Core Viewpoint - Morgan Stanley initiated coverage of Waters Corp. with an Equalweight rating and a $423 price target, highlighting the company's strong operational performance but noting near-term uncertainties due to its latest acquisition [1] Company Performance - Waters Corp. has effectively executed its transformation priorities over the past five years, enhancing commercial capabilities and expanding into higher-growth areas [2] - Large molecule chemistry now accounts for 50% of bioseparation revenues, with ongoing advancements in LC-MS for clinical diagnostics and battery testing, both identified as high-single-digit growth drivers [2] Acquisition and Integration Risks - The planned acquisition of Becton Dickinson's Biosciences and Diagnostics businesses introduces integration risks due to the size and complexity of the assets, which are significantly larger and more diverse than previous acquisitions [3] - Successful integration will depend on Waters' ability to apply its disciplined operating model while managing the capital-spending pressures and recovery timelines of the acquired units [3] Near-term Outlook - Despite a favorable view of Waters' core business, the integration challenges associated with the acquisition limit near-term visibility, justifying the Equalweight stance [4]

Core Insights - Waters Corporation is a leading analytical instruments and software company with a market cap of $22.4 billion, specializing in high-performance liquid chromatography, mass spectrometry, and laboratory informatics [1] Performance Overview - Over the past year, Waters shares have increased by 5.8%, underperforming the S&P 500 Index, which has risen by nearly 10.5% [2] - Year-to-date in 2025, WAT stock is up 2.1%, while the S&P 500 has seen an 11.2% rise [2] Sector Comparison - Waters has also underperformed compared to the Health Care Select Sector SPDR Fund, which gained 6% over the past year and 10.1% year-to-date [3] Recent Financial Performance - On November 4, Waters reported stronger-than-expected third-quarter results, with revenue of $800 million, an 8% year-over-year increase, driven by demand in pharmaceuticals and growth in recurring revenue streams [4] - Adjusted EPS surged to $3.40, reflecting a 16% increase from the previous year, aided by improved margins and accelerated instrument replacement cycles [4] Growth Drivers - Strength in LC-MS systems, double-digit growth in chemistry, and an 11% boost in pharmaceutical end-markets contributed to the company's momentum [5] - Waters raised its full-year sales and earnings guidance, indicating confidence in demand outlook [5] - Analysts expect WAT's EPS to grow by 10.5% to $13.10 on a diluted basis for the current fiscal year ending in December [5] Analyst Sentiment - Among 15 analysts covering WAT stock, the consensus rating is a "Moderate Buy," consisting of five "Strong Buy" ratings and ten "Holds" [6] - Rothschild & Co initiated coverage on Waters with a "Buy" rating and set a price target of $390, drawing renewed attention to the stock [7]

Core Insights - The replacement cycle for instruments has been ongoing for about a year, with significant momentum observed in orders outpacing revenues [1][2] - The growth rate for LC-MS instruments remains in the high single-digit range, driven by the replacement cycle and other factors [2][3] - The industry is still in the early stages of the replacement cycle, with many customer segments yet to begin replacing their instruments [3] Group 1 - The instrument replacement cycle is expected to continue, indicating a positive trend for future growth [3] - Current growth for LC-MS instruments is characterized by a low single-digit CAGR over the past six years, suggesting room for improvement [3] - The sales funnel for instruments is strong, indicating good future demand [3]

