The operator, Caspar Tudor, introduces the cautionary language for the conference call regarding forward-looking statements and non-GAAP financial measures. Udit Batra will deliver key remarks, followed by Amol Chaubal presenting more detailed results and guidance. Questions will be taken after.

The company will provide guidance on future results and potential market conditions for the third quarter and full year of 2024. They caution that actual results may differ from their expectations and refer to risk factors in their financial reports. Non-GAAP financial measures will be used and reconciliation to GAAP measures can be found on their website. The company will not update their guidance except as required by law. The CEO thanks employees for their performance in the second quarter, which exceeded expectations. Organic constant currency sales were 500 basis points higher than the previous quarter.

In the second quarter, sales declined 4% as reported and 4% in organic constant currency, but non-GAAP earnings per share exceeded expectations. Sales in China declined in the low teens, but showed improvement in all end markets. Instruments declined 17% while recurring revenue grew 5%. The acquisition of Wyatt contributed positively to sales and delivered synergies ahead of schedule in high-growth markets.

The company's operational performance has remained strong, with resilient margins and solid operating margin. They have various initiatives in place to further enhance productivity and pricing. In the second quarter, they launched a new product, the Xevo MRD, which has received positive feedback from customers and is expected to drive growth in the pharmaceutical industry.

Waters has launched the Acquity QDa II mass detector, which has a 20% enhancement in mass range and consumes less energy. It runs on Empower, allowing for seamless regulatory submission of compliance-related data. Waters is well positioned in attractive markets with secular growth drivers and has a strong portfolio for large molecule applications. They have also launched multiple innovative products to enhance their competitive edge and drive instrument replacement.

The company's Xevo TQ absolute mass spectrometer is experiencing growth in PFAS testing, and they have launched new products in bioanalytical characterization, battery testing, and clinical applications. The recent deferral of routine instrument replacement has created a catch-up opportunity, and the company expects a recovery in instrument sales due to improving funnel trends. However, they are revising their full year sales guidance to assume a more gradual pace of improvement. The company expects to deliver an adjusted operating margin of 31% and an EPS of $11.55 to $11.65.

In the second quarter, sales declined 4% on a reported basis, but showed a 5% improvement compared to the previous quarter. M&A contributed 2% to sales, exceeding expectations. FX was a 2% headwind. By end market, Pharma, Industrial, and Academic and Government all declined, but showed improvement compared to the previous quarter. Sales in Asia declined 3%, while sales in Americas and Europe both declined 7%. Instruments declined 17%, but chemistry and service both grew 5%. There was no change in the number of days versus the prior year quarter.

Despite challenges from China and lower sales volume, the company's commercial initiatives have led to robust recurring revenue growth. The service business has already achieved its goal of increasing service plan attachment and is targeting further growth. Despite headwinds, the company's focus on operational excellence has resulted in flat gross margin and a resilient margin performance. The effective operating tax rate was 16.5% and non-GAAP earnings per fully diluted share was $2.63. Free cash flow was $143 million in the second quarter and the company maintains a strong balance sheet and access to liquidity.

The company is prioritizing investing in growth and evaluating M&A opportunities. They have been deleveraging their balance sheet and plan to resume their share repurchase program. However, they are revising their full year sales guidance to account for a more gradual pace of improvement in the second half of the year. They are expecting a return to growth in the second half, but their revised guidance is for negative 2% to negative 0.5% organic sales growth. Currency translation will also negatively impact sales, but M&A contributions will partially offset this. The company is committed to maintaining operational performance and expects to build leverage in their P&L.

The company's second quarter results showcase their ability to perform well in different market conditions, thanks to their strong commercial execution and resilient operational performance. They expect their full-year gross margin to expand and their adjusted operating margin to be around 31%. They also anticipate a cautious but improving customer spending in the third quarter, with organic constant currency sales growth projected to be positive 1% to positive 3%. Their non-GAAP earnings per fully diluted share for the third quarter are estimated to be in the range of $2.60 to $2.70, despite a negative currency impact at current rates. Overall, the company remains confident in their ability to deliver solid results.

The speaker discusses the company's strong finish to the quarter, with orders exceeding revenues. They mention a change in guidance, which was expected, and clarify that their approach to guidance has not changed. They consider the facts from the quarter, historical data, and customer sentiment when making their guidance decisions.

In this paragraph, the speaker explains the company's philosophy and approach to their current sales decline. They have seen progressive improvement from Q1 to Q2, with sales declining less and orders growing faster. They have 20 years of data and have historically seen a trough of 4-7 quarters of negative growth, with Q2 being the seventh quarter. However, they are now seeing signs of recovery, especially in the LC business. The speaker has spoken with customers and believes the second half of the year will see improvement, but they have lowered their guidance for the fourth quarter as a precaution. The expected decline is not more than $50 million on a constant currency basis.

The speaker apologizes for the long answer and acknowledges that many people have the same question. They clarify that while there is no significant change in the quarter, they are being conservative with their guidance. The speaker discusses the company's ability to defend margins and their productivity initiatives. They also mention that the second half margin is relatively flat compared to last year, with some actions in place to help in Q4. The next question is about instruments, specifically LC and MS performance in Q2.

The instruments segment declined by 17% in the quarter, with LC declining by mid-teens and TA by 2%. The company expects flat growth for the back half of the year, with the LC replacement cycle starting in Q4. China performed better than expected and the company is anticipating a potential stimulus impact in 2025.

