WATERS CORP /DE/ Q3 FY2024 earnings call

Key Remarks - Strong Results: Revenue, margin, and EPS significantly ahead of expectations. Instruments turned positive after seven quarters of decline, recurring revenue grew high single digits. - Innovation: New product launches like high-throughput rapid scan calorimeter and TA Instruments compact Discovery Rheometer. Progress in bioseparations with 40% of pharma chemistry revenue from large molecules. - Operational Excellence: Gross margin expanded 20 basis points to 59.3%, operating margin 30.8%. Focus on productivity, cost management, and pricing for future margin expansion. - Market Position: Well-positioned in attractive markets driven by GLP-1 adoption, PFAS testing, drug development, and aging population. Deferred instrument replacement creates catch-up opportunity.

In the third quarter, sales grew 4% as reported and 4% in constant currency. By product segment: Instruments grew 1%, chemistry grew 8% (led by 8% growth in chemistry consumables portfolio), and service grew 6%. By end market: Pharma grew 3%, Industrial grew 7%, and Academic and Government was flat. By geography: All three reported regions returned to growth, with mid-single digit sales growth in Asia and Europe, low single-digit growth in Americas. Excluding China, sales grew 5%, while China sales declined mid-single digits but were expected to return to positive growth in Q4 2024.

Full Year 2024 - Updated organic constant currency sales growth guidance: negative 0.9% to negative 0.3%. - Adjusted EPS guidance range: $11.67 to $11.87, midpoint showing slight positive growth. - Fourth quarter: Constant currency sales growth projected 5%-7%, reported sales growth 3.3%-5.3%. - Long-Term: Above historical average growth rate of 6% driven by volume growth drivers and catch-up in deferred instrument replacement.

• Market Dynamics: Uncertainty in market conditions affecting instrument replacement cycle and customer CapEx spending. - Foreign Exchange: Impact on reported sales growth and earnings due to currency fluctuations. - Competitive Landscape: Intense competition in the industry affecting market share and pricing.

Q: Tycho Peterson on replacement cycle, PEA module, and future drivers A: Udit Batra and Amol Chaubal discuss replacement cycle beginning, ARC vs Alliance iS, PEA module early days, and future drivers like patent expirations, GLPs, and catch-up in instrument replacement.

Q: Brandon Couillard on end markets beating expectations and China stimulus A: Udit Batra talks about all end markets beating expectations, Q4 guidance based on continuing trends, and China stimulus converting to orders with first signal seen.

Q: Puneet Souda on instrumentation growth, consumables sustainability A: Udit Batra and Amol Chaubal discuss instrumentation growth based on QA/QC position, generics, and new products, and consumables recurring revenue sustainability due to Swiss clock-like stability.

Q: Vijay Kumar on competitive dynamics and guidance assumptions A: Udit Batra and Amol Chaubal talk about winning more than losing, market-leading portfolio, and guidance assumptions being prudent and based on historical ramps.

Q: Dan Brennan on PFAS, GLP-1 size and contribution A: Amol Chaubal and Udit Batra discuss PFAS and GLP-1 contributing 30-40 basis points of growth, with PFAS spilling into new areas and GLP-1 driven by prescription volumes and CapEx.

Q: Matt Sykes on instrument recovery slope and China medium-term growth A: Udit Batra talks about instrument recovery slope based on funnels, customer conversations, and China medium-term growth as mid-single digit with potential to outgrow.