The paragraph introduces the Waters Corporation Fourth Quarter 2024 Financial Results Conference Call, led by Caspar Tudor, Head of Investor Relations. Participants will primarily listen until the Q&A session. The call includes Dr. Udit Batra, the President and CEO, and Amol Chaubal, the Senior Vice President and CFO. Caspar Tudor mentions that the call will include forward-looking statements about future events and financial performance, with the actual outcomes potentially differing. These statements include guidance on the first quarter and full year of 2025. The call will reference non-GAAP financial measures, with reconciliations available on their website. All results mentioned refer to comparisons with the fourth quarter of 2023, focusing on organic constant currency revenue growth rates and ranges.

In the second paragraph of the article, Udit Batra discusses the company's strong performance in the fourth quarter of 2024, highlighting high single-digit constant currency revenue growth and low teens adjusted EPS growth. He attributes this success to the company's innovative spirit and strategic focus on the analytical instruments and systems market, which is showing signs of recovery. Particularly, sales in the Pharma sector, the company's largest market, grew by low double digits. Batra emphasizes the alignment of the company's portfolio with customer needs, pointing to opportunities in high-volume testing areas such as GLP-1, PFAS testing, and the generics market in India. He expresses optimism for continued growth into 2025 and presents the fourth quarter sales growth as evidence of the company's strong position as customer capital expenditure and instrument replacement begin to rise.

In the reported period, the company experienced strong sales growth across all regions, with instruments outperforming expectations and recurring revenues improving. A significant quarter-over-quarter revenue increase was noted, supported by operational excellence and resulting in a non-GAAP EPS of $4.10, reflecting a 13% growth, and 22% growth when excluding FX impact. The full year saw sales flat in organic constant currency terms, but recurring revenue showed resilience with a 6% growth despite FX challenges. The fourth quarter displayed strong growth, notably in the Pharma and Academic markets, with sales in Pharma increasing by 10%, driven by robust performance in Europe and Asia, while the non-pharma segment grew by 6%.

The paragraph highlights strong growth and performance in various geographic regions and product segments. Europe, Asia, and America experienced sales growth, with Europe leading at 11%. Notably, China returned to positive sales growth. The company's strong outcomes are attributed to commercial focus, disciplined execution, and successful new product launches. The Alliance iS boosted liquid chromatography sales, while the Xevo TQ Absolute mass spectrometer drove significant growth in PFAS testing and clinical applications. PFAS revenue grew over 40% in the fourth quarter, with the global market expanding at 20% annually. Additionally, clinical revenue increased in the low-teens, supported by the popularity of the Xevo TQ Absolute.

The paragraph discusses the growth and success of a chemistry consumables business, highlighting their newer columns for separating large, complex molecules. Sales of Max Premier columns increased significantly, contributing to a rise in large molecule applications, which now account for 40% of the pharma chemistry revenue. The company's service team has improved service plan adoption, with over 50% of the active installed base covered, and received high satisfaction scores. Additionally, Waters capitalized on high-volume testing opportunities in novel areas like GLP-1 and PFAS testing, food and environmental testing, and India's expanding generic drug market, which are expected to contribute to growth. Despite facing challenges such as foreign exchange, inflation, and incentive compensation normalization, the company performed well against growth expectations and anticipates continued growth in these areas.

In the fourth quarter, the company successfully mitigated currency headwinds, improving adjusted operating margin despite significant FX impacts. Over the year, they increased the operating margin, closing at 31%, even after currency-related challenges. Looking forward, the company expects an uptrend in instrument growth following past down cycles, with growth anticipated to exceed historical averages. Currently, instrument growth is at 2% annually over five years, due to recent macroeconomic conditions affecting customer spending. However, a catch-up in growth is expected as deferred instrument replacement occurs. Long-term growth is anticipated to surpass the historical 5% average, driven by higher volumes, new applications, and better pricing. Waters is poised for growth as the market recovers, along with new commercial initiatives to be discussed at the upcoming Investor Day. For 2025, customer spending recovery in analytical instruments is expected to continue.

The paragraph outlines the company's strong financial performance and future outlook. The team is executing well, capitalizing on a refreshed portfolio and an increase in instrument replacement. Despite foreign exchange challenges due to a strong U.S. dollar, the company expects robust operational performance to sustain margin growth through 2025. The guidance for full-year 2025 sales growth is between 4.5% and 7%, with earnings per share estimated at $12.70 to $13. This represents a non-GAAP growth of 7% to 10% compared to 2024, despite a 4% foreign exchange headwind. Amol Chaubal reports that the fourth quarter ended strongly, with sales of $873 million, growing 6% as reported and 8% in constant currency, outperforming previous guidance. Pharma, Industrial, and Academic and Government sectors showed significant growth, especially in the Pharma segment across Asia, Europe, and the Americas.

