Company Delivers Strong Quarterly Revenue
Growth and Profitability
- Sales of $566 million grew 7% (6% in
constant currency)
- Balanced growth across key end markets
and major product categories
- Consistent strength in Asia and
Europe
- GAAP EPS increased 10% to $1.69 and
non-GAAP EPS grew 13% to $1.77
Waters Corporation (NYSE: WAT) reported third quarter 2017 sales
of $566 million, a 7% increase versus sales of $527 million in the
third quarter of 2016. Foreign currency translation increased sales
growth by approximately 1% in the quarter. On a GAAP basis, diluted
earnings per share (EPS) for the third quarter was up 10% to $1.69
compared to $1.53 for the third quarter of 2016. On a non-GAAP
basis, including the adjustments in the attached reconciliation,
EPS increased 13% to $1.77 from $1.57 in the third quarter of 2016.
On a GAAP basis, net cash provided by operating activities for the
third quarter increased 4% to $154 million from $149 million in the
third quarter of 2016. On a non-GAAP basis, including the
adjustments in the attached reconciliation, adjusted free cash flow
increased 5% to $134 million from $128 million in the third quarter
of 2016. A description and reconciliation of GAAP to non-GAAP
results is attached and can be found on the Company’s website at
http://www.waters.com under the caption “Investors.”
Through the first nine months of 2017, sales for the Company
were $1,622 million, up 5% compared with sales of $1,539 million in
the first nine months of 2016. Foreign currency translation reduced
sales growth by less than 1% during the first nine months of 2017.
On a GAAP basis, EPS for the first nine months of 2017 was up 9% to
$4.63 compared to $4.26 for the first nine months of 2016. On a
non-GAAP basis, including adjustments in the attached
reconciliation, EPS for the first nine months of 2017 increased 13%
to $4.98 as compared to $4.41 for the first nine months of 2016. On
a GAAP basis, net cash provided by operating activities for the
first nine months of 2017 increased 8% to $505 million from $469
million in the first nine months of 2016. On a non-GAAP basis,
including the adjustments in the attached reconciliation, adjusted
free cash flow increased 11% to $450 million from $404 million in
the first nine months of 2016.
Commenting on the Company’s performance, Chris O’Connell, Chief
Executive Officer said, “We are pleased with our third quarter
results, featuring another quarter of strong overall constant
currency sales and earnings per share growth. The quarter was
highlighted by solid revenue growth from each of our major
customer-defined end markets, balanced product growth between
instrument systems and recurring revenue, operating leverage and
strong free cash flow generation."
Unless otherwise noted, sales growth 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 attached reconciliation of sales growth rates to constant
currency growth rates.
Results from the Company’s markets in the quarter were
highlighted by 7% sales growth (5% in constant currency) from the
broadly defined pharmaceutical market, 6% sales growth (5% in
constant currency) from the industrial market and 15% sales growth
(13% in constant currency) from governmental and academic markets.
For the first nine months of 2017, sales to the pharmaceutical
market grew 6%, sales to the industrial market grew 5% (7% in
constant currency), and sales to the governmental and academic
markets grew 4% (2% in constant currency).
The Company’s recurring revenues, the combination of service and
chemistry consumables, posted 8% sales growth (7% in constant
currency), while instrument system sales grew 6% (5% in constant
currency) in the quarter. For the first nine months of 2017, the
Company’s recurring revenues grew 6% (7% in constant currency),
while instrument system sales grew by 5%.
Geographically, sales during the quarter grew 7% in Asia (8% in
constant currency) and 20% in Europe (13% in constant currency),
and were flat in the Americas. For the first nine months of 2017,
sales grew 11% in Asia (12% in constant currency) and 8% in Europe
(9% in constant currency), and declined 2% in the Americas.
As communicated in a prior press release, Waters Corporation
will webcast its third quarter 2017 financial results conference
call this morning, October 24, 2017 at 8:00 a.m. eastern time. To
listen to the call, connect to www.waters.com, choose “Investors”
and click on the “Live Webcast.” A replay will be available through
October 31, 2017 at midnight eastern time, similarly by webcast and
also by phone at 203-369-1093.
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.
