Waters Corporation (WAT) is a global leader in analytical instruments, separations technologies, and software, serving the life, materials, food, and environmental sciences for over 65 years. The company's pioneering innovations in chromatography, mass spectrometry, and thermal analysis have solidified its position as a trusted partner for scientific research and discovery.
Founded in 1958 and headquartered in Milford, Massachusetts, Waters Corporation has a rich history of technological advancements and strategic acquisitions that have expanded its product portfolio and market reach. In its early years, the company focused on developing and manufacturing high-performance liquid chromatography (HPLC) instruments, a standard technique used across various industries to detect, identify, monitor, and measure the chemical, physical, and biological composition of materials. Over time, Waters expanded its product portfolio to include mass spectrometry (MS) technology, which is commonly employed in drug discovery and development, clinical trial testing, proteomics, and environmental testing.
A significant milestone in Waters' history was the acquisition of TA Instruments in 1996. This move allowed Waters to broaden its analytical capabilities by incorporating thermal analysis, rheometry, and calorimetry instruments used in predicting the suitability and stability of chemicals, pharmaceuticals, polymers, and other materials. The acquisition enabled Waters to serve a wider range of customers in the life sciences, materials sciences, and other industries.
Throughout its history, Waters has faced challenges such as navigating fluctuations in foreign currency exchange rates and addressing new regulatory requirements in the industries it serves. The company has managed these obstacles through a focus on operational excellence, including productivity initiatives, cost management, and strategic pricing actions. In 2023, Waters made another significant acquisition by purchasing Wyatt Technology, a pioneer in innovative light scattering and field-flow fractionation instruments, software, and services. This acquisition strengthened Waters' position in the large molecule applications market, further diversifying its offering and enhancing its exposure to high-growth opportunities.
Financials
Waters' financial performance has been resilient, showcasing the strength of its business model. In the latest reported fiscal year, the company's revenue remained flat at $2.96 billion, while its non-GAAP earnings per share (EPS) grew 1% to $11.86, despite a 5% headwind from unfavorable foreign exchange. The company's robust free cash flow generation, which reached $744 million or 25% of sales, has enabled it to make strategic investments and de-lever its balance sheet.
In the most recent quarter, Waters reported strong financial results. Revenue grew 6% as reported and 8% in constant currency, reaching $872.7 million. Net income for the quarter was $231.4 million, with operating cash flow of $240.1 million and free cash flow of $188 million. The company's performance was driven by strength in the pharmaceutical sector, which grew 10% in constant currency, fueled by stronger-than-expected year-end spending by large pharma companies, contract development and manufacturing organizations (CDMOs), and the generics market in India.
Waters' performance across geographic markets was impressive, with Europe growing 11%, Asia growing 9%, and the Americas growing 6%. The company's instrument sales grew 8% in constant currency, while recurring revenue grew 9% in constant currency, demonstrating the success of Waters' diversified product portfolio and global reach.
Liquidity
One of the key drivers of Waters' success has been its focus on recurring revenue streams. The company's chemistry consumables and service businesses grew 6% in the latest fiscal year, highlighting the resilience of this segment. This recurring revenue base, coupled with the company's strong position in high-volume, late-stage life science applications, has provided a solid foundation for growth.
Waters maintains a strong financial position with a debt-to-equity ratio of 0.9310, cash and cash equivalents of $330.51 million, and access to $1.4 billion under its $2 billion revolving credit facility, after outstanding letters of credit. The company's current ratio of 2.11 and quick ratio of 1.51 further underscore its solid liquidity position.
Waters' product portfolio has been continuously enhanced through new product launches and strategic investments. The company's flagship HPLC system, Alliance iS, has gained significant traction, with sales more than doubling quarter-over-quarter in the fourth quarter of 2024. Additionally, the Xevo TQ Absolute mass spectrometer, known for its market-leading sensitivity and sustainable design, has been a key driver of the company's growth in PFAS testing and clinical applications.
The analytical instruments market is poised for recovery, and Waters is well-positioned to capitalize on this trend. The company expects instrument growth to outpace the long-term average of 5% as the instrument replacement cycle gains momentum, supported by its revitalized product portfolio and the continued success of its idiosyncratic growth drivers, such as PFAS testing and the expanding generics market in India.