The paragraph highlights the company's industrial growth, led by the TA division with significant contributions from batteries, advanced materials, and chemical testing. The Waters division saw over 40% growth in PFAS-related applications. Academic & Government sectors experienced strong growth, particularly in Asia and Europe. Geographically, all regions reported growth, with Europe at 11%, Asia at 9%, and the Americas at 6%. Instrument sales grew by 8%, while recurring revenue saw increases in chemistry and service. Full-year results showed sales of $2.96 billion, with Pharma growing slightly, Industrial flat, and Academic & Government declining by 7%. Europe grew by 2%, while both the Americas and Asia declined by 1%. The U.S. dollar significantly strengthened in the fourth quarter.

The company effectively managed operational aspects like pricing, productivity, and costs, enabling it to counteract negative impacts and achieve a quarterly gross margin of 60.1% and a full-year margin of 59.4%. Gross margin improved by 60 basis points for the quarter and 80 basis points for the year when excluding foreign exchange (FX) effects. Adjusted operating margins also grew, despite FX challenges and normalized incentive compensation, reaching 35.5% for the quarter and 31% for the year. Non-GAAP earnings per share increased 13% to $4.10 for the quarter, at the high end of projections. Full-year non-GAAP EPS increased by 1% to $11.86, impacted by a 5% decline due to FX. GAAP EPS was $3.88 for the quarter and $10.71 for the year. The effective tax rate was 16.9% for the quarter and 16.4% for the year. Free cash flow for Q4 2024 was $188 million, and $744 million for the year, representing 25% of sales. The company also purchased a $13 million manufacturing facility in Colorado, contributing to its capital expenditures.

The company has reduced its net debt significantly, nearing levels before the Wyatt acquisition, and has made substantial debt repayments in 2024. The strong balance sheet and liquidity allow for investment in growth, including potential M&A opportunities and a possible resumption of the share repurchase program in 2025. Customer spending is recovering, particularly in analytical instruments, and the company anticipates continued positive trends and strong results in 2025, with constant currency sales growth projected at 4.5% to 7%. Due to currency translation effects, reported sales growth is expected to be 2.5% to 5%. The company plans to mitigate foreign exchange impacts through robust operational performance, aiming for a gross margin of 59.6% and an adjusted operating margin of 31.2% in 2025.

The paragraph discusses financial projections and performance expectations for 2025, highlighting a projected earnings growth of 7% to 10% on a non-GAAP basis, despite a 4% headwind from unfavorable foreign exchange. The company expects net interest expenses of around $46 million and a consistent tax rate of 16.5%. First-quarter sales growth is forecasted at 1% to 4%, after accounting for currency translation effects and fewer business days compared to the previous year. The full-year diluted earnings per share are projected between $12.70 and $13. The CEO, Udit Batra, reflects positively on the achievements of 2024 and expresses optimism for 2025, citing strong sales, operations, and strategic growth initiatives as reasons for excitement.

The paragraph features a Q&A segment where Tycho Peterson from Jefferies asks Udit Batra about budget dynamics and the replacement cycle within the company. Udit states that 2024 felt typical in terms of budget flush, with a notable increase from Q3 to Q4, driven by strong sales at year's end. Regarding the replacement cycle, Udit mentions strong year-end performance, highlighted by significant instrument growth. Tycho also inquires about the company's capital allocation strategy, asking about the preference between share repurchases and mergers or acquisitions, and the potential for larger deals and leverage limits.

The paragraph discusses a strong performance in the HPLC sales, highlighting that Alliance iS now makes up 20% of those sales. The Pharma segment experienced double-digit growth, driven by large pharma's initiation of replacement cycles, momentum in contract development and manufacturing organizations (CDMOs), and robust performance in India's generics market, mainly due to the focus on QA/QC in manufacturing. The company is optimistic about its instrument replacement cycle and future prospects, supported by a strong new portfolio like Alliance iS. Amol Chaubal then emphasizes the company's financial discipline regarding capital allocation, aiming for assets that align with value acceleration goals, ensuring they are EPS accretive with a high single-digit return on invested capital (ROIC) within five years. A question from Vijay Kumar at Evercore ISI follows, but the paragraph concludes by characterizing Tycho as a "friendly crazy scientist."