Summary of Conference Call Company and Industry - **Company**: Waters Corporation - **Industry**: Life Sciences and Analytical Instruments Key Points and Arguments Replacement Cycle and Growth Drivers - The replacement cycle for instruments, particularly LCMS, began about a year ago and is expected to continue for several more years, with current growth rates in the high single digits [2][4] - The growth drivers for LCMS include: 1. Instrument replacement cycle, which is still ongoing [2] 2. Idiosyncratic growth drivers such as GLP-1 testing, which has seen revenues double, and PFAS testing, which has 30% order growth [3] 3. Development of new products that meet significant unmet needs in the market [3] Performance in Different Segments - Chemistry segment grew by 13% in the third quarter, significantly above the pre-COVID run rate of 6%-7% [5] - The growth in chemistry is attributed to investments in bioseparations and innovations in product offerings, particularly for biologics [6][7] - The pharma segment experienced double-digit growth driven by the replacement cycle and idiosyncratic growth drivers, particularly in the U.S. and Europe [10][11] Regional Insights - In China, growth is driven by CDMOs supporting the local biotech industry, with a significant share of global in-licensing coming from China [11] - India is experiencing high teens growth driven by generics, while branded generics in China are still declining [11] Innovation and New Products - The CDMS opportunity is highlighted as a significant unmet need in the market, with potential to capture a large share of the $350 million annual sales currently dominated by existing techniques [16][17] - New product launches include the FACS DiVa S8 flow cytometer and the FXI incubator for microbiology, both expected to drive significant growth [22][23] Software and Commercial Model Changes - The Empower software business is a critical part of Waters' portfolio, with plans to transition to a subscription model to enhance revenue [30][31] - The Empower system is used for 80% of QAQC data submissions for drugs filed to regulatory bodies, indicating its importance in the industry [30] Market Dynamics and Future Outlook - The overall market setup is positive, with continued growth expected from the replacement cycle, new product introductions, and idiosyncratic growth drivers [38] - The company anticipates that the growth rate in chemistry will stabilize in the high single digits to low double digits over time [7] Additional Insights - The company is focusing on integration planning post-acquisition, with positive surprises in microbiology workflow improvements and potential market entry strategies [26] - The pricing strategy for large molecules is expected to be stickier and more significant compared to small molecules, enhancing revenue opportunities [9] Other Important Content - The company is actively working on enhancing its product offerings and market strategies to capture unmet needs and drive sustainable growth [17][38] - There is a focus on customer adoption and integration of new technologies, which is crucial for maintaining competitive advantage in the market [17][31]

Core Insights - Waters Corporation will have its President and CEO, Udit Batra, participate in a fireside chat at the Jefferies Global Healthcare Conference on November 18, 2025 [1] - A live webcast of the event will be available on Waters' Investor Relations website, with a replay accessible for 90 days [2] Company Overview - Waters Corporation is a global leader in analytical instruments, separations technologies, and software, serving various sectors including life sciences, materials, food, and environmental sciences for over 65 years [3] - The company focuses on ensuring the efficacy of medicines, safety of food, purity of water, and quality of everyday products, employing over 7,600 individuals across more than 100 countries [3]

Core Insights - Waters Corporation has launched the Charged Aerosol Detector (CAD) designed for seamless integration with Waters Empower Software, which is widely used for regulatory submissions in the pharmaceutical industry [1][5][10] - The CAD enables near-universal detection of a wide range of analytes, including those difficult to measure with traditional methods, enhancing the capabilities of laboratories in various sectors [2][3][7] Product Features - The CAD provides sensitive and reproducible measurements of analytes with little or no UV absorption, making it suitable for characterizing small molecules, biopharmaceuticals, food additives, and environmental pollutants [3][4] - It addresses common issues faced by users of multi-vendor LC-CAD configurations, such as dropped communications, with 70% of users reporting these problems [4][7][10] - The detector is compatible with various Waters liquid chromatography systems, including the Alliance iS HPLC System and ACQUITY UPLC Systems, ensuring broad applicability [4][5] Market Position - Waters Empower Software is utilized for approximately 80% of novel drug submissions to regulatory authorities, highlighting its critical role in the pharmaceutical industry [1][10] - The introduction of the CAD reinforces Waters' commitment to providing a comprehensive range of liquid chromatography detectors that are compatible with Empower Software, enhancing the user experience and operational efficiency [5][9] Availability - The Waters Charged Aerosol Detector is currently available for pre-order, with shipments expected to begin in April 2026 [5]

