Waters(WAT) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Financial Results Highlights Waters Corporation's Q2 2024 results exceeded guidance, driven by strong operational performance and M&A contribution Overall Performance Waters Corporation's Q2 2024 sales of $709 million decreased 4% but exceeded guidance, with non-GAAP EPS of $2.63 from strong operations Second Quarter 2024 Key Financials: | Metric | Q2 2024 | Q2 2023 | | :-------------------- | :------ | :------ | | Sales | $709 million | $741 million | | GAAP Diluted EPS | $2.40 | $2.55 | | Non-GAAP EPS | $2.63 | $2.80 | - Sales declined 4% as reported and 4% in organic constant currency, but exceeded guidance[3][6] - Earnings exceeded guidance, driven by strong operational performance, better-than-expected performance in China, and higher M&A contribution from Wyatt[6] Sales Performance by Market, Product & Geography Q2 2024 sales declined across most segments and geographies, with instrument systems decreasing significantly while recurring revenues grew Q2 2024 Sales Performance (YoY Change as Reported / Organic Constant Currency): | Category | As Reported | Organic Constant Currency | | :-------------------------- | :---------- | :------------------------ | | Markets: | | | | Pharmaceutical | (3%) | (4%) | | Industrial | (4%) | (4%) | | Academic & Government | (15%) | (16%) | | Products & Services: | | | | Instrument systems | (14%) | (17%) | | Recurring revenues (Service & Chemistry) | 4% | 5% | | Geography: | | | | Asia | (7%) | (3%) | | Americas | (3%) | (7%) | | Europe | (3%) | (7%) | CEO Commentary CEO highlighted strong Q2 execution, exceeding guidance with resilient margins, and expressed optimism for H2 2024 growth driven by new products - CEO stated that the team executed well to deliver Q2 results exceeding top-line and bottom-line guidance[5] - Margins remained resilient due to disciplined operational management, offsetting headwinds from volume, currency, and inflation[5] - Company expects to return to growth in the second half of the year, supported by a steady stream of innovative new products[5] Financial Guidance Waters Corporation updated its full-year and Q3 2024 financial guidance, reflecting a more gradual market improvement Full-Year 2024 Financial Guidance Waters Corporation updated full-year 2024 guidance, projecting organic constant currency sales growth of -2.0% to -0.5% and non-GAAP EPS of $11.55 to $11.65 Full-Year 2024 Sales Growth Guidance: | Metric | Range | | :-------------------------- | :-------------------- | | Organic constant currency | -2.0% to -0.5% | | Currency translation impact | ~-1.5% | | M&A contribution (Wyatt) | +1.3% | | Reported sales growth | -2.2% to -0.7% | Full-Year 2024 Non-GAAP EPS Guidance: | Metric | Range | | :-------------------- | :-------------- | | Non-GAAP EPS | $11.55 to $11.65 | | FX headwind | ~3% | - Full-year outlook reflects the potential for a more gradual market improvement in the second half of the year than previously anticipated[6] Third Quarter 2024 Financial Guidance Q3 2024 guidance anticipates constant currency sales growth of 1.0% to 3.0% and non-GAAP EPS of $2.60 to $2.70, including FX headwinds Third Quarter 2024 Sales Growth Guidance: | Metric | Range | | :-------------------------- | :-------------------- | | Constant currency | +1.0% to +3.0% | | Currency translation impact | ~-1.5% | | Reported sales growth | -0.5% to +1.5% | Third Quarter 2024 Non-GAAP EPS Guidance: | Metric | Range | | :-------------------- | :-------------- | | Non-GAAP EPS | $2.60 to $2.70 | | FX headwind | ~2% | Company Information and Disclosures This section provides details on the Q2 2024 conference call, company profile, non-GAAP measures, and forward-looking statements Conference Call Details Waters Corporation will webcast its Q2 2024 financial results conference call on July 31, 2024, with a replay available - Conference call webcast on July 31, 2024, at 8:00 a.m. Eastern Time[15] - Replay available through August 28, 2024, via webcast and phone[15] About Waters Corporation Waters Corporation is a global leader in analytical instruments and software, serving scientific fields with over 65 years of innovation and 7,500 employees - Global leader in analytical instruments and software, pioneering innovations in chromatography, mass spectrometry, and thermal analysis[16] - Serves life, materials, food, and environmental sciences for over 65 years[16] - Approximately 7,500 employees worldwide, operating directly in 35 countries, with products available in over 100 countries[16] Non-GAAP