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 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 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; 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 our 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, 2016 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 Nine Months Ended
September 30,2017
October 1,2016
September 30,2017
October 1,2016
Net sales $ 565,584 $ 526,830 $ 1,621,803 $ 1,538,636
Costs and operating expenses: Cost of sales 235,892 218,344 676,614
639,874 Selling and administrative expenses 135,194 123,861 395,908
382,793 Research and development expenses 33,782 30,418 97,471
92,434 Litigation provisions - - 10,018 - Acquired in-process
research and development - - 5,000 - Purchased intangibles
amortization 1,682 2,476 5,104 7,531 Operating income
159,034 151,731 431,688 416,004 Interest expense, net (5,234
) (6,281 ) (16,329 ) (18,469 ) Income from operations before
income taxes 153,800 145,450 415,359 397,535 Provision for
income taxes (a) 17,696 20,594 41,876 50,410 Net income $
136,104 $ 124,856 $ 373,483 $ 347,125 Net income per
basic common share $ 1.71 $ 1.55 $ 4.67 $ 4.29
Weighted-average number of basic common shares 79,712 80,677 79,908
80,923 Net income per diluted common share $ 1.69 $
1.53 $ 4.63 $ 4.26 Weighted-average number of diluted common
shares and equivalents 80,521 81,388 80,660 81,573
(a) In the first quarter of 2017, the Company adopted Accounting
Standards Update No. 2016-09 (ASU 2016-09) "Compensation—Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting." Starting in the first quarter of 2017, the
excess tax benefits or deficiencies related to stock-based
compensation are reflected in the Consolidated Statements of
Operations as a component of the provision for income taxes,
whereas they were previously recognized in equity. ASU 2016-09 is
required to be adopted on a prospective basis for the statement of
operations and retroactive restatement is not permitted. For the
three and nine months ended September 30, 2017, the Company
recognized an excess tax benefit, which decreased income tax
expense by $3 million and $14 million, respectively, and added
$0.03 and $0.18, respectively, to net income per diluted share.
Additionally, the Company’s Consolidated Statements of Cash Flows
will present excess tax benefits as an operating activity, with the
prior periods presented adjusted accordingly.
Waters Corporation and Subsidiaries Reconciliation
of GAAP to Adjusted Non-GAAP Net Sales by Operating Segment,
Products & Services, Geography and Markets Three Months
Ended September 30, 2017 and October 1, 2016 (In
thousands)
Constant Three Months Ended Percent
Currency Currency September 30, 2017
October 1, 2016 Change Impact Growth
Rate (a) NET SALES - OPERATING SEGMENT
Waters $ 503,904 $ 470,913 7 % $ 6,570 6 % TA 61,680 55,917 10 %
702 9 %
Total
$ 565,584 $ 526,830 7 %
$ 7,272 6 % NET
SALES - PRODUCTS & SERVICES Instruments $ 282,671 $
265,820 6 % $ 4,442 5 % Service 190,034 176,896 7 % 2,278 6
% Chemistry 92,879 84,114 10 % 552 10 %
Total Recurring 282,913 261,010 8 % 2,830 7 %
Total $ 565,584 $
526,830 7 % $ 7,272
6 % NET SALES - GEOGRAPHY Asia $
209,339 $ 195,515 7 % $ (2,113 ) 8 % Americas 203,013 203,124 0 %
404 0 % Europe 153,232 128,191 20 % 8,981 13 %
Total $ 565,584 $
526,830 7 % $ 7,272
6 % NET SALES - MARKETS
Pharmaceutical $ 321,963 $ 302,146 7 % $ 5,165 5 % Industrial
168,349 159,013 6 % 795 5 % Government & Academic 75,272 65,671
15 % 1,312 13 %
Total $ 565,584 $ 526,830
7 % $ 7,272 6 %
(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
Net Sales by Operating Segment, Products & Services,
Geography and Markets Nine Months Ended September 30, 2017
and October 1, 2016 (In thousands)
Current
Period Constant Nine Months Ended
