Sartorius AG (SRT3.DE) Q3 2026 Earnings Call Transcript

Operator: Ladies and gentlemen, welcome to the Sartorius and Sartorius Stedim Biotech's 9 months 2026 results call. Please note that the call is being recorded and streamed on Sartorius website. Your participation in this implies your consent with this. A replay will be available shortly after the call. I would now like to turn the conference over to Petra Müller, Head of Investor Relations of Sartorius. Please go ahead.

Petra Müller: Yeah. Thank you operator, and hello and welcome to everybody. Joining me today are Michael Grosse, our CEO, Florian Funck, our CFO, René Faber, Head of Bioprocessing and CEO of Sartorius Stedim Biotech, as well as Alexandra Gatzemeyer, Head of Lab Products & Services. As always, we will start with prepared remarks followed by a Q&A. The call is scheduled for one hour. Please limit yourself to one question to allow as many participants as possible to take part. If time permits, we will of course, take follow-up questions at the end. Please note, that management's comments will include forward-looking statements involving risks and uncertainties. For details of the relevant risk factors, please refer to the safe harbor statement, in today's press release and also in the presentation. With that, I am pleased to hand over to our CEO, Michael Grosse. Michael, please go ahead.

Michael Grosse: Thank you, Petra, and a very warm welcome from my side as well. I am happy to report a solid set of results for the first 9 months of 2026. With both of our divisions contributing to growth. At the same time, we further improved profitability and generated strong cash flow. This allowed us to continue deleveraging and further strengthen our balance sheet, all in line with the financial priorities we outlined at the beginning of the year. Let me share some high-level views here. At the group level, we saw a solid growth during the first 9 months of the year. Looking at the divisions, the strong operational sales growth in Bioprocess Solutions was driven by a healthy recurring business and the continued recovery of the non-recurring business, which grew year-on-year. Overall, this confirms the equipment recovery we anticipated at the beginning of the year and supports our confidence in its further progression. Lab Products & Services performed particularly well and even exceeded our expectations. Growth was broad-based across the portfolio, with particularly strong momentum in our bioanalytics business and some pull forward in Q3. Here, AI-driven drug discovery workflows are becoming an an increasingly relevant growth driver, and especially our Octet platform is very well positioned to benefit from this trend and the opportunities it creates. Overall, we are very pleased with our top-line performance, especially considering that tariff surcharges shifted from a benefit to a headwind in Q3, and MatTek is now fully reflected in our organic baseline. If we strip out all tariff effects, our underlying growth actually accelerated compared with the previous quarter. Turning to profitability. Higher volumes, together with continued cost and operational discipline, keep us well on track with our profitability objectives for the group and for both divisions. The combination of profitable growth and continued discipline on working capital translated into a substantial improvement in free cash flow. As a result, we further reduced leverage and continued to strengthen our balance sheet. Overall, we are very pleased with the progress we have made so far this year. The positive momentum is based on end markets that remain fundamentally intact. We are seeing healthy pipelines and increasing research activities across our customers, which has supported demand for lab instruments and consumables. As these programs move through the pipeline, production volumes increase and so does the need for Bioprocess Solutions. In bioprocessing, customers are increasingly focused on improving productivity and efficiency while reducing cost. We saw the strong interest firsthand at our recent Process Intensification Forum in Göttingen, which brought together 130 participants from 54 biopharma companies and 30 external speakers across the industry. The discussions range from intensified upstream processing to continuous downstream manufacturing, automations, and data analytics. My key takeaway was that the industry is increasingly moving from discussing the potential of process intensification to how to implement it in practice. Sartorius is very well positioned for this transition, with technologies spanning the workflows from early process development to next-generation bioprocessing. We do not stand still on the innovation front. First, in BPS, we have expanded our portfolio with technologies that improve oxygen transfer, enabling further process intensification in upstream and ready-to-use cytokines in closed sterile bags and a new animal-component-free cell culture medium. Second, in LPS, we added an AI-powered Incucyte® module for faster label-free stem cell analysis and a new Octet® biosensor for faster antibody measurement with less sample preparation. Building on this, let me briefly turn to our outlook. We confirm our full-year guidance and continue to expect operational group sales growth around the midpoint of our 5%-9% range and an underlying EBITDA margin slightly above 30%. For BPS, our expectations remain unchanged, while we have refined our expectations for LPS following the strong nine-month performance. We will come back to the details shortly. With that, I will turn the call over to Florian for the financial highlights. Florian.

