WAT
$193.50
Waters
($4.59)
(2.32%)
Earnings Details
1st Quarter March 2018
Tuesday, April 24, 2018 6:50:00 AM
Tweet Share Watch
Summary

Waters Raises Guidance but Remains In-line with Estimates

Waters (WAT) reported 1st Quarter March 2018 earnings of $1.59 per share on revenue of $530.7 million. The consensus earnings estimate was $1.55 per share on revenue of $532.7 million. Revenue grew 6.6% on a year-over-year basis.

The company said it expects 2018 earnings of $8.10 to $8.30 per share. The company's previous guidance was earnings of $8.00 to $8.25 per share and the current consensus earnings estimate is $8.18 per share for the year ending December 31, 2018.

Waters Corp is an analytical instrument manufacturer, that designs, manufactures, sells and services liquid chromatography, ultra performance liquid chromatography & mass spectrometry instrument systems & support products.

Results
Reported Earnings
$1.59
Earnings Whisper
-
Consensus Estimate
$1.55
Reported Revenue
$530.7 Mil
Revenue Estimate
$532.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

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

  • Sales of $531 million grew 7% as reported and 2% in constant currency
  • Continued sales growth in pharma and TA, partially offset by declines in other areas
  • Solid China and U.S. sales growth, somewhat offset by weakness in India
  • GAAP EPS increased 7% to $1.40; non-GAAP EPS increased 9% to $1.59
  • Board authorizes an additional $3 billion share repurchase program

MILFORD, Mass.--(BUSINESS WIRE)-- Waters Corporation (NYSE: WAT) today announced first quarter 2018 sales of $531 million, a 7% increase as reported, versus sales of $498 million for the first quarter of 2017. Foreign currency translation increased year-over-year sales growth by approximately 5% for the quarter.

On a GAAP basis, diluted earnings per share (EPS) for the first quarter increased 7% to $1.40, compared to $1.31 for the first quarter of 2017. On a non-GAAP basis, EPS for the first quarter increased 9% to $1.59, compared to $1.46 for the first 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 first quarter increased 1% to $176 million from $174 million for the first quarter of 2017. On a non-GAAP basis, adjusted free cash flow increased 2% to $160 million from $156 million for the first quarter of 2017.

Commenting on the Company’s performance, Chris O’Connell, Chairman and Chief Executive Officer, said, “Our first quarter top-line performance fell short of our expectations in a few specific areas of our business. Given that context, sales to our core pharmaceutical market, as well as sales of our TA product line, saw continued attractive growth during the quarter. Additionally, we delivered meaningful operating leverage, exceeded our earnings per share expectations, and remain confident in our business outlook.”

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

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

The Company’s recurring revenues, which represent the combination of service and precision chemistries revenues, grew 11% as reported and 6% in constant currency, while instrument system sales grew 2% as reported and declined 2% in constant currency.

Geographically, sales in Asia during the quarter grew 3% as reported and were flat in constant currency, sales in Europe grew 16% as reported and 2% in constant currency, and sales in the Americas grew 4%, while U.S. sales grew 5%.

Fiscal Year 2018 Financial Outlook

Waters Corporation reiterates its full-year 2018 guidance for constant currency sales growth in the mid-single-digit range, which it defines as 4% to 6%. As of today, currency translation is expected to increase 2018 sales growth by approximately 2% to 3%. The Company is revising its guidance for full-year 2018 non-GAAP earnings per fully diluted share to the range of $8.10 to $8.30, from the prior guidance range of $8.00 to $8.25. Please refer to the table below for a reconciliation of the projected GAAP to non-GAAP financial outlook for the full year.

Additional $3 Billion Share Repurchase Authorization

Waters Corporation also announced today that the Board of Directors authorized a new share repurchase program. This new program adds the remaining $526 million from the pre-existing program, authorizing the purchase of a total of $3.526 billion of the Company’s common stock over a three-year period.

Conference Call

Waters Corporation will webcast its first quarter 2018 financial results conference call today, April 24, 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 May 1, 2018 at midnight Eastern Time on the same website by webcast and also by phone at 203-369-0330.