Financial Measures Explanation Non-GAAP financial measures are supplemental to GAAP, adjusting for variable items to provide a clearer view of core business performance and aid decision-making - Non-GAAP financial measures are supplemental to GAAP and adjust for specified items that are highly variable or difficult to predict[17] - Used by management for financial and operational decision-making, including evaluating historical results, comparing to competitors, and determining incentive compensation[17] - Reconciliations to the most directly comparable GAAP financial measures are included in the tables[17] Cautionary Statement Regarding Forward-Looking Statements This section warns that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from projections - The release contains forward-looking statements regarding future results and events, which are not statements of historical fact[18] - Actual future results may differ significantly due to various risks, including the impact of the Wyatt transaction, foreign currency fluctuations, global economic and political conditions, changes in inflation and interest rates, and market demand[19] - The company does not assume any obligation to update any forward-looking statements, which represent estimates or views as of the release date[20] Consolidated Financial Statements (GAAP) This section presents the company's GAAP consolidated statements of operations, balance sheets, and cash flows Consolidated Statements of Operations Q2 2024 net sales decreased to $708.5 million, with net income at $142.7 million and diluted EPS at $2.40, down from prior year Consolidated Statements of Operations (Three Months Ended): | Metric | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | | :-------------------------------- | :--------------------------- | :-------------------------- | | Net sales | $708,529 | $740,576 | | Operating income | $189,112 | $199,859 | | Net income | $142,737 | $150,554 | | Net income per diluted common share | $2.40 | $2.55 | Consolidated Statements of Operations (Six Months Ended): | Metric | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | | :-------------------------------- | :--------------------------- | :-------------------------- | | Net sales | $1,345,368 | $1,425,250 | | Operating income | $322,958 | $374,027 | | Net income | $244,933 | $291,477 | | Net income per diluted common share | $4.12 | $4.95 | Preliminary Condensed Unclassified Consolidated Balance Sheets As of June 29, 2024, total assets were $4.45 billion, with debt decreasing to $2.01 billion and stockholders' equity increasing to $1.41 billion Balance Sheet Highlights (in thousands): | Metric | June 29, 2024 | December 31, 2023 | | :-------------------------- | :-------------- | :---------------- | | Total assets | $4,449,047 | $4,626,854 | | Notes payable and debt | $2,006,009 | $2,355,513 | | Total liabilities | $3,037,080 | $3,476,513 | | Total stockholders' equity | $1,411,967 | $1,150,341 | Preliminary Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $317.4 million for H1 2024, with reduced investing activities and $326.2 million used in financing for debt reduction Cash Flow Highlights (Six Months Ended, in thousands): | Metric | June 29, 2024 | July 1, 2023 | | :-------------------------------- | :-------------- | :----------- | | Net cash provided by operating activities | $317,404 | $214,869 | | Net cash used in investing activities | $(65,859) | $(1,366,920) | | Net cash used in financing activities | $(326,213) | $998,963 | | Decrease in cash and cash equivalents | $(68,649) | $(150,836) | Reconciliation of GAAP to Non-GAAP Financial Measures This section reconciles GAAP results to non-GAAP measures, including sales, adjusted financials, free cash flow, and projected outlook Net Sales Reconciliation This section reconciles GAAP net sales to non-GAAP organic constant currency growth rates for Q2 and H1 2024, detailing currency and acquisition impacts Three Months Ended June 29, 2024 Details Q2 2024 net sales growth rates, showing impacts of currency and acquisitions Q2 2024 Net Sales Growth Rates (YoY): | Category | Reported Change | Currency Impact | Acquisitions Impact | Organic Constant Currency Growth | | :-------------------------- | :-------------- | :-------------- | :------------------ | :------------------------------- | | Total | (4%) | (2%) | 2% | (4%) | | Waters Segment | (5%) | (2%) | 3% | (6%) | | TA Segment | (2%) | (2%) | 0% | 0% | | Instruments | (14%) | (1%) | 4% | (17%) | | Service | 4% | (2%) | 1% | 5% | | Chemistry | 4% | (1%) | 