Florian Funck: Thank you, Michael, and a warm welcome also from my side. Let me start with the group's top-line performance. Overall, our top line continues to build on the positive trajectory of recent quarters. First, we are seeing sustained strength in consumables alongside continued growth in our non-recurring business. Second, growth is broad-based across all regions, with APAC performing particularly well, also supported by the continued recovery in China. Finally, our lab division showed substantial growth as the recovery continues to progress. With that backdrop, let us look at the financial results for the period in detail. As a brief reminder, we introduced operational sales growth last quarter. This measure excludes the effect of tariff refunds and the corresponding customer compensation. We do not consider this to be part of our underlying operating top-line performance. In Q3, we received an additional EUR 5 million in tariff refunds from the U.S. Treasury. This brought the amount received in the first 9 months to EUR 31 million, while we claimed approximately EUR 40 million in total. We are still expecting to receive the outstanding amount by year-end, but there is a level of uncertainty to timing, of course. Corresponding customer compensation reduced sales growth by around 120 basis points in the first 9 months. in Q3 alone, the impact was almost 60 basis points. Excluding this effect, group operational sales grew by 8.1% in constant currencies. Including it, growth was 6.9% in constant currencies. Turning to the divisions, Bioprocess Solutions continued to deliver solid, broad-based growth. Operational sales increased by 8.1% in constant currencies. Including the effect from tariff compensation to customers, growth was 6.8% in constant currencies. Performance continued to be driven by our consumables business, which delivered healthy single-digit percentage growth in the first 9 months of 2026. Consumables grew at a double-digit rate. Please be reminded that our overall consumables business was partly diluted by volatility in our advanced therapies portfolio in Q2, which is obviously included in our nine-month view. We continue to expect these ATS orders either towards the end of 2026 or in 2027. Overall, recurring business continued to benefit from healthy activity across our customers' drug development pipelines, supported by clinical trial activity, new drug approvals, and growing commercial manufacturing volumes. We were also encouraged by the ongoing recovery in the non-recurring business, which grew year-on-year. This confirms our view that the bottom is behind us and that the market continues to improve in a steady, consistent manner. Let's turn to the LPS division. LPS delivered a very strong Q3 that exceeded our expectations. Operational sales grew by 8.3% in constant currencies in the first 9 months. Including the effect from tariff compensation to customers, growth was 7.5% in constant currencies. We are clearly seeing positive underlying business trends across the LPS division. But in our view, part of the Q3 performance reflects demand pull forward and timing effects. This should be viewed in the context of a prolonged period of subdued customer investment and should therefore not to be extrapolated as a new run rate. Growth was supported by the recurring consumables and service business as well as by instruments with particular strength in analytical solutions. This was supported by improving biotech funding, rising research activity, and a gradual release of customer CapEx. Finally, MatTek contributed approximately 2 percentage points to LPS growth, performing fully in line with our expectations. Overall, we are very pleased with the top-line performance, especially considering that tariff surcharges turned from a tailwind in the first half into a headwind in Q3. The reduction in surcharges rates from around 15% last year to approximately 10% this year represented a growth headwind in Q3 of roughly 40 basis points for both the group and BPS and roughly 50 basis points for LPS. Taking this into account, our true underlying business momentum remains very solid. Let's talk about our regional performance. Overall, we saw broad-based positive development across all regions in the first 9 months of 2026. Starting with EMEA, sales increased by 6.4% in constant currencies. BPS was the main contributor, while LPS also delivered a positive performance. In the Americas, operational sales increased by 8.4% with both divisions contributing. Including tariff-related customer compensation, growth was 4.9% in constant currencies. The region was still affected by the Q2 project delays in ATS I mentioned earlier, but Q3 did not show any unusual ATS sales effects. Asia Pacific remained our strongest region, with sales up by 11% in constant currencies. Both divisions delivered double-digit growth, also supported by a continued recovery in China. Let me now turn to profitability. Overall, we continue to make good progress during the first 9 months of the year. Underlying EBITDA increased by 6.9% to EUR 828 million, while the corresponding margin expanded by 50 basis points to 30.2%. As in the first half, higher volumes and operating leverage were the main drivers of this improvement. These effects more than offset an unfavorable product mix and our continued investments in future growth areas. On a net basis, tariff surcharges and the related customer compensation balanced each other out and had no impact on profitability of the divisions and the group. Looking at the divisions, Bioprocess Solutions generated underlying EBITDA of EUR 714 million. The margin improved by 80 basis points year-on-year to 32.3%, primarily driven by higher volumes and operating leverage. In LPS Division, underlying EBITDA came in at EUR 114 million. The margin was broadly stable year-on-year, despite our continued investments in future growth initiatives. The clear sequential improvement in profitability was supported by the very strong top-line performance in Q3. Overall, we are pleased with the continuous progress in profitability, which remains fully in line with our expectations for the year. Let's move on to have a look at performance below the underlying EBITDA. Earnings as well as cash generation developed well in the first 9 months. Underlying net profits increased by around 7% to EUR 260 million, reflecting the improvement in operating profit discussed earlier. Underlying earnings per share increased accordingly to EUR 3.76 per ordinary share and EUR 3.77 per preference share. Reported net profit attributable to shareholders increased by 51% to EUR 188 million. This was primarily driven by the strong improvement in operating profit and significantly lower extraordinary expenses compared to the prior year period. Turning now to cash flow, operating cash flow increased to EUR 562 million, up around 10% year-on-year. Higher earnings and the refund of U.S. tariffs more than offset an increase in working capital. The working capital increase was basically in line with the growth of the underlying business. Free cash flow increased significantly by 55% to EUR 310 million, driven by higher operating cash flow and lower CapEx. CapEx ratio was 9.6%. While capital expenditure remained below the prior year level, we continue to invest in key strategic projects and growth initiatives. Finally, let me briefly turn to balance sheet and leverage. Strong earnings and cash generation supported further balance sheet improvement. The equity ratio that you can see on the chart increased to 42.8% from 39.8% at year-end 2025. Net debts decreased to EUR 3.68 billion, which is almost EUR 200 million less than 12 months ago, and well above EUR 60 million less than at year-end 2025. Net debt to underlying EBITDA improved to 3.3x. This shows that we are continuing to make good progress on our deleveraging path while still investing in the future growth of the business. Overall, these developments reflect our disciplined approach to capital allocation and our commitment to maintaining a strong balance sheet and solid investment-grade credit profile. Before we move on, let me briefly flag an upcoming change to our financial reporting. A new standard called IFRS 18 will become mandatory for financial years starting on or after January 1, 2027. This standard mainly changes the face of a P&L by dividing it into an operating, investing and financing part and introducing standardized subtotals. It also increases the transparency around alternative performance measures and how these reconcile with the profits shown in the P&L. Today, we calculate underlying EBITDA starting from EBIT and adding back depreciation, amortization, and adjustments. Under IFRS 18, we will start with the newly defined P&L line operating profit while the add-backs remain quite the same. Most important takeaway from this, underlying EBITDA will remain our central profit KPI and the content of this number stays consistent with recent reporting. The new presentation will also not affect net profit or net cash flow. We will disclose underlying EBITDA as a management-defined performance measure and provide a reconciliation to the closest IFRS-defined subtotal, which will be operating profit. In a nutshell, nothing changes in terms of Sartorius underlying business performance reporting. IFRS 18 mainly changes how certain line items are represented and classified mainly in the P&L and to a limited extent in the cash flow statement. With that, Michael, back to you.