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 nearly 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; 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 and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
   
 
Three Months Ended
March 31, 2018 April 1, 2017
 
Net sales $ 530,670 $ 497,969
 
Costs and operating expenses:
Cost of sales 221,421 211,095
Selling and administrative expenses 130,407 130,673
Research and development expenses 34,480 30,752
Litigation settlement (1,672 ) -
Purchased intangibles amortization 1,659 1,729
Acquired in-process research and development - 5,000
 
Operating income 144,375 118,720
 
Other income* 346 149
Interest expense, net (4,172 ) (5,382 )
 
Income from operations before income taxes 140,549 113,487
 
Provision for income taxes** 28,598 7,930
 
Net income $ 111,951 $ 105,557
 
 
Net income per basic common share $ 1.42 $ 1.32
 
Weighted-average number of basic common shares 78,883 80,073
 
 
Net income per diluted common share $ 1.40 $ 1.31
 
Weighted-average number of diluted common shares and equivalents 79,715 80,769
 

* The Company adopted new accounting guidance which requires that an employer disaggregate the service cost component from other components of net benefit cost. As a result of the adoption of this standard, the components of net periodic benefit cost other than the service cost component are included in other income in the consolidated statements of operations and all previous periods have been adjusted accordingly.

** The provision for income taxes for the three months ended March 31, 2018 includes $12 million of expense related to the tax on the change in foreign currency exchange rates on the earnings taxed in December 31, 2017 under the Tax Cuts and Jobs Act. The difference is due to the change from the foreign currency exchange rates required by the U.S. Department of the Treasury on December 31, 2017 to the foreign currency exchange rates on either the date of distribution of assets into the U.S. or the foreign currency exchange rates as of March 31, 2018.

 
Waters Corporation and Subsidiaries
Reconciliation of GAAP to Adjusted Non-GAAP
Net Sales by Operating Segment, Products & Services, Geography and Markets
Three Months Ended March 31, 2018 and April 1, 2017
(In thousands)
               
Current
Period Constant
Three Months Ended Percent Currency Currency
March 31, 2018 April 1, 2017 Change Impact Growth Rate (a)
 
NET SALES - OPERATING SEGMENT
 
Waters $ 471,146 $ 443,426 6 % $ 22,151 1 %
TA 59,524 54,543 9 % 1,715 6 %
           
Total $ 530,670 $ 497,969 7 % $ 23,866 2 %
 
 
NET SALES - PRODUCTS & SERVICES
 
Instruments $ 240,407 $ 236,393 2 % $ 9,701 (2 %)
 
Service 191,553 173,673 10 % 9,364 5 %
Chemistry   98,710   87,903 12 %   4,801 7 %
Total Recurring 290,263 261,576 11 % 14,165 6 %
           
Total $ 530,670 $ 497,969 7 % $ 23,866 2 %
 
 
NET SALES - GEOGRAPHY
 
Asia $ 200,280 $ 195,106 3 % $ 6,089 -
Americas 181,710 174,650 4 % 418 4 %
Europe 148,680 128,213 16 % 17,359 2 %
           
Total $ 530,670 $ 497,969 7 % $ 23,866 2 %
 
 
NET SALES - MARKETS
 
Pharmaceutical $ 305,328 $ 279,810 9 % $ 15,785 3 %
Industrial 162,330 161,303 1 % 6,120 (3 %)
Governmental & Academic 63,012 56,856 11 % 1,961 7 %
           
Total $ 530,670 $ 497,969 7 % $ 23,866 2 %
 
   
 

(a) The Company believes that referring to comparable constant currency growth rates is a useful way to evaluate the underlying performance of Waters Corporation's net sales. Constant currency growth rate, a non-GAAP financial measure, measures the change in net sales between current and prior year periods, ignoring the impact of foreign currency exchange rates during the current period. See description of non-GAAP financial measures contained in this release.

