflation is higher, we will try to do a little bit more than that. We try to have a little bit of a difference there just to try to-- Or at least on the SternDrive side, to try to make up for inflation. Actually, it is more on the SternDrive side in terms of what we do with our cost structure with inflation. Then we reinvest in the business. I mean, like when we do our own internal waterfall, the thing I like, and when we present to our internal organization, is there is a meaningful reinvest part of that bridge.
We got to do all these things, and that's why I don't want to break them all out, because they add up to a pretty big number. But the goal isn't to maximize it and stop. The goal is to capture as much of that as we can and then reinvest in innovation and growth. That's what we're doing. Every year is a little different, depending on the environment. But what I like is that we've been doing it for a long time, and we still have so many levers, right? We have so many levers to do this.
Now you add in new technologies, what we do internally with AI and digitalization. It's not about just squeezing. It's about how does it allow you to be more effective at ultimately driving more growth and driving more innovation. It's all about resource reallocation. Once we get the volumes going with the incremental margins, it's like the math works well.
Hi, guys. Thanks for the questions here. Shawn, the business is accelerating. You can just see that from the growth rate. If you were to sort of take a thing from a high level today and put the revenues into two buckets, what percentage would you say you're pretty highly confident are on a sustainably upward trajectory versus those that either haven't inflected or you're just not really convinced are sustainably up or going to be up, academic, small biotech, whatever? How would you compare that to either the beginning of the year or 12 months ago? Just sort of trying to track the progress of what you feel good about today versus[crosstalk].
Yeah, so maybe I can address it a little bit, product and geography a little bit. On the product side, the one theme we can, and I know you hear us say this a lot, but it's just so important, is like the trends in automation at the customers and digitalization, they're really substantive, right? We see that through the industrial portfolio. Sometimes that can get masked by other topics in the portfolio, but that's like a very important trend, and we see it also in the laboratory segment. So that's like one thing that we feel really good about that we continue to think will accelerate. The lab side, there's been a lot of different dynamics that you're all very familiar with over the last few years.
I kind of gave a little bit of a flavor of even how this year progressed in labs, starting with bioprocessing and ending with some improved activity on the research side. I think once we start getting to normalized replacement cycles, we are very well positioned. I think that has been one of the challenges in our space over the last few years, is replacement cycles were thrown off a little bit. If you just think pre-COVID, 80%-90% of the business was replacement, right? We just need customers to stick to replacement, and the algorithm tends to work pretty well. Those are the areas I would say broadly we feel very good about. You will get a lot of examples of innovation throughout the course of today. Patrick gave some in his earlier comments as well.
Geographically, China is doing Emerging markets together are doing very well. Not surprising us. We talked about it earlier in the year. We started to see it more in Q2. We feel like we are really well positioned there, but there is just so much investment going on, whether it is in China with all the strategic priorities of the country. We feel like we have always tried to be well aligned with those priorities in terms of how investments are going. But outside of China, all the China plus one opportunities, nearshoring opportunities. India has a tremendous story in and of itself. Those are all things that we feel really good.
When we came off the budget tour, we ended in Asia Pacific, and we just had so much energy, and we were literally in real time increasing some investments into different countries just because we felt very good about what the opportunities are. In China, we all know things can change quickly in either direction, so we try to be a little bit more moderate when we provide guidance, whether it is the LRP or for next year. But longer term, we feel really good. In terms of the Americas, we feel like the best is certainly yet to come. We all see all the different opportunities over the next three to five years. We are also investing into those opportunities as well, and so we feel very good about that.
I would say Europe is probably the one that goes a little bit on the other side, right? At some level, there is probably softer investment in Europe, especially in the current geopolitical environment. The continent is based much more so or hit by higher energy costs, and you see that hitting different segments as well. Just even some of these, how companies are thinking about their regional supply chains and investments. The other parts of the world probably are going to get more investment certainly than Europe. It does not mean Europe will get nothing, just probably a little bit more cautious on that one compared to where we were in the past.