Michael Grosse: Thank you so much, Florian. Now let's take a look at our full year guidance. We confirm our expectations for the group and BPS by raising them for LPS following the strong performance in the first 9 months. At the top of the slide, you see our guidance ranges for sales revenue growth. These ranges cover both our operational view and the expected development, including customer compensation related to tariffs. On an operational basis, we continue to expect growth broadly around the midpoint of our guidance ranges of 5%-9% for the group. 6%-10% for Bioprocess Solutions. For Lab Products & Services, we have raised our expectations and now expect growth around the upper end of the 2%-6% range. Including customer compensation for tariff surcharges, we continue to expect growth in constant currencies to be in the lower half of the respective guidance ranges for the group and BPS. For LPS, we now anticipate growth around the upper end of the range. As a brief reminder on tariffs, we submitted refund applications of approximately EUR 40 million. By the end of September, we had received around EUR 31 million. We are expecting the outstanding EUR 9 million to be paid by year-end, but there's a level of uncertainty to timing. On M&A contribution, no changes here. The contribution from the MatTek acquisition remains unchanged of approximately 30 basis points for the group and 1.5 percentage points for LPS. Turning to profitability. We continue to forecast an underlying EBITDA margin of slightly above 30% for the group and slightly above 32% for Bioprocess Solutions. Following the strong development in LPS, we have raised our margin expectations to slightly above 21% compared with our previous expectations of slightly below 21%. Finally, our expectations for the other key financial indicators remain largely unchanged. We have modestly lowered our full-year CapEx ratio expectation from around 12.5% to around 12%. Our expectation for net debt to underlying EBITDA of slightly above 3 times at year-end remains unchanged. Looking ahead to Q4, we continue to expect solid underlying development with further recovery in equipment and continued growth in consumables. However, Q3 benefited from some pull forward and timing effects in LPS and Q4 faces a not too easy comparison base across both divisions in absolute million EUR. In addition, MatTek is now included in the organic comparison base and tariff surcharges represent a headwind compared to a tailwind in H1. Therefore, the strong Q3 growth rates should not be extrapolated into Q4. Finally, a brief update on FX. For the full year, we currently model an FX headwind of slightly more than one percentage point on a reported revenue growth. For Q4 in isolation, however, we expect FX to turn into a tailwind of slightly below 2 percentage points. Further modeling assumptions can be found in the appendix of this presentation. Overall, our message is straightforward. Our underlying business continues to be strong. Consumables remain strong. The recovery in equipment is progressing as expected, and improved visibility reinforces our confidence in the full-year outlook. As you know, our goal is to continue to grow profitably above market. To achieve this, we are focusing on 3 key areas, our portfolio, the customer experience, and operational excellence. Put it simply, we want Sartorius to become a more customer-centric, more focused, and more efficient company. To make this happen, we are adapting our operating model and are moving forward from our divisional structure and will no longer manage the business in separate divisional silos. This also means change to the executive board responsibilities and to our external reporting structure from next financial year onward. But before we get into the details, let me first explain the key changes and why we are making them. At our Capital Markets Day, we talked about our ambition to further improve customer experience and become an even better partner for our customers. We want Sartorius to be easier to work with, better coordinated, and simpler to navigate. As our portfolio has become increasingly interconnected, customers are increasingly looking forward for complete solutions rather than only individual products. That's why we want to present Sartorius as one company with one face to the customers and easy access to our full portfolio. This is why we bring our commercial activities together under one organization. Alexandra Gatzemeyer will lead our global commercial organization as Chief Commercial Officer, responsible for account management, marketing, and customer and technical services across the group. This allows us to present Sartorius as one company with clearer customer ownership, better coordination across our portfolio, and a more consistent experience for our customers worldwide. Second priority, we discussed at the Capital Markets Day was maintaining our innovation leadership while continuously improving operational excellence. To support this, product groups are being brought together under René Fáber as Chief Product Officer, and he will be responsible for research and development, product management, technical sales, and manufacturing. This creates clear accountability and helps bring decisions closer to the business and our customers. Last but not least, we created a global operations function under my leadership. Bringing these activities together allows us establish common standards across the group, share best practices more efficiently and effectively, and further strengthen our operational excellence. Just to be clear, René will continue in his role as CEO of Sartorius Stedim Biotech, and I will continue in my role as Chairman of the Board of Directors of Stedim Biotech. With these changes, I am convinced that we have the right organization set up to deliver on our ambition of becoming a more customer-centric, more focused, and more efficient company. I also believe that we are well-positioned for our next phase of growth. In this context, we will also adjust our external reporting as of 2027 and align our segment reporting more closely with our corporate structure, taking into account our French-listed subgroups, Sartorius Stedim Biotech. The two-segment structure will comprise of 3 building blocks. The former Bioprocess Solutions division will become the Bioprocessing Solutions segment, exactly mirroring Sartorius Stedim Biotech. As a result, sales revenue and EBITDA differences previously caused by product allocations and structural considerations no longer exist, simplifying modeling for analysts covering both companies. The Lab Products & Services division will become the Research Solutions segment and comprise our business outside Sartorius Stedim Biotech. Consequently, you will also find a separate reconciliation line in our financial reporting, which primarily reflects intercompany eliminations. At the end of the day, these changes require only a limited restatement. They do not affect Sartorius Group revenues or underlying EBITDA, and the separate reporting of Sartorius Stedim Biotech remains entirely unchanged. I am sure many analysts covering both Sartorius AG and Sartorius Stedim Biotech will appreciate the modeling simplification that comes with this. We are announcing the intended reporting change early to give investors and analysts sufficient transparency and preparation time. For the 2026 full-year results, we intend to report the year under the existing segment structure and additionally provide pro forma figures for 2025 and 2026 under the new reporting structure, including a reconciliation. Our 2027 guidance will be presented on the basis of the new structure. Actual reporting under the new segment structure is scheduled to begin with the first quarter 2027 results. From that point onwards, we would no longer report the previous BPS and LPS segmentation. In summary, the adapted operating model and the planned reporting structure are both designed to support our One Sartorius approach, emphasizing customer centricity, clear portfolio focus, and a simpler reporting. For that, I am now handing over to René. René, please.