 
Waters Corporation and Subsidiaries
Reconciliation of GAAP to Adjusted Non-GAAP Financials
Quarters Ended March 31, 2018 and April 1, 2017
(In thousands, except per share data)
                   
Income from
Operations
Selling & Research & Operating before Provision for Diluted
Administrative Development Operating Income Income Income Net Earnings
  Expenses(a)   Expenses(a)   Income   Percentage   Taxes   Taxes   Income   per Share
Quarter Ended March 31, 2018
GAAP $ 130,394 $ 34,480 $ 144,375 27.2 % $ 140,549 $ 28,598 $ 111,951 $ 1.40
Adjustments:
Purchased intangibles amortization (b) (1,659 ) - 1,659 0.3 % 1,659 202 1,457 0.02
Litigation settlement (c) 1,672 - (1,672 ) (0.3 %) (1,672 ) (401 ) (1,271 ) (0.02 )
Stock award modification (d) (1,014 ) - 1,014 0.2 % 1,014 243 771 0.01

Restructuring costs, asset impairments, acquisition-related costs & certain other items (e)

(568 ) - 568 0.1 % 568 132 436 0.01
Tax reform (f) - - - - - (12,450 ) 12,450 0.16
Certain income tax items (g)   -     -     -     -     -     (692 )   692     0.01  
Adjusted Non-GAAP $ 128,825   $ 34,480   $ 145,944     27.5 % $ 142,118   $ 15,632   $ 126,486   $ 1.59  
 
Quarter Ended April 1, 2017
GAAP $ 132,402 $ 35,752 $ 118,720 23.8 % $ 113,487 $ 7,930 $ 105,557 $ 1.31
Adjustments:
Purchased intangibles amortization (b) (1,729 ) - 1,729 0.3 % 1,729 473 1,256 0.02

Restructuring costs, asset impairments, acquisition-related costs & certain other items (e)

(9,348 ) - 9,348 1.9 % 9,348 3,059 6,289 0.08
Acquired in-process research and development (h) (5,000 ) 5,000 1.0 % 5,000 962 4,038 0.05
Certain income tax items (g)   -     -     -     -     -     (475 )   475     0.01  
Adjusted Non-GAAP $ 121,325   $ 30,752   $ 134,797     27.1 % $ 129,564   $ 11,949   $ 117,615   $ 1.46  
     
 

(a) Selling & administrative expenses include purchased intangibles amortization and litigation provisions. Research & development expenses include acquired in-process research and development.

(b) The purchased intangibles amortization, a non-cash expense, was excluded to be consistent with how management evaluates the performance of its core business against historical operating results and the operating results of competitors over periods of time.

(c) Litigation settlement gain was excluded as these costs are isolated, unpredictable and not expected to recur regularly.

(d) The non-cash expense associated with accelerating the vesting of certain stock awards was excluded as the Company believes these expenses are not indicative of normal operating costs.

(e) Restructuring costs, asset impairments, acquisition-related costs and certain other items were excluded as the Company believes that the cost to consolidate operations and reduce overhead; the non-cash expense to record asset impairments; the cost to complete acquisitions and certain other income or expense items are not normal and do not represent future ongoing business expenses of a specific function or geographic location of the Company.

(f) The provision for income taxes for the three months ended March 31, 2018 includes $12 million of expense related to the tax on the change in foreign currency exchange rates on the earnings taxed in December 31, 2017 under the Tax Cuts and Jobs Act. The difference is due to the change from the foreign currency exchange rates required by the U.S. Department of the Treasury on December 31, 2017 to the foreign currency exchange rates on either the date of distribution of assets into the U.S. or the foreign currency exchange rates as of March 31, 2018. The impact of the tax on the change in foreign currency exchange rates was excluded as the Company believes this expense is not indicative of the Company's normal or future income tax expense.

(g) Certain income tax items were excluded as these non-cash expenses and benefits represent updates in management's assessment of ongoing examinations or other tax items that are not indicative of the Company’s normal or future income tax expense.

(h) Acquired In-Process Research and Development was excluded as it relates to milestone payments associated with a licensing arrangement for mass spectrometry that the Company believes is unusual and not indicative of its normal business operations.

