Business Wire | Jul 28, 2020 06:50AM EDT

Waters Corporation (NYSE: WAT) Reports Second Quarter 2020 Financial Results

Jul. 28, 2020

MILFORD, Mass.--(BUSINESS WIRE)--Jul. 28, 2020--Waters Corporation (NYSE: WAT) today announced second quarter 2020 sales of $520 million, a 13% decrease as reported, compared to sales of $599 million for the second quarter of 2019. Foreign currency translation negatively impacted sales growth by approximately 1% for the quarter. The Company's results were impacted by lower demand across all major geographies due to the COVID-19 pandemic.

On a GAAP basis, diluted earnings per share (EPS) for the second quarter of 2020 decreased to $1.98, compared to $2.08 for the second quarter of 2019. On a non-GAAP basis, EPS decreased to $2.10, compared to $2.14 in the second quarter of 2019. A description and reconciliation of GAAP to non-GAAP results appear in the tables 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 was $199 million for the second quarter of 2020, compared to $127 million for the second quarter of 2019. On a non-GAAP basis, adjusted free cash flow for the second quarter of 2020 was $175 million versus $136 million for the second quarter of 2019.

For the first half of 2020, the Company's sales were $985 million, a decrease of 12% as reported, compared to sales of $1,113 million for the first half of 2019. Foreign currency translation negatively impacted sales growth by approximately 1% for the first half of 2020.

On a GAAP basis, EPS for the first half of 2020 decreased to $2.83, compared to $3.57 for the first half of 2019. On a non-GAAP basis, EPS decreased to $3.25, compared to $3.73 in the first half of 2019.

On a GAAP basis, net cash provided by operating activities was $350 million for the first half of 2020, compared to $303 million for the first half of 2019. On a non-GAAP basis, adjusted free cash flow for the first half of 2020 was $296 million versus $294 million for the first half of 2019.

"As anticipated, our second quarter revenue declined due to the ongoing impacts of the COVID-19 pandemic. However, our results reflected modestly better-than-anticipated market conditions and strong execution by our global sales, service and operations teams," commented Chris O'Connell, President and Chief Executive Officer of Waters Corporation. "This revenue performance, combined with the benefits of our cost containment initiatives, drove solid margin and earnings results during the quarter. While risks and uncertainties remain in our operating environment, we are well-positioned to leverage our strong new product pipeline and are investing to take advantage of growth opportunities as demand normalizes."

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

During the second quarter of 2020, sales into the pharmaceutical market declined 11% as reported and 10% in constant currency, sales into the industrial market declined 14% as reported and 13% in constant currency and sales into the academic and governmental markets declined 22% as reported and 21% in constant currency. For the first half of 2020, sales into the pharmaceutical market declined 9% as reported and 8% in constant currency, sales into the industrial market declined 11% as reported and 10% in constant currency and sales into the academic and governmental markets declined 23% as reported and 22% in constant currency.

During the second quarter, recurring revenues, which represent the combination of service and precision chemistries revenues, declined 4% as reported and 3% in constant currency, while instrument system sales declined 23% as reported and in constant currency. For the first half of 2020, recurring revenues declined 3% as reported and 2% in constant currency, while instrument system sales declined 22% as reported and 21% in constant currency.

Geographically, sales in Asia during the quarter declined 13% as reported and 12% in constant currency, sales in the Americas declined 15% (with U.S. sales declining 14%) and sales in Europe declined 11% as reported and 9% in constant currency. For the first half of 2020, sales in Asia declined 16% as reported and 15% in constant currency, sales in the Americas declined 11% (with U.S. sales declining 9%) and sales in Europe declined 5% as reported and 3% in constant currency.

Conference Call

Waters Corporation will webcast its second quarter 2020 financial results conference call today, July 28, 2020 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 August 4, 2020 at midnight Eastern Time on the same website by webcast and also by phone at 800-395-6236.