The speaker gives some facts about the decline in China's market and mentions that there has been a steady improvement in the second half of the year. They have kept the full year guide at a low double-digit decline for China and are spending time with customers to help them with the stimulus. The guidance for the back half of the year is for revenues to increase sequentially, which is out of line with normal seasonality. They also mention that operating margins will be flat in the back half of the year, but there will be a ramp in the fourth quarter.

The speaker discusses the relatively flat performance of the company in the second quarter and how it compares to the last 10 years. They also mention that the backlog built in the second quarter and the activity in the company's funnel gives them confidence for the future. The speaker then addresses the question about second half margins, stating that they will be relatively flat compared to last year. They also mention that there will be some impact on operating margins in the fourth quarter due to cost measures put in place. The speaker then briefly mentions the decline in the academic sector, stating that there is no change in assumptions for the rest of the year. The next question is about the company's focus on the CDMO channel in China and its recent weakness due to overcapacity.

Matt Sykes asks Udit Batra about the performance of the CDMO channel in China and if there will be an improvement in the back half of the year or into 2025. Batra says there has been a steady improvement in recurring activity, but CapEx is still low. He also mentions that the generics market in pharma in China is starting to improve. Amol Chaubal discusses the company's margin drivers and how they expect to expand margins in the long-term through volume leverage and reducing SG&A expenses.

The company has benefitted from a mix of recurring revenue and disciplined pricing, resulting in a margin expansion of over 100 basis points. They have also implemented productivity and operational excellence initiatives, which are expected to increase margins by 100 basis points over 8 years. These gains will be used to fund higher growth adjacencies, which will eventually lead to revenue growth and margin expansion. Despite facing volume leverage headwinds in recent years, the company was able to defend and expand margins through proactive cost actions and pricing strategies.

The company's performance in China was better than expected, with a decline of 10% in the second quarter compared to 26% in the first quarter. There was improvement across all end markets, with Pharma, Industrial, and Academic/Government seeing declines decrease from previous quarters. The decline in Academic/Government was still high at nearly 30%.

The speaker discusses the replacement cycle in China and how it has improved in the second quarter. They also mention conversations with customers and the impact of government stimulus on instrument replacement. They expect improving conditions in all end markets, particularly in Pharma and LC, and do not anticipate any significant decline in activity. The speaker also mentions that the company is prepared for potential growth in 2025, with an expected exit rate in the fourth quarter and a projected organic growth rate of 6%.

The speaker discusses the potential for a rebound in sales and orders in the fourth quarter of 2024, particularly for LC and MS products. They note that the aging fleet of instruments and signs of replacement from Chinese generic companies are positive indicators. The speaker also mentions that June has been a strong month for sales and orders, giving them confidence in an improving trend in the industry. Additionally, they mention that large pharma companies have adjusted to additional steps in the procurement process, leading to higher quality orders that are converting into sales.

The company's funnel predictability has improved, especially in large pharma. The quality of orders and funnel strength is good for the second half of the year. When LCE customers return to the market, there may be less HPLC to UPLC transitioning due to the current market conditions. However, the company is still seeing a strong trend of HPLC-to-HPLC conversions and HPLC to UPLC transitions, particularly in the biologics sector. The company's Biologics revenue has increased from 20% to 35% in the last few years.

The deliberate effort to introduce premier technology for large molecules has resulted in a transition from HPLC to UPLC. This has led to a reduction in experimental time and an increase in instrument growth. The company is well-prepared for customers to remain with HPLC, but there is a trend of transition to UPLC. The historical instrument growth pattern has shown 5% growth, with 50-70 basis points from price and 3% from volume. The remaining 1.5% comes from upselling, which can be achieved with only 7% of customers choosing an upgrade. There is confidence in this due to unmet needs and customer appreciation of newer launches. In response to a question about the momentum in June, the speaker mentioned that it has continued into July.

The speaker is confident about the momentum in the pharmaceutical industry in North America and Europe, and mentions strong customer activity in June. They also mention a robust replacement cycle and confidence in Q3 and Q4. They do not comment on July trends, but mention strong growth in China due to improved manufacturing and increased commercial presence. The speaker also notes that India has been a star performer, with over 20% growth in the quarter.

In the pharma sector, LC grew close to 50% in India, thanks to government stimulus and increased funding. Japan saw 1% growth, but at constant currency, it was flat due to the strong yen. The company has increased its commercial presence in India and it now accounts for 8% of sales. Instruments are starting to recover, but there may be changes in the mix that could affect gross margin progression.

The speaker answers a question about the potential negative impact of more instruments coming back and mentions that it is factored into their gross margin. They also discuss their plans for buyback and mention that they are actively considering options. Additionally, they mention that the Wyatt acquisition is performing well and the synergies are being delivered ahead of target.

The company saw higher growth than expected due to their focus on large molecule applications such as RNA therapy and mAbs. They are working on expanding their multi-angle light scattering technology into QA/QC with the help of their Empower software. The guidance update was conservative due to caution around the pace of recovery in their ex-China business, but they remain optimistic about their team's performance in the first 2 quarters.

Udit Batra, CEO of Waters Corporation, discusses the company's positive outlook for the rest of the year based on data from customers, history of LC replacement, and customer feedback on new products. The call concludes with thanks and a reminder of the replay availability.

This summary was generated with AI and may contain some inaccuracies.