Core Viewpoint - Waters Corporation reported a strong Q3 performance with sales of $800 million, an 8% year-over-year increase, exceeding market expectations for both revenue and profit [3][10]. Group 1: Pharmaceutical Market Performance - The pharmaceutical segment experienced a robust demand, achieving an 11% year-over-year growth, with double-digit increases in both the Americas and Asia, while Europe maintained a solid single-digit growth [3][10]. - The Chinese market was a key highlight, with pharmaceutical sales growing over 20% year-over-year, reflecting increased R&D investments from local CDMO and biotech companies [3][10]. - Revenue related to GLP-1 testing doubled globally, driven by the expansion of drug development and production in the Americas and Europe [3][10]. Group 2: Instrument Sales and Innovations - Instrument sales grew by 11% quarter-over-quarter, marking the best performance outside of the pandemic year of 2020, supported by a comprehensive product matrix [7][8]. - The Alliance series HPLC products saw over 300% year-over-year growth, indicating strong user recognition of the platform [8]. - The Xevo™ TQ Absolute series platform grew by 30% year-over-year, bolstered by the market introduction of the new Xevo™ TQ Absolute XR model [8][10]. Group 3: Technological Advancements - Waters is enhancing its core technological advantages in large molecule drug analysis, launching the Xevo™ charge detection mass spectrometer, which offers ten times faster analysis speed and requires only 1% of the sample volume compared to traditional methods [12][18]. - The Empower platform is being upgraded to integrate various technologies, including flow cytometry, to create a unified, compliant data environment, with cloud and AI/ML functionalities expected by 2026 [14][18]. Group 4: Strategic Integration and Long-term Growth - Waters is actively pursuing a merger with BD Biosciences and Diagnostic Solutions, expected to complete in Q1 2026, which will enhance its product portfolio and market access, particularly in high-growth areas like cancer immunotherapy and personalized medicine [17][18]. - The company aims to leverage the merger to accelerate its long-term growth strategy while maintaining high standards of innovation and operational execution [17][18].

Core Insights - Waters Corporation (WAT) reported third-quarter 2025 non-GAAP earnings of $3.40 per share, exceeding the Zacks Consensus Estimate by 5.92% and reflecting a 16% year-over-year increase [1][8] - Net sales reached $800 million, surpassing the Zacks Consensus Estimate by 2.59%, with an 8% increase year-over-year on both reported and constant currency (cc) bases [1][8] Segment Performance - The Waters segment generated sales of $713.4 million, up 9% year-over-year on both reported and cc bases, while the TA segment reported sales of $86.5 million, reflecting a 2% increase [2] - In terms of product categories, Instruments sales were $341.5 million (up 6%), Services sales were $299.9 million (up 8% reported, 7% cc), and Chemistry sales were $158.5 million (up 14% reported, 13% cc) [3] - The Pharmaceutical market generated sales of $479.8 million, increasing 12% year-over-year, while Industrial sales were $235.7 million (up 3%) and Government & Academic sales were $84.4 million (up 2%) [4] Geographic Performance - Asia generated sales of $269.7 million, up 7% reported and 13% cc, while the Americas reported sales of $292.8 million (up 5%) and Europe generated $237.4 million (up 13% reported, 5% cc) [5] Operating Details - Non-GAAP selling and administrative expenses were $179.7 million, an 8.3% increase year-over-year, while research and development expenses rose to $49.9 million (up 11.7%) [6] - The adjusted operating margin was 30.3%, contracting by 50 basis points year-over-year [6] Financial Position - As of September 27, 2025, cash and cash equivalents were $459.1 million, up from $367.2 million as of June 28, with cash from operations reported at $187.3 million and free cash flow at $159.6 million [7] Future Guidance - Waters raised its 2025 guidance for cc sales growth to between 6.7% and 7.3%, with reported sales growth expected in the 6.5%-7.1% range [9] - Non-GAAP earnings guidance for 2025 is now projected to be in the range of $13.05 to $13.15 per share, indicating year-over-year growth of over 10% to 12% on a cc basis [9] - For Q4 2025, Waters expects cc sales growth between 5% and 7%, with non-GAAP earnings projected at $4.45 to $4.55 per share, reflecting year-over-year growth of over 9% to 11% [10]