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 more than 60 years. With more than 7,000 employees worldwide, Waters operates directly in 35 countries, including 15 manufacturing facilities, and 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 U.S. generally accepted accounting principles (GAAP). The Company's definitions 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 contains "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, risks related to the effects of the COVID-19 pandemic on our business, financial condition, results of operations and prospects, including: portions of our global workforce being unable to work fully and/or effectively due to working remotely, illness, quarantines, government actions, facility closures or other reasons related to the pandemic, increased risks of cyber attacks resulting from our temporary remote working model, disruptions in our manufacturing capabilities or to our supply chain, volatility and uncertainty in global capital markets limiting our ability to access capital, customers being unable to make timely payments for purchases and volatility in demand for our products; 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 or geographies from economic, sovereign and political uncertainties, particularly regarding the effect of new or proposed tariff or trade regulations or changes in the interpretation or enforcement of existing regulations; the effect on the Company's financial results from the United Kingdom exiting 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; 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, 2019, as well as in the sections entitled "Special Note Regarding Forward-Looking Statements" and "Risk Factors" of the Company's quarterly report on Form 10-Q for the quarterly period ended June 27, 2020, each as filed with the Securities and Exchange Commission ("SEC"), which discussions are incorporated by reference in this release, as updated by the Company's future filings with the SEC. 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. Except as required by law, the Company does not assume any obligation to update any forward-looking statements.

Waters Corporation and SubsidiariesConsolidated Statements of Operations(In thousands, except per share data)(Unaudited) Three Months Ended Six Months Ended June 27, June 29, June 27, June 29, 2019 2020 2019 2020 Net sales $ 519,984 $ 599,162 $ 984,923 $ 1,113,024

Costs and operatingexpenses:Cost of sales 213,134 249,546 423,778 470,577

Selling and administrative 117,449 133,208 265,184 267,547 expensesResearch and development 31,155 36,490 66,144 71,550 expensesPurchased intangibles 2,618 2,264 5,243 4,545 amortizationLitigation provision 514 - 1,180 -

Operating income 155,114 177,654 223,394 298,805

Other expense (736 ) (342 ) (1,110 ) (867 )

Interest expense, net (9,015 ) (5,577 ) (19,058 ) (8,825 )

Income from operations 145,363 171,735 203,226 289,113 before income taxes Provision for income taxes^ 22,434 27,325 26,735 35,717 (1) Net income $ 122,929 $ 144,410 $ 176,491 $ 253,396

Net income per basic common $ 1.98 $ 2.09 $ 2.84 $ 3.60 share Weighted-average number of 61,944 68,989 62,085 70,331 basic common shares Net income per diluted $ 1.98 $ 2.08 $ 2.83 $ 3.57 common share Weighted-average number of 62,184 69,494 62,404 70,904 diluted common shares andequivalents

(1) The provision for income taxes for the six months ended June 29, 2019included a $3 million benefit related to the tax on the change in foreigncurrency exchange rates on the earnings taxed in December 31, 2017 under theTax Cuts and Jobs Act and the subsequent finalization of the tax regulationsduring the first quarter of 2019. The difference is due to the change from theforeign currency exchange rates required by the U.S. Department of the Treasuryon December 31, 2017 to the foreign currency exchange rates on either the dateof distribution of assets into the U.S. or the foreign currency exchange ratesas of June 29, 2019.