That's helpful. Maybe just one more, if I could, on China, to your point. When we think about the guide for China next year, mid-singles, and we're at mid-teens to exit the year, is the difference there really just to your point, things can change quickly and China is just inherently weird? Or is there something more substantive to the step-down, I guess you would say?
Well, I think we're being just a The reality is we're going to lap mid-teens in Q4 next year in China, and we're going to lap mid-teens in industrial in the second half. Just knowing that there's a more difficult comparison sitting here. I mean, we only have 1.5 months of backlog, so it probably influences how we think about trying to be a little bit more cautious with how we would guide that. The nice thing is we are exiting the year with very strong momentum in both parts of the business and should enter, get off to a good start next year.
Hi, Evie Koslosky with Goldman Sachs. Thanks so much for having us. Maybe walk through some of the sizing of the megatrends, like reshoring and AI investments from pharma, and I guess how you thought about including this in the long-term guide, and I guess what gives you confidence in both the timing and magnitude of these impacts?
Maybe I start off with that. So, about the megatrends and everything, I start with the whole, with the global trend of automation and digitalization, which is ongoing since some time, where we see full momentum, to be honest. The growth we see in China has built early this year and also in the third quarter. A lot of that came through industrial automation. We see this now also happening in the U.S. and in some parts of Europe, where we have system builders using our equipment. You will see some of that later today in doing our tour. They really use our instruments to drive and build fully automated systems for customers in manufacturing, et cetera. The trend of reshoring and home-shoring, I would say in Asia Pacific, we have seen probably this year some potentials, a little bit last year.
We have seen some offshoring from China in peripheral countries that helped, that drove some of the growth we have seen there. When you look at the U.S., there is a lot of momentum right now. I showed it on my slide when I talked about Spinnaker and TopK, about the indicators we have there, the engagement with customer. A lot of exciting discussions with customers, but a lot of these investments are also long-term projects, right? If a pharma company in Europe says, "Hey, I want to invest in the U.S.," it is a greenfield investment. You should think about three to five years until this thing really becomes fully operational.
There are a couple of capacity expansions that go faster. We have not actually put a lot of that into our 2027 guidance right now, but we think in the midterm, that is really a meaningful driver of incremental growth for us.
But in the end of the day, it is hard to quantify. You can see it, you can see the trend. We try to give a Mettler perspective of seeing the increased activity during Patrick's presentation, just to illustrate that we are seeing stuff. But it is still hard to tell exactly the timing, and it is still hard to tell exactly how much that translates into business. We just feel like it is going to be more than the past. We will see. We also-- What is hard is that some of it goes through engineering companies on the industrial side, so we do not know exactly if it is onshoring or not.
We also serve a very broad portfolio of opportunities too, and so it is harder to quantify. But you can do some game theory and get a little excited, right? We purposely prefer to not try to put numbers out just because it is a little bit uncertain, but it just feels like the activity is certainly incremental.
Absolutely, yeah. Appreciate the color. On replacement, you mentioned it is expected to pick up following the placements you saw during COVID. I guess, which specific initiatives do you have in place with your sales team to make sure you are driving that replacement? Are there any particular product categories you would call out that are better positioned in this aspect?
Yeah. First, when you look at replacement opportunities, again, driven by that higher demand we have seen in 2021 and 2022, you have to also calculate a little bit of what is the average lifetime of instruments out there, and it can be anywhere between five and 12, 15 years. It will play out over a longer timeframe. The initiatives we have in place, we have really active, what we call old product replacement initiatives, where we call the customers and make sure that they understand the benefit of our new portfolio. That is why I am also pushing so hard on innovation. Innovation gives our customers also an incentive to replace. We have new products with new features and to replace these products.
They are their products. Given the insights we have through our Blue Ocean program and our Spinnaker program about where these instruments are, who is using it, how long they have been using it, also having the service track record, we get a meaningful view that this will be replaced probably over the next three to five years. It is not going to be just one wave where everybody goes in 2027 or 2028. It is going to play out over the next years.