Financial Data and Key Metrics Changes - The company reported sales of $800 million for the third quarter, reflecting an 8% increase both as reported and in constant currency [23][26] - Non-GAAP earnings per share increased by 16% to $3.40, exceeding the midpoint of guidance by $0.20 [8][25] - Gross margin for the quarter was 59%, a 70 basis point sequential increase from the previous quarter [26] Business Line Data and Key Metrics Changes - Instrument sales grew by 6%, driven by high single-digit growth in the LCMS portfolio [23][25] - Recurring revenue increased by 9%, with service revenue up 7% and chemistry revenue up 13% [25][26] - Alliance iS sales grew over 300%, indicating strong customer adoption of the flagship HPLC product [9] Market Data and Key Metrics Changes - By end market, pharma sales grew by 11%, industrial sales grew by 4%, and academic and government sales grew by 1% [23][25] - Asia saw a 13% growth, while Europe and the Americas each grew by 5% [25] - In China, sales grew by 12%, driven by double-digit growth in pharma and academic sectors [25] Company Strategy and Development Direction - The company is focused on innovation and strategic expansion into high-growth areas, including bioanalytical characterization and bioseparations [7][11] - The pending combination with BD's Biosciences and Diagnostic Solutions business is expected to create significant value and synergies [21][22] - The company plans to launch a series of new products in 2026, enhancing its offerings in large molecule applications and informatics [16][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing instrument replacement cycle and the positive impact of innovation on growth [30][79] - The external environment is improving, supported by stable global trade conditions and a clearer policy backdrop for pharma customers [27][28] - The company raised its full-year 2025 guidance, expecting constant currency sales growth in the range of 6.7%-7.3% [15][28] Other Important Information - The company achieved a significant milestone with the launch of the Xevo Charge Detection Mass Spectrometer, marking a new era in mass spectrometry [17] - The FDA's new draft guidance on biosimilars is expected to increase demand for analytical instruments, aligning with the company's strategic focus [20][50] Q&A Session Summary Question: Insights on pharma strength in the Americas and China - Management noted double-digit growth in pharma across all regions, driven by the instrument replacement cycle and new product traction [35][36] Question: Thoughts on the BD transaction and revenue synergies - Management expressed confidence in achieving revenue synergies and highlighted ongoing integration planning efforts [44][49] Question: Expectations for fourth quarter guidance and pull-forwards - Management indicated no pull-forwards were observed, with orders growing more than sales, leading to a healthy backlog [57] Question: Clarification on the Empower subscription model - Management discussed the incremental upside of the Empower model, emphasizing its transition to a subscription-based service [62] Question: Update on the TA business and order funnel - Management highlighted a recovery in the TA business due to stabilizing tariffs and improving customer spending [66][68]

Financial Data and Key Metrics Changes - The company reported sales of $800 million for the third quarter, reflecting an 8% increase both as reported and in constant currency [23][26] - Non-GAAP earnings per share increased by 16% to $3.40, exceeding the midpoint of guidance by $0.20 [8][25] - Gross margin for the quarter was 59%, a 70 basis point increase from the previous quarter [26] Business Line Data and Key Metrics Changes - Instrument sales grew by 6%, driven by high single-digit growth in the LC-MS portfolio [25] - Recurring revenue increased by 9%, with service revenue up 7% and Chemistry revenue up 13% [25][26] - Chemistry products saw a significant boost, with new product launches contributing to a 13% growth in the segment [12][25] Market Data and Key Metrics Changes - By end market, Pharma grew 11%, Industrial grew 4%, and Academic and Government grew 1% [23][25] - Asia experienced a 13% growth, while Europe and the Americas each grew by 5% [25] - In China, sales grew by 12%, driven by double-digit growth in Pharma and Academic & Government sectors [25] Company Strategy and Development Direction - The company is focused on innovation and expansion into high-growth areas, including bioanalytical characterization and bioseparations [7][11] - The pending combination with BD's Bioscience & Diagnostic Solutions business is expected to create significant value and synergies [21][22] - The company plans to launch a series of new products in 2026, enhancing its competitive position in the market [16][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing instrument replacement cycle and the potential for sustained growth driven by innovation [30][77] - The external environment is improving, with more stable global trade conditions and a clearer policy backdrop for Pharma customers [27][30] - The company raised its full-year 2025 guidance, expecting constant currency sales growth in the range of 6.7%-7.3% [15][28] Other Important Information - The company is seeing strong demand for GLP-1 testing and PFAS testing, which are key growth drivers [9][10] - The integration planning for the BD transaction is progressing rapidly, with a focus on achieving synergies [21][22] Q&A Session Summary Question: Can you provide more color on Pharma strength in the Americas and China? - Management noted double-digit growth in Pharma across all regions, driven by the success of the replacement cycle and new product traction [35][36] Question: What are your thoughts on the BD transaction and revenue synergies? - Management expressed confidence in achieving revenue synergies and highlighted the integration planning efforts underway [44][49] Question: Can you clarify on the fourth quarter guidance and any pull-forwards? - Management indicated no pull-forwards were observed, with orders growing more than sales, leading to a healthy backlog [56][57] Question: How do you see the biosimilar opportunity evolving? - Management is optimistic about the shift towards analytical testing for biosimilars, which aligns with the company's strategy [50][51]