René Fáber: Thank you, Michael, and good afternoon, everyone. Looking at the first 9 months of 2026, I am very pleased with our performance. The Bioprocess Solutions business continued to develop well and broadly in line with our expectations. Demand for biologics remained robust, supporting healthy growth in our recurring business, with consumables again making the main contribution. In Advanced Therapies Solutions, underlying market activity remains encouraging, particularly in earlier stage pipelines. Our equipment business grew nicely year-on-year, confirming an ongoing recovery. Utilization rates continued to increase, triggering new equipment orders. Demand for high throughput process development systems is high, supporting healthy activity levels of our customers. I am also encouraged by the continued traction of our innovative platforms, which help customers develop processes faster and manufacture drugs in a more efficient way. What I hear from customers is that there is no way around implementing every possible innovation in manufacturing. We have launched new intensified bioreactor bag enabling to make more product in lower volumes. Interest in our Pionic® intensified downstream platform is high, and we believe our portfolio is very well positioned to support customers as they continue adopting high efficient, single-use manufacturing. Let us now turn to our financials. Starting with the top line. On an operational basis, excluding tariff-related customer compensation, sales revenue grew by 7.8% in constant currencies compared with the first 9 months of 2025. Including customer compensation, sales were up by 6.5% in constant currencies, reaching EUR 2.29 billion. Customer compensation for tariff surcharges amounted to EUR 28 million in the first 9 months, including EUR 4.5 million in Q3. Our recurring business remained an important driver of top-line growth, increasing at a healthy high single-digit rate, while consumables grew at a double-digit rate. The equipment business also continued this positive trend, supported by customer investments in process development, productivity, and faster timelines. Turning to profitability, underlying EBITDA increased by 4.8% to EUR 716 million. The margin remained robust at 31.3%, improving by 20 basis points year-over-year. Positive volume effects and operating leverage offset for development product mix. Tariff surcharges and related customer compensation balance each other out and on a net basis had no impact on profitability. Please note that underlying margin development was stronger than the reported 20 basis points. Increase suggests that as a higher brand name fee was a 25 basis point headwind compared with last year. We already discussed that one in Q1. Overall, a strong margin underscores the strength and the scalability of our business model. Looking at regions, all 3 contributed to growth in the first 9 months. EMEA maintained solid momentum with sales increasing by 6.5% in constant currencies to EUR 982 million. In the Americas, operational sales grew by 7.6% in constant currencies, including tariff related customer compensation, growth was 3.9% in constant currencies, with sales reaching EUR 783 million. The region was also still affected by the project delays in Advanced Therapies Solutions, as Florian mentioned earlier. Asia-Pacific was our strongest region, with sales increasing by 10.6% in constant currencies to EUR 524 million. This development was also supported by continued recovery in China. Overall, the regional picture remains broad-based with positive contributions from all 3 regions. Let us move to net profit and cash flow. Both developed well during the first 9 months. Underlying net profit grew by 9.4% to EUR 350 million. Underlying earnings per share increased accordingly by 9.4% to EUR 3.59. Reported net profit increased by 26.7% to EUR 277 million, supported by the improvement in operating profit and lower extraordinary items compared with the previous year period. Operating cash flow increased by 11.6% to EUR 498 million. Higher earnings and the U.S. tariff refunds more than offset the growth-related increase in working capital. Free cash flow grew strongly by 58.5% to EUR 264 million, driven by higher operating cash flow and lower capital expenditure. The CapEx ratio was 10.1% compared to 12.6% in the prior year period. We continue to invest our global research and production infrastructure while staying disciplined on how we allocate the capitals. A quick look at our balance sheet metrics. The equity ratio increased to 54.6% compared to 51.7% at the year end of 2025, reflecting our strong capital structure and earnings development. Net debt decreased to EUR 2.14 billion. The ratio of net debt to underlying EBITDA improved further to 2.26x compared to 2.38x at year end of 2025. Overall, these developments underline the very robust balance sheet position of Sartorius Stedim Biotech. It is a solid foundation to support future growth while maintaining financial flexibility and discipline. 2 quick points before we move on to our guidance. First, IFRS 18, which Florian Funck explained earlier, will of course also apply to Sartorius Stedim Biotech reporting as of Q1 2027. Second, let me also underline that the One Sartorius approach does not change the reporting of Sartorius Stedim Biotech. SSB will continue to report separately and with the same level of transparency as today. The underlying principles, governance and transparency will remain unchanged. To our guidance. Let me briefly comment on our confirmed 2026 outlook for Sartorius Stedim Biotech. On an operational basis, we continue to expect growth around the midpoint of our guiding range of 6%-10%. Including customer compensation for tariff surcharges, we expect reported growth in constant currencies to be in the lower half of this range. As a brief reminder on tariffs, we submitted refund applications of approximately EUR 35 million. By the end of September, we had received around EUR 28 million. We are expecting to receive the outstanding amount by year-end, but there is a level of uncertainty to timing. Turning to profitability, we continue to forecast an underlying EBITDA margin of slightly above 31% for the full year. Finally, we have modestly lowered our full year CapEx ratio expectation from around 13.3% to around 13%, reflecting our more focused prioritization of investment projects. Our expectation for net debt to underlying EBITDA of slightly above 2 times at year-end remains unchanged. FX headwind should be approximately 1.2 percentage points on reported revenue growth for the full year. For Q4, we expect now a tailwind of approximately 1.7 percentage points. Michael Grosse mentioned earlier, when thinking about Q4, please keep in mind that tariff surcharges will represent a headwind and that we are also facing a demanding comparison base with Q4 last year being our strongest quarter in absolute sales. Putting it all together, the underlying business remains healthy. The first 9 months give us a solid basis for the remainder of the year, and our focus now is on execution and finishing the year strongly. With that, I will hand over to the operator for the Q&A.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from Zain Ebrahim from JPMorgan. Please go ahead.

