Waters Corporation (NYSE: WAT) Reports Third Quarter 2018 Financial Results

Waters Corporation (NYSE: WAT) Reports Third Quarter 2018 Financial Results

• Sales of $578 million grew 2% as reported and 3% in constant currency
• All end markets contributed to sales growth
• Strong growth from China, partially offset by softness in Europe
• GAAP EPS increased 8% to $1.83; non-GAAP EPS increased 8% to $1.92

Waters Corporation (NYSE: WAT) today announced third quarter 2018 sales of $578 million, a 2% increase as reported, versus sales of $566 million for the third quarter of 2017. Foreign currency translation decreased sales growth by approximately 1% for the quarter.

On a GAAP basis, diluted earnings per share (EPS) for the third quarter of 2018 increased 8% to $1.83, compared to $1.69 for the third quarter of 2017. On a non-GAAP basis, EPS increased 8% to $1.92, compared to $1.77 for the third quarter of 2017. A description and reconciliation of GAAP to non-GAAP results appear in the table below and can be found on the Company’s website at http://www.waters.com under the caption “Investors.”

On a GAAP basis, net cash provided by operating activities for the third quarter of 2018 decreased to $146 million from $154 million for the third quarter of 2017. On a non-GAAP basis, adjusted free cash flow increased to $136 million from $134 million for the third quarter of 2017.

For the first nine months of 2018, the Company’s sales were $1,705 million, up 5% as reported, compared with sales of $1,622 million for the first nine months of 2017. Foreign currency translation increased sales growth by approximately 2% during the first nine months of 2018. On a GAAP basis, EPS for the first nine months of 2018 was up 13% to $5.21, compared to $4.63 for the first nine months of 2017. On a non-GAAP basis, and including adjustments in the reconciliation below, EPS increased 9% to $5.45, compared to $4.98 for the first nine months of 2017.

On a GAAP basis, net cash provided by operating activities for the first nine months of 2018 decreased to $423 million from $505 million for the first nine months of 2017. On a non-GAAP basis, adjusted free cash flow decreased to $439 million from $450 million for the first nine months of 2017.

Chris O’Connell, Chairman and Chief Executive Officer of Waters Corporation, commented, “While third quarter sales growth was slower than expected, we delivered meaningful operating leverage and achieved high-single-digit earnings per share growth. We are making significant progress against our growth initiatives, headlined by our efforts over the past several years to transform our innovation process that is beginning to deliver a series of next generation products to market.”

Unless otherwise noted, sales growth and decline percentages are presented on an as reported basis and are the same as the sales growth and decline percentages presented on a constant currency basis as compared with the same period in the prior year, each of which is detailed in the reconciliation of sales growth rates to constant currency growth rates below.

During the third quarter of 2018, sales into the pharmaceutical market grew 1% as reported and 2% in constant currency, sales into the industrial market grew 2%, and sales into the governmental and academic markets grew 7% as reported and 8% in constant currency. During the first nine months of 2018, sales into the pharmaceutical market grew 5% as reported and 3% in constant currency, sales into the industrial market grew 3% as reported and 1% in constant currency, and sales into the governmental and academic markets grew 11% as reported and 9% in constant currency.

During the third quarter, recurring revenues, which represent the combination of service and precision chemistries revenues, grew 4% as reported and 6% in constant currency, while instrument system sales were flat year over year. For the first nine months of 2018, recurring revenues grew 9% as reported and 6% in constant currency, while instrument system sales grew 1% as reported and were flat in constant currency.

Geographically, sales in Asia during the quarter grew 6% as reported and 7% in constant currency, sales in the Americas grew 2% (with U.S. sales flat), and sales in Europe declined 3% as reported and 2% in constant currency. For the first nine months of 2018, sales in Asia grew 6% as reported and 5% in constant currency, sales in the Americas grew 2%, with U.S. sales increasing 1%, and sales in Europe grew 7% as reported and 2% in constant currency.

Fourth Quarter and Fiscal Year 2018 Financial Outlook

Waters Corporation expects fourth quarter 2018 constant currency sales growth to be in a range of 3% to 4%. As of today, currency translation is expected to decrease fourth quarter sales growth by one to two percentage points. The Company also expects fourth quarter 2018 non-GAAP earnings per fully diluted share to be in the range of $2.55 to $2.65. Please refer to the table below for a reconciliation of the projected GAAP to non-GAAP financial outlook for the fourth quarter.