Waters Corporation and SubsidiariesReconciliation of GAAP to Adjusted Non-GAAPNet Sales by Operating Segment, Products & Services, Geography and MarketsThree Months Ended June 27, 2020 and June 29, 2019(In thousands) Current Period Constant Three Months Ended Percent Currency Currency June 27, June 29, Change Impact Growth Rate 2020 2019 ^(a) NET SALES - OPERATINGSEGMENT Waters $ 465,709 $ 531,117 (12 %) $ (4,216 ) (12 %)

TA 54,275 68,045 (20 %) (292 ) (20 %)

Total $ 519,984 $ 599,162 (13 %) $ (4,508 ) (12 %)

NET SALES - PRODUCTS &SERVICES Instruments $ 219,815 $ 286,973 (23 %) $ (728 ) (23 %)

Service 205,064 211,897 (3 %) (3,099 ) (2 %)

Chemistry 95,105 100,292 (5 %) (681 ) (4 %)

Total Recurring 300,169 312,189 (4 %) (3,780 ) (3 %)

Total $ 519,984 $ 599,162 (13 %) $ (4,508 ) (12 %)

NET SALES - GEOGRAPHY Asia $ 208,209 $ 238,835 (13 %) $ (1,570 ) (12 %)

Americas 174,782 206,775 (15 %) (94 ) (15 %)

Europe 136,993 153,552 (11 %) (2,844 ) (9 %)

Total $ 519,984 $ 599,162 (13 %) $ (4,508 ) (12 %)

NET SALES - MARKETS Pharmaceutical $ 311,018 $ 350,145 (11 %) $ (3,684 ) (10 %)

Industrial 152,110 176,109 (14 %) (314 ) (13 %)

Academic & Governmental 56,856 72,908 (22 %) (510 ) (21 %)

Total $ 519,984 $ 599,162 (13 %) $ (4,508 ) (12 %)

NET SALES -EXCLUDING CHINA Total Net Sales $ 519,984 $ 599,162 (13 %) $ (4,508 ) (12 %)

China Net Sales 89,816 112,796 (20 %) (963 ) (20 %)

Total Net Sales $ 430,168 $ 486,366 (12 %) $ (3,545 ) (11 %)Excluding China

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(a) 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 SubsidiariesReconciliation of GAAP to Adjusted Non-GAAPNet Sales by Operating Segment, Products & Services, Geography and MarketsSix Months Ended June 27, 2020 and June 29, 2019(In thousands) Current Period Constant Six Months Ended Percent Currency Currency June 27, June 29, Change Impact Growth 2020 2019 Rate ^(a) NET SALES - OPERATINGSEGMENT Waters $ 879,920 $ 991,031 (11 %) $ (9,760 ) (10 %)

TA 105,003 121,993 (14 %) (1,145 ) (13 %)

Total $ 984,923 $ 1,113,024 (12 %) $ (10,905 ) (11 %)

NET SALES - PRODUCTS &SERVICES Instruments $ 396,753 $ 508,223 (22 %) $ (3,879 ) (21 %)

Service 395,820 405,256 (2 %) (5,146 ) (1 %)

Chemistry 192,350 199,545 (4 %) (1,880 ) (3 %)

Total Recurring 588,170 604,801 (3 %) (7,026 ) (2 %)

Total $ 984,923 $ 1,113,024 (12 %) $ (10,905 ) (11 %)

NET SALES - GEOGRAPHY Asia $ 367,289 $ 439,347 (16 %) $ (4,547 ) (15 %)

Americas 346,958 388,643 (11 %) 71 (11 %)

Europe 270,676 285,034 (5 %) (6,429 ) (3 %)

Total $ 984,923 $ 1,113,024 (12 %) $ (10,905 ) (11 %)

NET SALES - MARKETS Pharmaceutical $ 583,581 $ 644,657 (9 %) $ (7,474 ) (8 %)

Industrial 295,464 331,327 (11 %) (1,935 ) (10 %)

Academic & 105,878 137,040 (23 %) (1,496 ) (22 %)Governmental Total $ 984,923 $ 1,113,024 (12 %) $ (10,905 ) (11 %)

NET SALES -EXCLUDING CHINA Total Net Sales $ 984,923 $ 1,113,024 (12 %) $ (10,905 ) (11 %)

China Net Sales 137,047 202,887 (32 %) (2,848 ) (31 %)