Zain Ebrahim: Hello. Zain Ebrahim, JPMorgan. Thanks for taking the question, and I will stick to one, which is just if you could provide more color on the demand trend you are seeing from customers in bioprocessing, both on the recurring side of the business and non-recurring. Specifically, how did market conditions evolve in Q3? It sounds like it is steadily getting better, Florian, from your comments, but if you could maybe elaborate on that, and I think previously you had a guidance for equipment of flat to slight growth for the year. What is your latest view there?

Michael Grosse: If we, could someone get the question in full? I did not understand fully, acoustically. Can you just quickly repeat the main points of the question? The acoustics is not brilliant.

Zain Ebrahim: Sorry. Hopefully, you can hear me clearer. It was on latest demand trends in bioprocessing on recurring and non-recurring, and how that is changing Q3, and what your latest view is on equipment for 2026 revenue growth.

Michael Grosse: Okay. Thanks, Zain, for the question. Let me take that on. I think, if we see and build on the continuation of, first of all, really a strong demand base on the volumes for the recurring business parts. We look at our core consumables specifically, we see the continuation of the first 6 months of the year as well prolonged in Q3 across the board. Secondly, I think as highlighted during the presentation, we have seen a strengthening, a progression in the recovery of the instruments and equipment business as well, quite widely across the regions. Here, I think to outline is really the specific strong demand that we see on the bioanalytics front, and as well on further desktop systems. We expect, of course, this trend to further continue. We have good visibility for the full year, particularly when it gets to the instruments and equipment side, supporting our full-year guidance as we outlined.

Zain Ebrahim: Thanks very much.

Operator: The next question comes from Charlie Haywood from Bank of America. Please go ahead.

Charlie Haywood: Hi. Charlie Haywood, Bank of America. Thanks for taking the question. It's actually on the LPS side. After obviously a very strong third quarter showing an early demand signal there, obviously appreciate there is some phasing element to that. We wanted to just understand more broadly how you see the potential opportunity here from I guess AI and AI-driven drug discovery for initially on the bioanalytics and LPS side, and then maybe longer term on the bioprocessing side. Thank you.

Michael Grosse: Okay. Thanks, Charlie, for the question. I think the LPS part of this, Alexandra will take.

Alexandra Gatzemeyer: Yes, thank you. Let me take part on, LPS drug discovery. If you think about AI-driven drug discovery, this was one of our strategic growth pillar. We was talking in the Capital Markets Day, and we already play in this area. One of the example, Michael was talking earlier in an introduction about Incucyte, for example, where we have collaboration with Nvidia, and we have AI-powered assays already on instrument. A second example, it's Octet. It's a flow BLI system where we have, it's real-time measurement, label-free. We do see this instrument participating in workflows at a customer site and, we would expect even further growth on innovations into that direction because then it's instrument, consumables, software part, and of course, services.

Michael Grosse: Thank you, Alexandra. Anything to add there, René, on the BPS side, when it gets to the, particularly the AI-driven part of this?

René Fáber: Yeah. Maybe what I think it is interesting to see, the discussions we are having with our customers who do process development. Those discussions are around how to get prepared for the increased number of drugs which are coming due to the AI development and the discovery. The expectation clearly is will help, the AI will help drug discovery to get more drugs into the manufacturing and, also increase the success rate of these drugs. And the process development people are already preparing for that, how to deal with the increased numbers. And of course, the high throughput systems like our Ambr system is exactly the solution to deal with that wave which is potentially coming.

Charlie Haywood: Thank you.

Operator: The next question comes from Matthew Weston from UBS. Please go ahead.

Matthew Weston: Thank you. As we look into 2027-2028, and we think of the likely demand for new facility fit-out, particularly in the U.S. in BPS. There is a big investor debate on whether Sartorius will lose share to your competitor with a 5,000 L-single-use bioreactor. So my question is really, where is Sartorius on scaling up your bioreactor volumes in single use? Do you think it will be a competitive advantage? And in particular, what in the Sartorius portfolio gives you confidence that you will win your fair share of the RFPs when they come?

Michael Grosse: Thank you, Matthew. This one is for René.

René Fáber: Yes. Thank you very much for the question. First of all, I think what you are saying, and this is what we also hear, customers are preparing for increase of the capacities. Customers prefer single use. Single use is often the technology of choice. Now to the volumes, what we see in our discussions, and we recently had a nice few platform wins or conversion of competitors, direct the platforms to ours due to the reason that the main driver and the main thinking of the customers is, with the improved titers from the process development and the intensification of processes, the expectation is that the volumes of 2,000 L and below covers the majority of the demands of our clients. Of course, we are watching the 5,000 L topic here. So far, we see it's rather a quick increase in capacity for these older legacy, low titer, processes, which we don't believe is the future. But we are in close in touch with customers to see what they exactly need.

Matthew Weston: Thank you.

Operator: The next question comes from Charles Pitman-King from Barclays. Please go ahead.