Great. This is Casey Woodring from J.P. Morgan. Thanks again for having us. I guess the first question, just stepping back, I mean, you manage ROIC very carefully, and you view retail as a low single-digit grower and product inspection is growing below the LRP. I guess the question is, how do you intend to manage your investments in those businesses in particular? Are those lower priority for R&D and sales and marketing investments? By the same token, are there ways to scale up investments in lab, which comprises most of your growth? Just maybe talk more broadly about ROIC in those different buckets.
Hey, thanks for the question, Casey. I think there's a couple things. Maybe how we broadly think about ROIC, and then maybe more specific to your question about particularly on the retail side, I understand. On ROIC, what I like about it is, it does reflect a lot of the culture of continuous improvement, but also the culture of resource allocation, right? Which is kind of implicit in your question. Any company, right, needs to constantly focus on what are the fastest growth segments with the highest returns, right? Sounds simple, sounds basic, but in real life, there's a lot of change management that that requires. I think we spend a lot of time as an organization on those topics about, at a very micro level, about how to reallocate and redeploy resources to our fastest growth businesses.
Then there's also this continuous improvement. It doesn't matter what business you're in, you can always do better in terms of having more efficient end-to-end processes. The Blue Ocean program is a great example, right? All the businesses benefit from that, right? They all can benefit from that. Then there's also an element of what we can do with new digital technologies to look into processes to identify inefficiencies to get better. Now with AI, you can even take it to another level. There's lots of things we can do to continuously improve with the combination of how do you redeploy capital on a day-to-day basis. Specific to your question, food retailing, of course, has a lower margin than laboratory, right? But it doesn't mean that we don't have still good incremental margins because it's fully integrated into our global footprint.
All the manufacturing is absorbing overhead from our industrial business, and it's same with our sales and marketing organization. When you start to look at it from that perspective, it's still incrementally positive, but in terms of its mission in the company, it's going to have a different mission than lab, right? In terms of how we invest it, you're right, it is going to be a very different discussion, very targeted on areas where we think we can be differentiated. Certainly focus on driving profitability, as opposed to some of the laboratory categories, like you mentioned, especially the higher ones. It is very much about growth, growth.
I also want to add is you have, as Mettler-Toledo, of course, we have also broad platform investments. Think about a weighing platform that crosses across the entire product portfolio that we have. It's investments we make in, for example, into load cells spread across everywhere from retail business all the way to the high-end balance business, and the underlying technologies are similar. Sometimes you get innovations out of a lower performing, in terms of margin business, like retail. For example, when you take image recognitions and AI, this was a platform where we first deployed it and used and that leveled software capability and deployed it now in product inspection. There's a lot of cross-fertilization between the businesses itself.
No, that is helpful. Maybe just quickly, emerging markets outside of China is something that you guys focused on a little bit during the presentation. Just maybe talk about the drivers of this bucket. I think rest of world is growing high singles for you in the LRP. Maybe just talk about the drivers there. Would be curious to hear geographies outside of India that it seems like are growing as well. Any more color around that piece? Thanks.
Yeah, so India, of course, as you mentioned, India is, of course, highly biased towards pharma, so there is a lot of growth in the pharma business in India. Also outside of China, if you go to Vietnam or other places, there are investments in pharma and in other businesses as well, industrial. You go to, let us say, Malaysia and think about the semiconductor markets there, this is a great opportunity for us as well. We have a broad portfolio of instruments that go also into semiconductor companies. So, that together with all the automation and digitalization across our portfolio for different end markets fits really well. It is not just India, to be sure. We have also a lot of other countries in Asia-Pacific that grow double digit.
Thank you very much. Dan Leonard from RBC. You talked a lot about the lag replacement opportunity from the 2021, 2022 bolus. To be clear, the bridge from the 5% growth that you are delivering right now and that you are guiding for next year versus your 6%+ LRP, is the biggest part of that bridge this replacement opportunity as opposed to the various upside drivers you have talked about?