Percent Currency Currency September 30,
2017 October 1, 2016 Change Impact
Growth Rate (a) NET SALES - OPERATING SEGMENT
Waters $ 1,445,110 $ 1,373,837 5 % $ (5,884 ) 6 % TA 176,693
164,799 7 % (104 ) 7 %
Total $ 1,621,803 $ 1,538,636
5 % $ (5,988 ) 6 %
NET SALES - PRODUCTS & SERVICES
Instruments $ 801,078 $ 762,166 5 % $ 243 5 % Service
549,119 521,158 5 % (4,659 ) 6 % Chemistry 271,606
255,312 6 % (1,572 ) 7 % Total Recurring 820,725 776,470 6 %
(6,231 ) 7 %
Total
$ 1,621,803 $ 1,538,636 5
% $ (5,988 ) 6 %
NET SALES - GEOGRAPHY Asia $ 620,148 $ 557,336 11 % $
(3,317 ) 12 % Americas 574,249 584,760 (2 %) 169 (2 %) Europe
427,406 396,540 8 % (2,840 ) 9 %
Total $ 1,621,803 $
1,538,636 5 % $ (5,988 )
6 % NET SALES - MARKETS
Pharmaceutical $ 921,423 $ 871,241 6 % $ (1,319 ) 6 % Industrial
504,183 479,220 5 % (8,559 ) 7 % Governmental & Academic
196,197 188,175 4 % 3,890 2 %
Total $ 1,621,803 $
1,538,636 5 % $ (5,988 )
6 %
(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 and Nine Months Ended September 30, 2017 and October 1,
2016 (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 September 30, 2017 GAAP $ 136,876
$ 33,782 $ 159,034 28.1 %
$ 153,800 $ 17,696 $
136,104 $ 1.69 Adjustments: Purchased
intangibles amortization (b) (1,682 ) - 1,682 0.3 % 1,682 436 1,246
0.02 Restructuring costs, asset impairments,
acquisition-related costs & certain
other items (c)
(2,530 ) - 2,530 0.4 % 2,530 931 1,599 0.02 Stock award
modification (d) (3,855 ) - 3,855 0.7 % 3,855 1,446 2,409 0.03
Certain income tax items (e) - -
- - - (837 ) 837
0.01
Adjusted Non-GAAP $ 128,809
$ 33,782 $ 167,101
29.5 % $ 161,867 $ 19,672
$ 142,195 $ 1.77
Quarter Ended October 1, 2016 GAAP $
126,337 $ 30,418 $ 151,731
28.8 % $ 145,450 $ 20,594
$ 124,856 $ 1.53 Adjustments: Purchased
intangibles amortization (b) (2,476 ) - 2,476 0.5 % 2,476 732 1,744
0.02 Restructuring costs, asset impairments,
acquisition-related costs & certain
other items (c)
(964 ) - 964 0.2 % 964 839 125 - Certain income tax items (e)
- - - - -
(756 ) 756 0.01
Adjusted
Non-GAAP $ 122,897 $ 30,418
$ 155,171 29.5 % $
148,890 $ 21,409 $
127,481 $ 1.57 Nine
Months Ended September 30, 2017 GAAP $
411,030 $ 102,471 $ 431,688
26.6 % $ 415,359 $ 41,876
$ 373,483 $ 4.63 Adjustments: Purchased
intangibles amortization (b) (5,104 ) - 5,104 0.3 % 5,104 1,358
3,746 0.05 Restructuring costs, asset impairments,
acquisition-related costs & certain
other items (c)
(13,541 ) - 13,541 0.8 % 13,541 4,725 8,816 0.11 Stock award
modification (d) (3,855 ) - 3,855 0.2 % 3,855 1,446 2,409 0.03
Litigation provisions (f) (10,018 ) - 10,018 0.6 % 10,018 3,757
6,261 0.08 Acquired in-process research and development (g) -
(5,000 ) 5,000 0.3 % 5,000 962 4,038 0.05 Certain income tax items
(e) - - - -
- (3,284 ) 3,284 0.04
Adjusted Non-GAAP $ 378,512 $
97,471 $ 469,206 28.9
% $ 452,877 $ 50,840
$ 402,037 $ 4.98
Nine Months Ended October 1, 2016 GAAP $
390,324 $ 92,434 $ 416,004
27.0 % $ 397,535 $ 50,410
$ 347,125 $ 4.26 Adjustments: Purchased
intangibles amortization (b) (7,531 ) - 7,531 0.5 % 7,531 2,203
5,328 0.07 Restructuring costs, asset impairments,
acquisition-related costs & certain
other items (c)
(6,552 ) - 6,552 0.4 % 6,552 2,500 4,052 0.05 Stock award
modification (d) (7,085 ) - 7,085 0.5 % 7,085 2,657 4,428 0.05
Certain income tax items (e) - -
- - - 874 (874 )
(0.01 )
Adjusted Non-GAAP $ 369,156
$ 92,434 $ 437,172
28.4 % $ 418,703 $ 58,644
$ 360,059 $ 4.41
(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) 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 cost to complete acquisitions; the non-cash
expense to record asset impairments 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.(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) 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.(f) Litigation