0% | 5% | | Pharmaceutical Market | (3%) | (2%) | 3% | (4%) | | Industrial Market | (4%) | (1%) | 1% | (4%) | | Academic & Gov. Market | (15%) | (1%) | 2% | (16%) | Six Months Ended June 29, 2024 Details H1 2024 net sales growth rates, showing impacts of currency and acquisitions Six Months Ended June 29, 2024 Net Sales Growth Rates (YoY): | Category | Reported Change | Currency Impact | Acquisitions Impact | Organic Constant Currency Growth | | :-------------------------- | :-------------- | :-------------- | :------------------ | :------------------------------- | | Total | (6%) | (1%) | 3% | (8%) | | Waters Segment | (6%) | (1%) | 3% | (8%) | | TA Segment | (5%) | (2%) | 0% | (3%) | | Instruments | (17%) | (0%) | 4% | (21%) | | Service | 5% | (2%) | 2% | 5% | | Chemistry | 2% | (1%) | 0% | 3% | | Pharmaceutical Market | (3%) | (1%) | 4% | (6%) | | Industrial Market | (5%) | (1%) | 1% | (5%) | | Academic & Gov. Market | (20%) | 0% | 3% | (23%) | Adjusted Financials Reconciliation This section reconciles GAAP to non-GAAP financials for Q2 and H1 2024, detailing adjustments like amortization, litigation, restructuring, and retention bonuses Three Months Ended June 29, 2024 Reconciles Q2 2024 GAAP to non-GAAP operating income, net income, and diluted EPS Q2 2024 GAAP to Non-GAAP Reconciliation (in thousands, except per share data): | Metric | GAAP | Adjustments | Non-GAAP | | :-------------------------------- | :------- | :---------- | :------- | | Operating Income | $189,112 | $17,972 | $207,084 | | Income from Operations before Income Taxes | $169,412 | $17,972 | $187,384 | | Net Income | $142,737 | $13,661 | $156,398 | | Diluted Earnings per Share | $2.40 | $0.23 | $2.63 | - Key adjustments include purchased intangibles amortization ($11,744k), restructuring costs ($1,139k), and retention bonus obligation ($5,089k)[28][29][30][32] Six Months Ended June 29, 2024 Reconciles H1 2024 GAAP to non-GAAP operating income, net income, and diluted EPS Six Months Ended June 29, 2024 GAAP to Non-GAAP Reconciliation (in thousands, except per share data): | Metric | GAAP | Adjustments | Non-GAAP | | :-------------------------------- | :------- | :---------- | :------- | | Operating Income | $322,958 | $56,029 | $378,987 | | Income from Operations before Income Taxes | $284,268 | $56,029 | $340,297 | | Net Income | $244,933 | $42,591 | $287,474 | | Diluted Earnings per Share | $4.12 | $0.72 | $4.84 | - Key adjustments include purchased intangibles amortization ($23,578k), litigation provision ($10,242k), restructuring costs ($9,486k), and retention bonus obligation ($12,723k)[28][29][30][32] Free Cash Flow Reconciliation Adjusted non-GAAP free cash flow for H1 2024 was $377.3 million, significantly higher due to increased operating cash and specific adjustments Free Cash Flow Reconciliation (Six Months Ended, in thousands): | Metric | June 29, 2024 | July 1, 2023 | | :-------------------------------- | :-------------- | :----------- | | Net cash provided by operating activities - GAAP | $317,404 | $214,869 | | Additions to property, plant, equipment and software capitalization | $(64,759) | $(80,997) | | Tax reform payments | $95,645 | $72,101 | | Litigation settlements paid (received), net | $9,250 | $(750) | | Payment of Wyatt retention bonus obligation | $19,770 | — | | Free Cash Flow - Adjusted Non-GAAP | $377,310 | $239,700 | - Free cash flow is defined as net cash flow from operations less capital expenditures and software capitalization, plus or minus any unusual and non-recurring items[36] Projected Financial Outlook Reconciliation The company reconciled full-year and Q3 2024 projected non-GAAP EPS, detailing adjustments for amortization, litigation, restructuring, and retention bonuses Full-Year 2024 Projected GAAP to Non-GAAP EPS Reconciliation: | Adjustment | Impact on Diluted EPS | | :-------------------------------- | :-------------------- | | GAAP earnings per diluted share | $10.47 - $10.57 | | Purchased intangibles amortization | $0.60 | | Litigation settlement | $0.13 | | Restructuring costs and certain other items | $0.12 | | Retention bonus obligation | $0.23 | | Adjusted non-GAAP earnings per diluted share | $11.55 - $11.65 | Third Quarter 2024 Projected GAAP to Non-GAAP EPS Reconciliation: | Adjustment | Impact on Diluted EPS | | :-------------------------------- | :-------------------- | | GAAP earnings per diluted share | $2.42 - $2.52 | | Purchased intangibles amortization | $0.15 | | Retention bonus obligation | $0.03 | | Adjusted non-GAAP earnings per diluted share | $2.60 - $2.70 |