 
Waters Corporation and Subsidiaries
Preliminary Condensed Unclassified Consolidated Balance Sheets
(In thousands and unaudited)
   
 
 
March 31, 2018 December 31, 2017
 
Cash, cash equivalents and investments $ 2,551,873 $ 3,393,701
Accounts receivable 502,968 533,825
Inventories 299,614 270,294
Property, plant and equipment, net 349,319 349,278
Intangible assets, net 231,733 228,395
Goodwill 362,331 359,819
Other assets 191,619 189,042
Total assets $ 4,489,457 $ 5,324,354
 
 
Notes payable and debt $ 1,247,984 $ 1,997,774
Other liabilities 1,126,579 1,092,792
Total liabilities 2,374,563 3,090,566
 
Total equity 2,114,894 2,233,788
Total liabilities and equity $ 4,489,457 $ 5,324,354
 
 
Waters Corporation and Subsidiaries
Preliminary Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2018 and April 1, 2017
(In thousands and unaudited)
         
Three Months Ended
March 31, 2018 April 1, 2017
 
Cash flows from operating activities:
Net income $ 111,951 $ 105,557

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation 9,892 8,655
Depreciation and amortization 28,640 22,950
Change in operating assets and liabilities, net   25,358     37,047  
Net cash provided by operating activities 175,841 174,209
 
Cash flows from investing activities:

Additions to property, plant, equipment and software capitalization

(15,992 ) (17,711 )
Investment in unaffiliated company (3,215 ) (7,000 )
Net change in investments   915,046     (72,338 )
Net cash provided by (used in) investing activities 895,839 (97,049 )
 
Cash flows from financing activities:
Net change in debt (749,919 ) 39,988
Proceeds from stock plans 24,287 38,259
Purchases of treasury shares (282,370 ) (89,173 )
Other cash flow from financing activities, net   1,937     (1,438 )
Net cash used in financing activities (1,006,065 ) (12,364 )
 
Effect of exchange rate changes on cash and cash equivalents   8,588     14,017  
Increase in cash and cash equivalents 74,203 78,813
 
Cash and cash equivalents at beginning of period   642,319     505,631  
Cash and cash equivalents at end of period $ 716,522   $ 584,444  
 
 
Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flow (a)
 
 
 
Net cash provided by operating activities - GAAP $ 175,841 $ 174,209
 
Adjustments:

Additions to property, plant, equipment and software capitalization

(15,992 ) (17,711 )
   
Free Cash Flow - Adjusted Non GAAP $ 159,849   $ 156,498  
     
 

(a) The Company defines free cash flow as net cash flow from operations accounted for under GAAP less capital expenditures and software capitalizations plus or minus any unusual and non recurring items. Free cash flow is not a GAAP measurement and may not be comparable to free cash flow reported by other companies.

 
Waters Corporation and Subsidiaries
Reconciliation of Projected GAAP to Adjusted Non-GAAP Financial Outlook

Projected for the Twelve Months Ended December 31, 2018

(In thousands, except per share data)
     
 
 
Range
Sales
 
Projected Constant Currency Sales Growth Rate 4 % - 6 %
 
Projected Currency Impact 2 % - 3 %
   
Projected Sales Growth Rate as Reported   6 % -   9 %
 
 
Projected Earnings Per Diluted Share Range
 
 
Projected GAAP Earnings Per Diluted Share $ 7.82 - $ 8.01
Adjustments:
Purchased intangibles amortization $ 0.08 - $ 0.08
Litigation settlement $ (0.02 ) - $ (0.02 )
Stock award modification $ 0.01 - $ 0.01

Restructuring costs, asset impairments, acquisition-related costs & certain other items

$ 0.01 - $ 0.02
Tax reform $ 0.16 - $ 0.16
Certain income tax items $ 0.04   - $ 0.04  
Projected Adjusted Non-GAAP Earnings Per Diluted Share $ 8.10   - $ 8.30  
 

Constant currency growth rates are a non-GAAP financial measure that measures the change in net sales between current and prior year periods, ignoring the impact of foreign currency exchange rates during the current period. These amounts are estimated at the current foreign currency exchange rates and based on the forecasted geographical sales in local currency as well as an assessment of market conditions as of today and may differ significantly from actual results.

These forward-looking adjustment estimates do not reflect future gains and charges that are inherently difficult to predict and estimate due to their unknown timing, effect and/or significance.

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

Source: Waters Corporation