Waters(US:WAT)2023-11-07 17:59Financial Data and Key Metrics Changes - In Q3 2023, sales grew less than 1% as reported, while organic constant currency sales declined by 4% compared to the previous year [11][30] - Non-GAAP earnings per fully diluted share were $2.84, an 8% increase, while GAAP earnings per fully diluted share were $2.27 [13][37] - Gross margin expanded by 240 basis points to 59.1%, and adjusted operating margin increased by 380 basis points to 31.5% [12][19] Business Line Data and Key Metrics Changes - In the Pharma segment, U.S. pharma grew by 6% and Europe by 5%, but China saw a decline of over 30% [13][31] - The Industrial segment experienced a low-teens decline in China, while outside of China, it declined by 6% [15][31] - Academic and government sales grew low-double digits in Europe and mid-single digits in the Americas, but overall declined over 30% in China [16][32] Market Data and Key Metrics Changes - Sales in Asia declined by 12%, while the Americas remained flat and Europe grew by 3% [33] - Excluding China, Asia grew by 3%, with India growing low double digits and Japan mid-teens [33] - Overall, the academic and government segment outside of China grew by 8% [32] Company Strategy and Development Direction - The company is focusing on operational excellence and digitization, with the opening of a new Global Capability Center in Bangalore, India [20] - The long-term growth strategy includes addressing global prescription drug sales and improving pricing strategies [21][22] - The revitalized product portfolio, including significant innovations in mass spectrometry and chromatography, positions the company well for future growth [23][24] Management's Comments on Operating Environment and Future Outlook - Management noted that despite a challenging macro environment, the company delivered solid performance through strong commercial execution [10] - The outlook for China has deteriorated, with expectations of a 25% decline for the year, impacting overall growth guidance [28][41] - The company remains optimistic about long-term fundamentals in its end markets, despite current challenges [21][59] Other Important Information - Free cash flow for Q3 was $123 million, with a strong balance sheet and a net debt position of $2.2 billion [38][40] - The company has temporarily suspended its share buyback program to pay down debt from the Wyatt acquisition [40] Q&A Session Summary Question: What were the exit rates and what is the Q4 guidance implying? - Management discussed the exit rates from Q3 to Q4, noting a muted ramp compared to historical levels due to various factors including customer conversations and funnel velocities [52][54] Question: Is the decline in China done for this year or will it spill over into fiscal 2024? - Management indicated that while some pressures in China are subsiding, new challenges have emerged, and they will not comment on 2024 until the Q4 earnings call [55][56] Question: Can you provide more details on pharma trends and expectations for Q4? - Management highlighted strong growth in pharma outside of China, with expectations for continued growth despite challenges in the Chinese market [61][64] Question: What is the outlook for recurring revenue and instruments? - Recurring revenue showed mid-single-digit growth overall, while instruments experienced a decline, particularly in China [68][69] Question: What are the expectations for pricing in Q4 and 2024? - Management expects pricing to remain strong in Q4, contributing significantly to margin expansion [75][78]