Charles Pitman-King: Hi, Charles Pitman-King from Barclays. Thanks very much for taking my question. My question is just also thinking about 2027-2028 dynamics as we roll forward off a strong year. Just thinking about potential benefit from this U.S. reshoring and timings compared to some peers. You previously said you expect orders over 2027,-2028, with late 2027 into 2028 orders. I'm just wondering if that remains your expectation, given what you've seen over the years so far. Also just if you can provide any further commentary around whether you think this U.S. reshoring is driven by MFN expansions or is actually more reflective of a preference to shorten supply chains post-COVID and is therefore a bit more structural. Thank you.

René Fáber: Thank you, Charles, for your question. I take that one up here. Basically, we stay in line with our indications of the way of how we look at the demand for the years 2027 and 2028 when it gets to particularly the non-recurring business and CapEx investments, from the policy changes and the regulatory demands. We, of course, have been very pleased in order to see the one other brownfield additions and CapEx demands coming from North America already during this year and the second half of this year so far. At the same time, we don't necessarily say that we would attribute that to reshoring discussions. If we take that, we still believe if we see some of the specific groundbreaking is taking place as we speak, we continue to see that the expectation on order intake is there for the later part of 2027 and then will basically spend over a longer period of time. Our judgment so far is not necessarily yet a very structural demand that comes from that. We still believe that there will be a specific regional overcapacity or global overcapacity, be the consequence of those investments. We see these investments that will come and spend through these years from 2027-2028 onwards for the coming years to build up regional capacity, particularly for the CapEx investment part.

Charles Pitman-King: Thank you very much.

Operator: The next question comes from Subbu Nambi from Guggenheim Securities. Please go ahead.

Subbu Nambi: Hey, guys. Thank you for taking my question. You've now delivered roughly 8% operational growth through the 9 months, with consumables healthy and equipment recovering. As you look into 2027, what needs to be true for Bioprocess Solutions to sustain the high single-digit growth? How much confidence do you have that equipment can still become a meaningful contributor rather than the growth primarily coming from consumables? Thank you so much.

René Fáber: Thank you for your question, Subbu. Yeah, I think at this point in time, we don't want to preempt the exciting discussions that we probably will have then in 2027. There's no need right now for us to talk about 2027 guidance. We are in the middle of our discussions in the executive team and then with the supervisory team to look at our budgets for the future. Of course, we see the momentum on the basic demand for our core consumables and broader recurring business to be robust and taking us into the year-end. Therefore, there's as well no need to believe that those trends and the underlying demand of our customers in terms of increasing volumes in their output will change. So in this respect, we think this is for sure a guiding principle into the coming year. Again, we think it is too early now as well to make a clear note about how the non-recurring business will further develop. However, of course, given the lead times, we have a bit better look here. That is the reason why we are rather confident with our projections for this year on the non-recurring side that we will see a slight growth for the full year. We see this as a progression of the normalization in that part of the business. Again, having said that, it is important to see that the demands in CapEx investments generally follow a higher degree of cycle and I would say some volatility on the basis of capacity and capacity utilization.

Subbu Nambi: Thank you so much.

Operator: The next question comes from Odysseas Manesiotis from BNP Paribas. Please go ahead.

Odysseas Manesiotis: Hi. Thank you for taking my questions. I wanted to zoom into the strength of the LPS division in Q3, please. Could you give us a sense of roughly what proportion you saw from demand coming from bioanalytics on the AI drug dev, like the Octet and Incucyte instruments, then broader LPS product demands from biotech funding, and also to what extent pull forward helped you here? Thank you.

Michael Grosse: Thank you for your question, Odysseas. This is once again Alexandra.

Alexandra Gatzemeyer: Yes. Thank you for the question. Yes, we are very happy to see our performance in these 9 months for LPS division. I think fair to say that we would not tell exact numbers of the estimation, even on a pull forward from Q4 into Q3. But definitely the performance is truly driven by consumables, so recurring revenue within LPS. So we see the bioanalytic instruments are in use and in high use at the customer site. It is a release of the CapEx by academia and biopharma, so execution of the planned projects on which we was working from the beginning of the year. That is the drivers for these 3 quarters of the performance of LPS.

Odysseas Manesiotis: Thank you.

Operator: The next question comes from Charles Weston from RBC. Please go ahead.

Charles Weston: Good afternoon. The integration of the functions from the 2 businesses is obviously a major step for the business. Can you tell us how far through this process are you, what do you think the key risks are, and what do you anticipate is the benefits? Is there a way that you will be able to report on the progress here going forwards in a quantitative manner?

Michael Grosse: Yeah. Thanks for the question. Appreciate that, Charles. I will take that on. We started to build this on a progressive basis with the new organization start in summer, and we think that now, of course, we will formalize and have a full life than in the beginning of 2027 with these new responsibilities. We are well underway, in the company in order to outline what does it mean in the new interfaces, in the interaction with the teams. We are driving workshops and alignment sessions. Overall, I think I would say the spirit and the satisfaction with the team on the new structure is there, and people have found mostly their place. Now, what does it really bring? We discussed it a bit before. The main driver is threefold. On the one hand side, we always think that structure needs to follow strategy. With our clarity that we are going to focus our strategy on the 3 pillar of products and innovation on customer centricity and operations, it is clear that we want to drive clear accountabilities, and focus areas in the new operating model with that. Secondly, we think the customers will really appreciate that step, with a very clear note of one face to the customer to provide a clear entry point, a clear coordination of all efforts, and therefore as well, a better way of coordinating and an easier way for us to interact. Last but not least, we look at our portfolio and its growing complexity always from a total workflow perspective, all the way starting from drug discovery, molecule development, process development, upstream/downstream manufacturing. Taking as well now a consistent approach for all of our product development and product management across portfolio will drive a strengthening of that path as well. Last but not least, bringing on an operational team in order to set the standards for quality, for operations, and drive in a consistent manner across the supply chain and operations framework, will support our appetite for operational excellence improvements.