Yeah, I think the way I would think about that is replacement hasn't been in a normal mode for the last few years, right? Once you get to a more normalized replacement, the algorithm without a lot of these other opportunities pretty much works, right? So, it is certainly going to be a big part of it. We feel like we are starting to see replacement in the last couple quarters. It is always hard to tell exactly how much that is, but in terms of next year specifically, we see the positive trends we have seen recently. We are kind of assuming that those trends will carry into next year. But certainly replacement will be part of it.
Again, it is hard to tell exactly when customers replace, but we try to show an illustration for how it could. If you think about the amount of sales in those two years and you think about the average product lifetime could be five to 10 years, we tend to talk about seven often. You can do your own math about how things could ultimately kind of fit into the next five years or so.
Okay. That is helpful. You provided a lot of quantification as well, and I am going to push you for more. On some of the mega trends, I think there was a slide that there were 140 semiconductor fabs being built. What is the wallet opportunity for Mettler-Toledo in a semiconductor fab? I have no idea. When you think about autonomous labs, same question. What do you view as your entitlement in an autonomous lab compared to a non-automated lab?
You want to talk first about semiconductor labs or semiconductor factories? In semiconductor, we actually have a really broad representation from R&D, QA/QC, and manufacturing as well. Think about R&D where they use our instrument, whether it is pH meters, whether it is to look at the composition of the slurries that they are using. If you think about in manufacturing and R&D, the ultra-pure water solutions they are using, we have a lot of products to provide the control systems for ultra-pure water, which is the solvent that is used in semiconductor manufacturing everywhere. You would see a lot of industrial scales in manufacturing to weigh critical gases and stuff like that to do level control with our load cells.
A lot of industrial weighing applications as well. It is actually really broad base of our portfolio that goes into these fabs.
But it's always hard. They spend hundreds of million dollars on a fab, so of course we're going to get a very small fraction of that. It's hard to try to take that and extrapolate. As we were reflecting on it, because there's a lot of these hot segments, we thought the easiest way to understand it, even for ourselves, was to put them in a basket. We quantified that basket for the first time today. Approximately $250 million is today's sales, and we feel very good about that basket growing more than 10%. Or, yeah, I think double digit we said going into the future, which is meaningful, right, in terms of how to think about it.
Now, it's going to be the whole basket. Right now, semi is definitely spending money, and it's a global topic. It's not just the United States. It's in Europe, it's all throughout Asia, for obvious reasons, I think. We see that growing well. But you look at some of these other, like power and data centers, it's a very, very small part of the business today, but also faster growing, and then you have all the stuff in between.
Thank you.
Yeah, thanks.
Hi, guys. Jack Meehan at Operon Research . I had a couple AI-related questions for you. The first, in terms of the software business, obviously you guys are the glue of a lot of labs. You have a huge fleet of instruments out there. Can you just talk about how you think about going about monetizing that opportunity, and whether you think that could be a real driver of service growth?
You want to take it?
Yeah. I'll start first with the product and terminals and software solutions itself that you develop. Again, we're using internally a lot of tools to accelerate the development of our software solutions, leveraging AI, whether it's in coding, whether it's in documentation or in testing. That's helped us accelerate the product development and release itself. When you think about the opportunity out there, what customers are looking for is instruments and sensors that seamlessly connect into their environment and provide them with a data interface or, and data abstraction layer, that they're going to talk about LabX, for example, or terminals, that they can plug into and then use their own large language models to drive either self-driving labs or do process optimization. This is where we are extremely well-positioned with these innovations to help customers connect into digital solutions seamlessly through our products.
That's the major driver I see on the AI side from a customer perspective. They'll say internally, of course, we'll use it to accelerate development, but also build in, for example, AI solutions into our product. I mentioned, for example, iC Vision in our AutoChem business. These are clear product differentiators. We leverage AI to differentiate ourselves from our competition and have this unique value proposition to customers. We use it in the R&D products, we use it in the industrial TopK products where you have also on-edge AI solutions, for example, in the high-end terminals. We use it in product inspection. You will see some of that today. We have AI technologies to enhance our capabilities to detect foreign metals, et cetera.