The paragraph discusses the guidance and financial outlook of a company, indicating growth expectations despite potential macroeconomic risks like tariffs and spending cuts in agencies. Udit Batra, after showing support for the Eagles, highlights that the company ended the year with strong growth in the pharmaceutical sector and other areas, driven by new products such as the Alliance iS and HPLC Xevo TQ Absolute. These new offerings are contributing significantly to revenue and are aligned with emerging market needs. The company expects its recurring revenues to maintain their growth rate of 6% to 7% through various economic cycles, aiming for overall growth guidance of 4.5% to 7%. Instrument sales need to grow around 4% to 4.5%, supported by a replacement cycle in large pharma, strong sales funnels, and excitement about the new product portfolio.

The paragraph discusses optimistic trends in the pharmaceutical and CDMO sectors, with new products gaining traction and expectations to meet and exceed the lower end of their guidance at 4.5% due to these positive developments. Udit Batra highlights the performance of specific components like GLP-1 and PFAS, indicating a solid contribution to growth, with GLP-1 maintaining strong market positions and PFAS contributing 60 basis points this year and an expected 30 basis points for 2025. Additionally, India showed significant growth, with over 30% growth in Q4 and over 25% for the full year on a constant currency basis.

The paragraph discusses the expected growth rates for India and China, noting India's contribution of 70 to 100 basis points and China's low single-digit growth, potentially boosted by stimulus. Amol Chaubal and Puneet Souda discuss the first quarter guidance of 4% to 7% growth, which is wider than usual due to uncertainties such as recent NIH cuts and academic institutions freezing instrumentation. The guidance accounts for fewer business days in Q1 compared to Q4, which had extra days contributing to an 8% constant currency growth. The company has adopted a cautious approach given the uncertainties and smaller size of Q1.

The paragraph discusses financial guidance and market dynamics for Waters Corporation. It mentions that if certain sales expectations are met, the company will be at the lower end of its guidance range, and if not, the higher end, with currency fluctuations creating a 7% earnings headwind in Q1. Despite modest EPS growth expectations, Waters intends to invest in sales training and new product traction during this period, emphasizing growth. Udit Batra highlights strong growth in key markets, such as Europe and India, with India's Q4 showing a 34% constant currency growth and 27% for the year. Puneet Souda asks about specific dynamics and opportunities, like the patent cliff in India, and Batra expresses optimism about both markets.

The paragraph highlights India's significant contribution to Waters, accounting for over 8% of total sales, and emphasizes the company's strong market leadership and service attachment in India's generics market. With a large opportunity due to upcoming patent expirations worth $240 billion in revenues, Waters is well-positioned to capitalize on the genericization of small molecules and biosimilars. Additionally, the top generics players are collaborating with Waters on process adaptation. In Europe, the company is experiencing robust growth across various sectors, with 11% overall growth and strong performances in Pharma, Industrial, and Instruments. The European team is effectively leveraging growth opportunities like PFAS and GLP-1s, and the academic segment saw a budget flush at the year's end.

The paragraph discusses the instrument replacement cycle in the industry, highlighting two key growth drivers. One is the pent-up demand for replacements, which was deferred from the 2023-2024 timeframe due to a previous down cycle. This cycle typically results in a 2% to 3% increase in instrument growth rates compared to a long-term average of 5%. The replacement cycle is evident when customers have multi-year replacement plans, involving larger meetings with procurement and IT departments. The conversation also touches on the remaining replacement opportunities, specifically mentioning China's market.

The paragraph discusses the ongoing efforts of lab managers and industry members in replacing deferred instruments from the 2018-2020 period, with 15% still pending due to a slowdown in the macro cycle during 2023 and 2024. This progress is diligently tracked in the CRM system. Additionally, it touches on China's market conditions, expecting low single-digit growth due to muted stimulus effects, with potential for more dynamic growth if conditions change. The conversation also involves pricing strategy, clarifying a 200 basis point contribution to growth for the fourth quarter and expectations for 2025, emphasizing that quoted pricing is based on like-for-like SKU and geography, excluding upsell benefits.

The paragraph features a discussion between Brandon Couillard from Wells Fargo and Udit Batra. Brandon inquires about the growth of instrument segments such as liquid chromatography (LC), mass spectrometry (mass spec), and light scattering. Udit responds that all three are experiencing mid-single-digit growth, with light scattering showing nearly double-digit growth, though it is a small segment. Udit also mentions that all instrument segments grew at least at high single-digit rates by the year's end. Additionally, the market opportunity for PFAS (per- and polyfluoroalkyl substances) has increased to $400 million due to expanding applications beyond the environmental sector, including food testing and academic research, resulting in a dynamic, unmet market need.