Total Net Sales $ 847,876 $ 910,137 (7 %) $ (8,057 ) (6 %)Excluding China

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(a) 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 Three & Six Months Ended June 27, 2020 and June 29, 2019 (In thousands, except per share data) Income from Operations Selling & Operating before Provision Diluted for Administrative Operating Income Other Income Income Net Earnings Expenses^(a) Income Percentage Expense Taxes Taxes Income per Share Quarter Ended June 27, 2020 GAAP $ 120,581 $ 155,114 29.8 % $ (736 ) $ 145,363 $ 22,434 $ 122,929 $ 1.98

Adjustments: Purchased intangibles (2,618 ) 2,618 0.5 % - 2,618 515 2,103 0.03 amortization ^(b) Restructuring costs and (5,763 ) 5,763 1.1 % (152 ) 5,611 1,084 4,527 0.07 certain other items ^(c) Litigation (514 ) 514 0.1 % - 514 123 391 0.01 provisions ^ (d) Certain - - - - - (507 ) 507 0.01 income tax items ^(e) Adjusted $ 111,686 $ 164,009 31.5 % $ (888 ) $ 154,106 $ 23,649 $ 130,457 $ 2.10 Non-GAAP Quarter Ended June 29, 2019 GAAP $ 135,472 $ 177,654 29.7 % $ (342 ) $ 171,735 $ 27,325 $ 144,410 $ 2.08

Adjustments: Purchased intangibles (2,264 ) 2,264 0.4 % - 2,264 491 1,773 0.03 amortization ^(b) Restructuring costs and (2,725 ) 2,725 0.5 % - 2,725 640 2,085 0.03 certain other items ^(c) Certain - - - - - (634 ) 634 0.01 income tax items ^(e) Adjusted $ 130,483 $ 182,643 30.5 % $ (342 ) $ 176,724 $ 27,822 $ 148,902 $ 2.14 Non-GAAP Six Months Ended June 27, 2020 GAAP $ 271,607 $ 223,394 22.7 % $ (1,110 ) $ 203,226 $ 26,735 $ 176,491 $ 2.83

Adjustments: Purchased intangibles (5,243 ) 5,243 0.5 % - 5,243 1,037 4,206 0.07 amortization ^(b) Restructuring costs and (26,283 ) 26,283 2.7 % (461 ) 25,822 5,681 20,141 0.32 certain other items ^(c) Litigation (1,180 ) 1,180 0.1 % - 1,180 283 897 0.01 provisions ^ (d) Certain - - - - - (882 ) 882 0.01 income tax items ^(e) Adjusted $ 238,901 $ 256,100 26.0 % $ (1,571 ) $ 235,471 $ 32,854 $ 202,617 $ 3.25 Non-GAAP Six Months Ended June 29, 2019 GAAP $ 272,092 $ 298,805 26.8 % $ (867 ) $ 289,113 $ 35,717 $ 253,396 $ 3.57

Adjustments: Purchased intangibles (4,545 ) 4,545 0.4 % - 4,545 985 3,560 0.05 amortization ^(b) Restructuring costs and (12,786 ) 12,786 1.1 % - 12,786 3,273 9,513 0.13 certain other items ^(c) Tax reform ^ - - - - - 3,229 (3,229 ) (0.05 ) (f) Certain - - - - - (1,308 ) 1,308 0.02 income tax items ^(e) Adjusted $ 254,761 $ 316,136 28.4 % $ (867 ) $ 306,444 $ 41,896 $ 264,548 $ 3.73 Non-GAAP

(a) Selling & administrative expenses include purchased intangibles amortization and litigation provisions. The purchased intangibles amortization, a non-cash expense, was excluded(b) 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. Restructuring costs and certain other items were excluded as the Company believes that the cost to consolidate operations and reduce overhead and(c) 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) Litigation provisions were excluded as these items are isolated, unpredictable and not expected to recur regularly. Certain income tax items were excluded as these non-cash expenses and(e) 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. The provision for income taxes for six months ended June 29, 2019 included a $3 million benefit 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 and the subsequent finalization of(f) the tax regulations during the first quarter of 2019. 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 June 29, 2019.