And then maybe on the margin side, in terms of productivity and digitalization, these AI tools are new. Most people are really just starting to deploy, and they also cost money. I know you guys think about this probably more than anyone. Was wondering how you think about measuring kind of the ROI on the investment and whether you think that can really show up on the bottom line.
Yeah, kind of consistent with everything else we do, right? Maybe it starts with investing in digitalization is not new, right? We've been investing in the Blue Ocean program for, what is it, close to 20 years? And conveniently, we just wrapped up the last roll-ins for Blue Ocean, so there's a basket of investment for digitalization that can be shifted and reallocated. Of course, over the last few years, there has been some shifting into AI, but it's not incremental. It's just a question of how it gets allocated within that basket. But then if you think about it, we have individual use cases for AI deployment. We talk about every functional area. So what's the functions? Sales and marketing, service, finance, R&D.
Every function has its own strategy and strategic initiatives, and there's over 100 use cases, okay? And those use cases all have a business case behind them. We evaluate those business cases just like any other investment, right? And what is the strategic merit and what do we think the returns are, and how should it be prioritized? That's kind of how we're approaching it. It's very granular within the functions. How does it fit their strategies? Then it comes up to us. We have regular meetings on digitalization in terms of how do we-- Our role to monitor, but also to be involved in the prioritization of these investments, and that's how we think about it.
Hi, guys. Haroon Naz here from Evercore ISI. Maybe just one on the 100 bps margin expansion in the LRP. I guess, how much of that is broken down into gross margin versus operating leverage? I guess, what are the main drivers of that operating leverage? If you can just talk about that.
Yeah, we didn't specifically break it down. It's not going to be one for one, but it will be a combination. I think we still have if you think about the levers that are driving the operating margin in terms of more volume growth, that will help gross margin. Pricing, SternDrive, these things help gross margin as well. But we also have just a natural leverage in the organization, right, with productivity and some of these things we talk about with AI and digitalization, Blue Ocean, that gives us a little bit too. But every year is different, right? Gosh, look at the last few years.
Sometimes you get optics with currencies and tariffs that can kind of make numbers look a little bit different from year to year. But I feel like we still have runway on both, but we kind of focus on delivering that bottom line operating margin.
Okay, thank you. Maybe one on the service business. You guys mentioned the company's going to be growing, or it'll be growing faster than the company average. I guess, how do you see penetration kind of evolving over the next three to four years, maybe by like 2031, over the next five years? I guess, where do you see that penetration going and market share going overall as it grows faster than the company average?
Yeah. As I mentioned in my presentation, we have established a dedicated service growth program about two to three years ago to really make sure that we capture more of that slice. I showed also on my slide, where we cover about 1/3 of the market that we define as our serviceable market. Right now, we are a bit above $4 billion. The total market is $3 billion. We take really a target approach to go after the, I would say, most profitable part of the business. There are areas we will never cover, like academia, because they usually don't have the budgets for service contracts, et cetera, or in-house services that larger companies do sometimes, areas where we never cover.
W e think it will move over time, and we probably over the last couple of years, as we have grown on average 7% probably in that range in services, we continue to increase that slice, let's say, fractions of a percent or percent per year, and we will see that ongoing for the next couple of years. Again, don't think we will ever get to 100%. The market is just not defined that way. But when we established that program, we said, "Hey, we want to have a business case, how we should invest into more service engineers, into strategic development of service programs, and then target the markets with the right approaches to gain a larger piece of the pie.
Yep. Thanks. Robbie Bamberger from Baird. You mentioned Mettler has AI-enabled sales tools, like recommendations and digital customer engagement internally. Just using those tools, how much faster can sales grow above your essentially commercial headcount there?