Looking ahead, Waters has provided a robust outlook for fiscal year 2025, guiding for constant currency sales growth of 4.5% to 7% and non-GAAP EPS in the range of $12.70 to $13.00, representing approximately 7% to 10% growth, despite an estimated 4% headwind from unfavorable foreign exchange. The company's focus on operational excellence, productivity initiatives, and margin expansion is expected to offset the impact of macroeconomic challenges, such as currency fluctuations and inflation. Waters anticipates achieving a gross margin of 59.6% and an adjusted operating margin of 31.2% in 2025, representing 20 basis points of net year-over-year expansion.
For the first quarter of 2025, Waters has provided constant currency sales growth guidance of 4% to 7%, with a 3% negative impact from currency translation, resulting in total reported sales growth guidance of 1% to 4%. The company estimates Q1 2025 non-GAAP EPS to be in the range of $2.17 to $2.25.
In conclusion, Waters Corporation has demonstrated its resilience and adaptability in the analytical instruments market. Its strategic acquisitions, innovative product portfolio, and focus on recurring revenue streams have positioned the company for continued success. As the market recovers and new growth opportunities emerge, Waters is well-equipped to navigate the landscape and deliver value for its shareholders.
Today, Waters operates directly in 35 countries and serves customers in the pharmaceutical, industrial, academic, and government sectors. The company's comprehensive product and service offerings, as well as its leading market positions in key application areas, have been instrumental in establishing Waters as a trusted partner for analytical solutions worldwide.
Waters Corporation operates through two primary segments: Waters and TA. The Waters segment, which is the company's core business, focuses on designing, manufacturing, selling, and servicing liquid chromatography (LC) and mass spectrometry (MS) instruments, as well as precision chemistry consumables. This segment now includes the operations of Wyatt Technology, acquired in May 2023, which has expanded Waters' portfolio and increased its exposure to large molecule applications.
In the third quarter of 2024, Waters instrument system sales increased 1% compared to the prior year period, driven by strong customer demand across existing and newly introduced LC, LC-MS, and Thermal Analysis instrument systems. However, for the first nine months of 2024, Waters instrument system sales declined 12% primarily due to weaker customer demand across all major regions during the first half of the year, which led to delayed capital spending, particularly on the company's higher-priced mass spectrometry instrument systems.
Waters chemistry consumables sales grew 8% in the third quarter of 2024 and 4% in the first nine months of 2024, reflecting continued demand in most major geographies, driven by the uptake of columns and application-specific testing kits by pharmaceutical and industrial customers. Waters service sales increased 5% in both the third quarter and first nine months of 2024, due to higher service demand and billing in most major regions, partially offset by the negative impact of foreign currency translation.
The TA segment focuses on the design, manufacture, sale, and service of thermal analysis, rheometry, and calorimetry instrument systems. TA instrument system sales increased 1% in the third quarter of 2024 but declined 6% in the first nine months of 2024 due to lower customer demand across most major regions. TA service sales grew 7% in the third quarter and 5% in the first nine months of 2024, driven by strong customer demand for the company's thermal analysis instruments and services.
Overall, Waters Corporation's total net sales increased 4% in the third quarter of 2024 but declined 2% in the first nine months of the year, with the Wyatt acquisition contributing 2% to sales growth in the nine-month period. Foreign currency translation had a minimal impact on sales growth in the third quarter but decreased sales growth by 1% in the first nine months of 2024. The company's operating income increased 18% in the third quarter, primarily due to higher sales volume and cost savings from recent workforce reductions, but decreased 3% in the first nine months of the year due to lower sales volume, increased annual incentive compensation, and certain litigation settlements.
The global scientific instruments market, in which Waters operates, was valued at approximately $39.94 billion in 2024 and is forecasted to expand at a CAGR of 4.50% between 2025 and 2034, reaching a projected value of $62.03 billion by 2034. This growth is attributed to several critical factors driving the demand for scientific instruments across various industries, including pharmaceutical, biotechnology, industrial, and environmental. As a leading player in this market, Waters is well-positioned to benefit from these industry trends and capitalize on emerging opportunities in the coming years.