The paragraph discusses the company's significant growth, driven primarily by their advanced PFAS testing instrument, the Xevo TQ Absolute, which accounts for 50% of their revenue in quantitative Mass Spec. This instrument is noted for its sensitivity and low environmental footprint, making it popular among customers. Additionally, their compliant informatics software, waters_connect, is performing well in regulated settings due to its strong data integrity features. The company is also continually developing new chemistry and workflows to address the complexity of different PFAS molecules. Overall, the market is expanding due to increasing application sets, and the company feels positive about their position. Dan Arias from Stifel then asks about future capacity needs in labs for water testing in the US.

The speaker, Udit Batra, discusses the early stages of scaling up PFAS testing labs in the U.S. for water testing, highlighting that the process involves multiple segments including academic, public health, and contract testing labs, as well as those involved in PFAS remediation. Despite being in the early phases, they are outperforming the market significantly, with more details to be discussed at their Investor Day. Additionally, in response to a question from Dan Arias about the Mass Spec market, Udit Batra considers whether current uptake is influenced by the LC replacement cycle and how these factors contribute to the growth rate of Mass Spec adoption, which is projected to be in the mid-single digits for the year.

The paragraph discusses the growth and success of Mass Spectrometry (Mass Spec) technology, emphasizing that its growth is not primarily driven by the replacement of Liquid Chromatography (LC) systems, which is mostly occurring in manufacturing QA/QC. Instead, the growth is attributed to innovations and a revitalized portfolio, including successful products like TQ Absolute, BioAccord, and Xevo MRT, which are performing well in various applications like PFAS testing, pharma, food, and clinical areas. The paragraph highlights two key dimensions contributing to this success: innovation within the Mass Spec technology itself and expanding customer segments benefiting from this technology.

In the paragraph, an analyst, Ivy, asks about the benefits of the company's Empower software and any efforts to increase service attachment rates. Amol Chaubal responds by highlighting the company's distinctive recurring revenue growth of 6% to 7%, attributed to their Empower software, high service attachment rates, and strong performance in e-commerce and bioseparation columns. The analyst also inquires about the strong performance in the Academic and Government (A&G) sectors, and Chaubal explains that while Q4 was strong due to budget flush dynamics, this market is usually unpredictable and grows at low to mid-single digits. Looking ahead to 2025, they anticipate some benefit from stimulus in China but maintain a cautious outlook, noting limited exposure to NIH funding.

The paragraph discusses projections for business growth in 2025. The company has estimated low single-digit growth for its A&G segment, contrasting with the dynamic growth seen in Q4. For instruments, a growth rate of 4% to 4.5% is expected to reach the midpoint of their guidance, with a total full-year range of 4.5% to 7%. While the recurring revenue is projected to be stable, driven by strong performance in the Pharma sector and the successful Alliance iS instrument, the company ended 2024 with high single-digit growth in instruments. They anticipate becoming more optimistic as 2025 progresses, based on a strong sales funnel and conversion rates.

The paragraph discusses the company's optimistic outlook on their performance, particularly in instrument sales, where they typically experience a 2% to 3% outperformance compared to the 5% long-term average when coming out of a trough in the replacement cycle. They aim to start the year cautiously and reduce risks over time. Amol Chaubal adds that there's a significant opportunity for growth, excluding the Chinese market, in both the US and Europe. While dialogues with large pharmaceutical companies and CDMOs are improving, some parts of their customer base, such as biotechs and China pharma, have not yet fully recovered. Consequently, the replacement cycle may not be as steep but is expected to be longer. The conversation ends with a mention of India's strong growth projections, before the connection with Dan Brennan is lost.

In the paragraph, Catherine Schulte from Baird asks a question about pharma growth and the service contract coverage of an installed base. Udit Batra responds, highlighting strong pharma growth in Q4, attributing it to typical pre-pandemic budget flush dynamics, and notes a normalization in late-stage pharma behavior. On the services side, Amol Chaubal discusses the progress in increasing service contracts, stating that over 50% of the active installed base now has service contracts, aiming to reach 55%, and mentions that nearly 60% of the base is either under warranty or service plan, with ongoing efforts to improve in areas like China.

The paragraph discusses the company's strategic focus on leveraging service lead generation and revenue conversion, especially in markets like the U.S. and India. Udit Batra mentions the upcoming Investor Day on March 5th in New York City, where they will discuss topics such as the use of AI in services. He expresses excitement about the strong finish to 2024 and the momentum going into 2025, highlighting growth in their instrument portfolio and recurring revenues. He concludes by inviting everyone to the Investor Day event.

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