Well, when I highlighted, for example, Spinnaker and TopK, these tools use AI support to, for example, develop the investment alerts and the things we give to our sales tools. To do that rapidly is super important. It's not only about finding the investment opportunities, but also driving the collateral as quickly as possible to our salespeople out there, and also giving them tool sets like the knowledge hub that we have to quickly extract the right data, I mean, to get to customers to make sure they talk about the right products and the right investments to the customers. Now, how much incremental sales that will drive is hard to determine. I think what you see is we have not really significantly enhanced our sales team worldwide, but really drive efficiencies with our sales team through these tools.
Yep. That's great. And then thinking about the 4% volume framework, I guess what's the biggest opportunity within that volume growth? Is it winning new customers, selling more products to those customers, or increasing really the value that you're adding on to all the products that you're selling? And then where are you putting the incremental sales resources?
I think just getting back to the bread and butter of normalized replacement cycles and just gaining just a little bit of market share each year through Spinnaker. That's been the formula for, I mean, I'm 29 years here, right? Since the IPO, and that's been the formula. It's worked a long time, and I still feel like as a leader in highly fragmented markets with our portfolio, we can continue to do that. What excites me is now we have all this other stuff. We haven't talked about all these new greenfield opportunities ever in the past, at least in the Western markets, not to this magnitude.
The trends that we see, automation, digitalization, it's real. We're seeing the activity. We've been investing in it for a long time. Frankly, it's hard to quantify these things, right? That's why, but stepping back, we think the 6%+ is a good way to frame the future, and that's how we're thinking about it.
On TopK, could you maybe just give more tangible examples of how it was done before versus it's done today with AI? Does it lead you to more leads or more productive leads, and how are you measuring that?
Yeah. AI builds on a lot of internal and external data sources, where in the past we have used more traditional analytics tools to combine and reflect this data and also find the data. With AI, you can use agentic AI to do web searches much faster to look for investment signs in the market. We also have, compared to the past, we have now fully connected our TopK program to our own CRM systems. In the past, this was a separate process where we created the alerts and then sent them out per email to the salespeople. Now it's an integral part of the CRM system. When we create the alerts, they go in direct to salespeople, they follow up, and they get also updates on a real-time basis.
Does that mean the rep is making X amount more calls per day and has a higher success rate? Any way to quantify?
Yeah, they had, again, biggest success rate. I think if you determine or define what is your best success rate is if you are early, as in the beginning. The faster you get these alerts to the right salespeople, and the more they are ahead of other competitors talking to customers, the higher is the win rate.
What is kind of neat is the Spinnaker program also, it points them in the right direction, gives them information about that opportunity, but it also gives them all the tools to be successful, right? That combination is really powerful. What is kind of neat is, with now large language models, we can leverage all those materials and collaterals and just make them that much more effective in front of a customer.
Then similar questions on the service side. Is it, these AI tools that they have, are they able to fix things right the first time, so they are able to call on eight customers a day instead of four customers a day?
Yes. I think on service, yes.
Yes, you are spot on. When I talked about the knowledge hub that we are using, which is a large language model for our service engineers. In the past, the service engineer would get a call from a customer. He just tried to describe the problem. He would go out there, look at the product, and then try to decide, "Do I have the right spare parts with me?" And then fix the product based on his knowledge about the product. Today, he goes out there and has a tool that is using a large language model, that looks at all the past service records, at all the internal documentation we have about these products, R&D documentation, QA/QC manuals, everything. The software actually provides him a structured approach of how we should think about fixing the product.
He will sit there and say, "Okay, I am sitting in front, lab balance, product number so-and-so. I see this issue." The software will prepare a structured plan to approach the repair of the system, or also to do an update to the system whether it may require software updates. This definitely increases the first-time fix rates, and also dramatically reduces our service times at customers. This is really unique to Mettler-Toledo. Nobody else has that access to the data that we have. If a competitor tries to fix one of our products, they cannot do it the same way as we do it.
We also use it to how we schedule them, right. You can optimize the day through digitalization and AI.
Any other questions. Well, great. With that, I guess we will go ahead and end the public webcast, and thanks for the excellent questions.