The Company is revising its full-year 2018 guidance for constant currency sales growth to be in the range of 3% to 4%, compared to the prior range of 4% to 6%. As of today, currency translation is expected to increase 2018 sales growth by approximately one percentage point. The Company is also revising its guidance for full-year 2018 non-GAAP earnings per fully diluted share to be in the range of $8.00 to $8.10, compared to the prior range of $8.05 to $8.20. Please refer to the table below for a reconciliation of the projected GAAP to non-GAAP financial outlook for the full year.

Conference Call

Waters Corporation will webcast its third quarter 2018 financial results conference call today, October 23, 2018 at 8:00 a.m. Eastern Time. To listen to the call, please visit www.waters.com, choose “Investors,” and click on the “Live Webcast.” A replay will be available through October 30, 2018 at midnight Eastern Time on the same website by webcast and also by phone at 402-998-0977.

About Waters Corporation

Waters Corporation (NYSE: WAT), the world's leading specialty measurement company, has pioneered chromatography, mass spectrometry and thermal analysis innovations serving the life, materials and food sciences for 60 years. With approximately 7,000 employees worldwide, Waters operates directly in 31 countries, including 15 manufacturing facilities, with products available in more than 100 countries. For more information, visit www.waters.com.

Non-GAAP Financial Measures

This press release contains financial measures, such as constant currency growth rate, adjusted operating income, adjusted net income, adjusted earnings per diluted share and free cash flow, among others, which are considered “non-GAAP” financial measures under applicable U.S. Securities and Exchange Commission rules and regulations. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with generally accepted accounting principles (GAAP). The Company’s definition of these non-GAAP measures may differ from similarly titled measures used by others. The non-GAAP financial measures used in this press release adjust for specified items that can be highly variable or difficult to predict. The Company generally uses these non-GAAP financial measures to facilitate management’s financial and operational decision-making, including evaluation of Waters Corporation’s historical operating results, comparison to competitors’ operating results and determination of management incentive compensation. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s operations that, when viewed with GAAP results and the reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting Waters Corporation’s business. Because non-GAAP financial measures exclude the effect of items that will increase or decrease the Company’s reported results of operations, management strongly encourages investors to review the Company’s consolidated financial statements and publicly filed reports in their entirety. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the tables accompanying this release.

Cautionary Statement

This release may contain “forward-looking” statements regarding future results and events. For this purpose, any statements that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words, “feels”, “believes”, “anticipates”, “plans”, “expects”, “intends”, “suggests”, “appears”, “estimates”, “projects”, and similar expressions, whether in the negative or affirmative, are intended to identify forward-looking statements. The Company’s actual future results may differ significantly from the results discussed in the forward-looking statements within this release for a variety of reasons, including and without limitation, foreign exchange rate fluctuations potentially affecting translation of the Company’s future non-U.S. operating results; the impact on demand for the Company’s products among the Company’s various market sectors from economic, sovereign and political uncertainties, particularly regarding the effect of new or proposed tariff or trade regulations; the effect on the Company’s financial results from the United Kingdom voting to exit the European Union; fluctuations in expenditures by the Company’s customers, in particular large pharmaceutical companies; introduction of competing products by other companies and loss of market share; pressures on prices from competitors and/or customers; regulatory, economic and competitive obstacles to new product introductions; other changes in demand for the Company’s products from the effect of mergers and acquisitions by the Company’s customers; increased regulatory burdens as the Company’s business evolves, especially with respect to the U.S. Food and Drug Administration and U.S. Environmental Protection Agency, among others; impact of the newly enacted tax reform legislation in the U.S.; shifts in taxable income in jurisdictions with different effective tax rates; the outcome of tax examinations or changes in respective country legislation affecting the Company’s effective tax rate; the effect of the adoption of new accounting standards; the ability to access capital, maintain liquidity and service the Company’s debt in volatile market conditions, particularly in the U.S., as a large portion of the Company’s cash is held and operating cash flows are generated outside the U.S.; environmental and logistical obstacles affecting the distribution of products and risks associated with lawsuits and other legal actions, particularly involving claims for infringement of patents and other intellectual property rights. Such factors and others are discussed more fully in the sections entitled “Forward-Looking Statements” and “Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission, which “Forward-Looking Statements” and “Risk Factors” discussions are incorporated by reference in this release. The forward-looking statements included in this release represent the Company’s estimates or views as of the date of this release and should not be relied upon as representing the Company’s estimates or views as of any date subsequent to the date of this release.

Waters Corporation
Bryan Brokmeier, CFA, 508-482-3448
Senior Director, Investor Relations

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