Provisions were excluded as these costs are isolated, unpredictable
and not expected to recur regularly.(g) 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)
September 30, 2017 December 31, 2016
Cash, cash equivalents and investments $ 3,254,957 $
2,813,032 Accounts receivable 456,334 489,340 Inventories 297,854
262,682 Property, plant and equipment, net 342,832 337,118
Intangible assets, net 224,056 207,055 Goodwill 359,376 352,080
Other assets 227,576 200,752 Total assets $ 5,162,985 $ 4,662,059
Notes payable and debt $ 1,957,790 $ 1,827,263 Other
liabilities 576,100 532,847 Total liabilities 2,533,890 2,360,110
Total equity 2,629,095 2,301,949 Total liabilities and
equity $ 5,162,985 $ 4,662,059
Waters Corporation
and Subsidiaries Preliminary Condensed Consolidated
Statements of Cash Flows Three and Nine Months Ended
September 30, 2017 and October 1, 2016 (In thousands and
unaudited)
Three
Months Ended Nine Months Ended September 30, 2017
October 1, 2016 September 30, 2017 October 1,
2016 Cash flows from operating activities:
Net income
$ 136,104 $ 124,856 $ 373,483 $ 347,125 Adjustments to reconcile
net income to net cash provided by operating activities:
Stock-based compensation 12,274 8,367 30,068 32,604 Depreciation
and amortization 25,844 24,287 78,249 72,364 Excess tax benefit
related to stock-based compensation plans (a) - 9,397 - 12,914
Change in operating assets and liabilities, net (20,026 )
(18,312 ) 23,656 4,010 Net cash
provided by operating activities 154,196 148,595 505,456 469,017
Cash flows from investing activities: Additions to property,
plant, equipment and software capitalization (19,899 ) (22,600 )
(55,257 ) (72,296 ) Business acquisitions, net of cash acquired -
(5,654 ) - (5,654 ) Investment in unaffiliated company - - (7,000 )
- Payments for intellectual property licenses - - (5,000 ) - Net
change in investments (90,237 ) (146,749 ) (336,731 ) (364,724 )
Other cash flow from investing activities, net -
4,000 - 4,000 Net cash
used in investing activities (110,136 ) (171,003 ) (403,988 )
(438,674 ) Cash flows from financing activities: Net change
in debt 45,190 24,916 130,126 114,854 Payments of debt issuance
costs - - - (1,705 ) Proceeds from stock plans 14,639 35,300 72,821
58,572 Purchase of treasury shares (79,908 ) (69,532 ) (245,742 )
(241,924 ) Other cash flow from financing activities, net
2,871 (1,994 ) 3,301
(9,525 ) Net cash used in financing activities
(17,208 ) (11,310 ) (39,494 ) (79,728 ) Effect of exchange
rate changes on cash and cash equivalents 9,700
545 36,202 (8,071 ) Increase
(decrease) in cash and cash equivalents 36,552 (33,173 ) 98,176
(57,456 ) Cash and cash equivalents at beginning of period
567,255 463,382 505,631
487,665 Cash and cash equivalents at end of period $
603,807 $ 430,209 $ 603,807 $ 430,209
Reconciliation of GAAP Cash Flows from Operating
Activities to Free Cash Flow (b) Net cash
provided by operating activities - GAAP $ 154,196 $ 148,595 $
505,456 $ 469,017 Adjustments: Additions to property, plant,
equipment and software capitalization (19,899 ) (22,600 ) (55,257 )
(72,296 ) Majority facility renovations - 1,628 - 7,499
Free Cash Flow - Adjusted Non GAAP $
134,297 $ 127,623 $ 450,199 $ 404,220
(a) In the first quarter of 2017, the Company adopted Accounting
Standards Update No. 2016-09 (ASU 2016-09) "Compensation—Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting." Starting in the first quarter of 2017, the
excess tax benefits or deficiencies related to stock-based
compensation are reflected as an operating activity, with the prior
periods presented adjusted accordingly.
(b) 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171024005419/en/
Waters CorporationJohn Lynch, 508-482-2314Vice President,
Treasurer and Investor Relations
Waters (NYSE:WAT)
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