Charles Weston: Thank you.

Operator: The next question comes from Thibault Boutherin from Morgan Stanley. Please go ahead.

Thibault Boutherin: Yeah. Thank you. Thibault Boutherin from Morgan Stanley. It's not clear if the tariff surcharge was refunded by all of your competitors. Do you have any customer feedback on what you did in terms of refunding these tariff surcharges? Do you see some positive outcome in your conversations with your customers?

Michael Grosse: All right. Florian will take that on.

Florian Funck: Yeah. Thibault, as you can imagine, I think it is clear that first of all, we wanted to stay true to our words, that if we are charging extra for the tariffs, there would also be refunds. Secondly, this was generally taken up very positively, of course, by the customers. Thirdly, we are currently in the process of getting these refunds out to the customers.

Operator: Then the next question comes from Harry Gillis from Berenberg. Please go ahead.

Harry Gillis: Thank you very much for taking the questions. I want to push a little bit more on what the strength from AI-driven drug discovery workflows means in practice. Is this sort of AI native companies? Is it potentially benefiting from biotech funding, or is it large pharma companies in terms of the customer category? Then is it customers running more experiments per instrument so it is higher consumables pull-through? Or is it a mixture of that and instrument purchases? Thank you. Then I think just to follow on actually, you said the pull forward or the demand was very strong, excluding the pull forward. Can you just give us any sense to get comfortable that this wasn't simply a tender effect or very large pull forward that fully washes out and it is a signal of true improving underlying demand? Thank you.

Michael Grosse: Thank you so much, Harry, for the question. Alexandra, that's for you.

Alexandra Gatzemeyer: Yes. Thank you for the question. Let me start from the answer on the last part. Fair to say, there was no big tender, what you are saying, which affects this result, like one time effect. It is rather underlying strong performance across different segments and different geographies. That is the results you can see now. Maybe to explain a little bit more on the AI-driven drug discovery on the customers and who do we see looking into these processes and looking into the instruments. It is actually currently we are, you could say, in the beginning of this journey. We see it is at biopharma customers, we see it is at academia, which are buying these instruments and running more experiments that they would run otherwise. Because you can generate more results in real time with, again, Incucyte or Octet. Then you can feed your models with this data to create proposals for new targets. Then you again need to go into the wet lab to test this target. So you actually at the moment generate more work in a wet lab through our portfolio and then testing new targets again, using the portfolio which we can offer whether through LPS portfolio or as René will say, on the bioprocess side. We see our products being purchased through our customer base. It is maybe not that much by AI companies. I hope that gives you more colors.

Harry Gillis: Great. Very clear. Could I just ask one quick follow-up? What are you seeing overall across the entire business in terms of U.S. academia and government? Thank you.

Alexandra Gatzemeyer: We see the performance maybe slightly improved, but we cannot see maybe the performance we saw years before.

Harry Gillis: Thank you so much.

Operator: The next question comes from Oliver Reinberg from Kepler Cheuvreux. Please go ahead.

Oliver Reinberg: Oh, yeah. Thanks very much for taking my question. I just wanted to talk about China. There is obviously quite some kind of progress in the R&D activities in this kind of country. So can you just talk to your market position in these kind of early-stage companies in China and how that compares to the rest of the world? Part of this discussion, can you also add to what you see generally in terms of local competition, which product groups are affected, and what kind of dynamic do you observe? Thank you.

Michael Grosse: Yeah. Thanks for the question, Oliver. I will take that on. First of all, I would say we do not necessarily see a different level, let us say, of customer segments that we are active and we are well-positioned in China compared to other countries. Secondly, I think if we look a little bit into the evolution in China and to the performance that we have seen there now recently. Of course, there is an encouragement, by the extra level of activities around the pipeline, with really fueling a lot of the demand there on consumables, but equally as well on the research side. So this I think is rather positive. We see that in, I would say on the biotech side, on the larger biopharma front, on academia and, to some degree, as well of course by the CDMOs. Overall, I would say from our expectation and from our perspective there, we see there is a healthy contribution that we have seen throughout the first half of the year and continuing in Q3. We have reasons to believe that the underlying demand there will remain looking at the approval rates, looking at the extra molecules that come on track on that.

Oliver Reinberg: Can you say a word in terms of where do you see most of the local competition?

Michael Grosse: Yeah. The local competition, yeah, I would say is not a large change in its position. I think the majority of the focus of local competitors remains in the like-for-like local market for the local production and activities in the biopharma market. It is as well in the segment mainly active, where I would say there is more comparable level of, or less differentiated demands or less differentiated product profiles.

Oliver Reinberg: Okay. Thanks so much.

Operator: The next question comes from James Vane-Tempest from Jefferies. Please go ahead.

James Vane-Tempest: Yes, thanks for taking my question. I'd just like to ask about the bioprocessing market and your position. We hear a lot about higher titers and demand for single use, but a larger CDMO recently showed some data how most of the volume for biologics is driven by relatively few products and stainless steel. Late-stage pipeline likely has lower titers than are often cited by bioprocessing players, though there's obviously some flex for hybrid setups. Essentially, could these changes take 10-15 years to play out in practice? My question is, do you agree with that view in terms of how the titers will take an awful lot longer to come through? How do you see the single-use share in the overall market, and do you see greater relative traction for you in biosimilars than originators? My follow-up, if I can, is where do you see the main areas of portfolio differentiation if portfolio intensification, for example, results in higher media demand if you don't see a way to differentiate in a 5,000 setup? Thank you.

Michael Grosse: James, thanks for the question or for the questions in this case. We'll focus maybe on maybe the first one. René, that's one for you.