Waters Corporation and SubsidiariesPreliminary Condensed Unclassified Consolidated Balance Sheets(In thousands and unaudited) June 27, 2020 December 31, 2019 Cash, cash equivalents and investments $ 355,756 $ 337,144

Accounts receivable 496,276 587,734

Inventories 344,009 320,551

Property, plant and equipment, net 459,173 417,342

Intangible assets, net 248,993 240,203

Goodwill 427,492 356,128

Other assets 316,603 297,953

Total assets $ 2,648,302 $ 2,557,055

Notes payable and debt $ 1,696,159 $ 1,681,163

Other liabilities 1,143,885 1,092,173

Total liabilities 2,840,044 2,773,336

Total deficit (191,742 ) (216,281 )

Total liabilities and deficit $ 2,648,302 $ 2,557,055



Waters Corporation and SubsidiariesPreliminary Condensed Consolidated Statements of Cash FlowsThree and Six Months Ended June 27, 2020 and June 29, 2019(In thousands and unaudited) Three Months Ended Six Months Ended June 27, June 29, June 27, June 29, 2019 2020 2019 2020 Cash flows fromoperating activities:Net income $ 122,929 $ 144,410 $ 176,491 $ 253,396

Adjustments toreconcile net income tonetcash provided byoperating activities:Stock-based 8,926 9,314 18,122 19,255 compensationDepreciation and 31,015 28,851 60,203 53,615 amortizationChange in operating 35,941 (55,551 ) 95,630 (23,463 )assets and liabilities,netNet cash provided by 198,811 127,024 350,446 302,803 operating activities Cash flows frominvesting activities:Additions to property,plant, equipmentand software (45,899 ) (39,522 ) (97,029 ) (65,188 )capitalizationBusiness acquisitions, - - (76,664 ) - net of cash acquiredInvestment in (3,350 ) (4,750 ) (3,350 ) (4,750 )unaffiliated companiesNet change in (12,911 ) 395,296 (15,292 ) 855,001 investmentsNet cash (used in) (62,160 ) 351,024 (192,335 ) 785,063 provided by investingactivities Cash flows fromfinancing activities:Net change in debt (200,000 ) 32 14,634 118

Proceeds from stock 2,996 2,498 14,739 30,129 plansPurchases of treasury (71 ) (576,530 ) (196,297 ) (1,329,635 )sharesOther cash flow from 4,791 2,400 7,558 4,654 financing activities,netNet cash used in (192,284 ) (571,600 ) (159,366 ) (1,294,734 )financing activities Effect of exchange rate 4,608 (3,420 ) 4,576 (1,414 )changes on cash andcash equivalents(Decrease) increase in (51,025 ) (96,972 ) 3,321 (208,282 )cash and cashequivalents Cash and cash 390,061 684,970 335,715 796,280 equivalents atbeginning of periodCash and cash $ 339,036 $ 587,998 $ 339,036 $ 587,998 equivalents at end ofperiod Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flow ^(a) Net cash provided by $ 198,811 $ 127,024 $ 350,446 $ 302,803 operating activities -GAAP Adjustments:Additions to property,plant, equipmentand software (45,899 ) (39,522 ) (97,029 ) (65,188 )capitalizationTax reform payments - 29,109 - 29,109

Major facility 22,524 19,779 43,067 27,275 renovationsFree Cash Flow - $ 175,436 $ 136,390 $ 296,484 $ 293,999 Adjusted Non-GAAP

(a) The Company defines free cash flow as net cash flow from operationsaccounted for under GAAP less capital expenditures and software capitalizationsplus or minus any unusual and non recurring items. Free cash flow is not a GAAPmeasurement and may not be comparable to free cash flow reported by othercompanies.

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