René Fáber: Yeah, thank you. I try to make it simple. Of course, if you look ahead, there will be low mix, high volume products, and there will be low volume, high mix scenarios. When we look at the pipelines of the customers, what is coming, we clearly see that the low volume, high mix is coming and growing faster and will be growing faster than a few single blockbusters. Our strategy and our strength of Sartorius is to focus on this low volume, high mix scenarios where I believe with and it is clear that the titers and improvements in these processes, they are real. Customers are asking for more intensified processes to do more in single-use because the benefits are also clear in terms of cost, flexibility, sustainability. That is where we see our above-market growth. But again, the few low mix, high volume blockbusters, that is real also and will stay there. Of course, our business in this segment, we sell a lot of consumables in stainless steel facilities, so it is not irrelevant for us. But strategic focus is there where the growth above market is coming.

Operator: The next question comes from Anna Snopkowski from KeyBanc. Please go ahead.

Anna Snopkowski: Hi, this is Anna Snopkowski on for Paul Knight at KeyBanc. Thanks for taking my question. I was just wondering if you could talk to the 14% growth you saw on the Lab Products side, specifically APAC, which I think grew over 20% in Lab Products. Do you think you could just talk through what is driving this strength in APAC and how much of that growth is coming from China?

Michael Grosse: Thank you, Anna. This one is for you, Alexandra.

Alexandra Gatzemeyer: Thank you. Yes. I think we, again, pleased to see our growth in APAC. It is, again, across portfolio, across the segments. Bioanalytics, its recurring revenue is also supported by services in this region. If you think about China versus APAC, it would be fair to say that China is leading growth there, driven by our participation and R&D network within the China region. I think that would be my answer.

Anna Snopkowski: Thank you. Then maybe just one follow-up on your overall guidance and talking to that midpoint of the range. Do you think you could just walk through any of the swing factors that could get us either to the lower end or the higher end of the range, whether that is equipment recovering faster than expected or academic spend? Just anything you could highlight there.

Michael Grosse: Yeah, thanks, Anna, for the follow-up. We confirm our guidance on the basis of really seeing now enough visibility for the full year in order to stay with that statement. As well, we look at the visibility on the non-recurring business side. I think we have a very strong visibility towards the year-end. On consumables, we have a few weeks to go, but by and large, I think we feel very comfortable with the guidance on stating midpoint guidance for group and BPS and upper end for LPS.

Operator: Then the next question comes from Falko Friedrichs from Deutsche Bank. Please go ahead.

Falko Friedrichs: Thank you very much. At a higher level, how far are we from a full normalization of the equipment business? I obviously appreciate that you may not be able to provide a precise timeline, but perhaps you could share your high-level thoughts on where we currently stand. Thank you.

Michael Grosse: Yeah. Thanks, Falko. Difficult question in the sense, and again, we do not like to make judgments on something that we do not have the data on. The data tells us that we have seen this rather steady and continuous progression in the recovery of the equipment business now for the last quarters. Again, the visibility in terms of the order book backlog, opportunity pipeline, and leads pipeline, we think there is good reason to see that this is not changing dramatically from one month to the next month. To make a projection to where it will look like in 2027, we would likely to wait until we make our guidance, look at our budgets, and bring this together to the group.

Falko Friedrichs: Understood. Thank you.

Operator: And the next question comes from Delphine Le Louët from Bernstein. Please go ahead.

Delphine Le Louët: Yes. Hello. Hi, good afternoon. Congrats on the result. 2 follow-ups, please. One regarding the market and specifically what you elaborate during the CMD when it comes to the market share from the R&D and from the commercial, let's say, drugs in the market already. Have you made any progress in term of penetration to that dedicated segment? When you look forward the entire biopharma market, when do you think we are going to reach the capacity? What do you have? What can you share with us, what you have in your plan when it comes to effectively reaching this capacity? Is that for 2035? Is that for later? Is it for never? What is your plan? Second question deals with more the reorg and the impact for Stedim now that we have BPS being exactly Stedim. Can you share with us if there is anything we need to keep in mind that was at the time of the acquisition and the Stedim quotation regarding Stedim, that makes the sense in the short term to keep the company quoted in the market.

Michael Grosse: Delphine, could you please repeat the background of your last question? We didn't get that here.

Delphine Le Louët: Yeah. The last question is regarding Stedim and questioning about the fact that you have to keep, or you need to keep Stedim as a separate entity and quoted in the market now that it is completely BPS.

Michael Grosse: Okay. I will try to address that second question, if I try to understand what you are after. We will keep the setup that we are having and the legal entity of Stedim. Now, of course, we want to make that simplification to really make sure that we have one on one the same definition of the new Bioprocess Solutions segment as much as the Bioprocess Solutions segment, as much as the Sartorius Stedim Biotech perspective. In this respect, there is no need to change. Again, as you know, that we have as well established that unit that is highly under control of the AG level as well for managing capital inflows. In this respect, I think that is right now the situation. Is there anything you want to add there, Florian?

Florian Funck: Yeah, just one point. If your question, maybe it was into the direction of a delisting, this is not in the cards. We are very happy with the current situation here.

Delphine Le Louët: Okay. Thank you.

Operator: Ladies and gentlemen, as there are no more questions, I would like to turn the conference back over to Petra Müller, Head of Investor Relations.

Petra Müller: Yeah, thank you, operator. This concludes our today's call. Please reach out to the IR team in case of any open questions. Before we close, maybe one final point. As some of you may have already noticed in our financial calendar, we are making a small change to our reporting schedule. Rather than releasing preliminary figures and then publishing the annual report and the UID a few weeks later, we will publish our full year results and both reports on February 23rd. Means you will have all the complete information available on the same day. We thank you for joining us today and wish you all a pleasant rest of the day. Take care and see you next time. Operator, you may now disconnect.

Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.