Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Waters Corp reported sales at the high end of their guidance for Q1 2024, demonstrating strong execution despite cautious customer spending.
- Non-GAAP earnings per share exceeded expectations, coming in at $2.21, which was above the company's guidance.
- The company achieved a gross margin expansion of 40 basis points to 58.9%, and an operating margin expansion of 20 basis points, reflecting effective operational management.
- Waters Corp generated strong free cash flow of USD 234 million in Q1, representing 37% of sales, highlighting robust financial health.
- The company launched several new products, including the Alliance iS Bio and GTxResolve Premier columns, enhancing its portfolio and addressing high-growth market areas.
Negative Points
- Reported a year-over-year decline in sales by 7% as reported and 9% in organic constant currency terms, indicating market challenges.
- Sales in China declined by nearly 30%, although this was better than expected, it still reflects significant market weakness in the region.
- Instrument sales overall declined by 25%, with mass spectrometry particularly weak due to tough prior year comparisons and reduced global funding.
- The academic and government sectors saw a significant decline of 30% in sales, influenced by high comparison figures from previous stimulus impacts.
- Despite maintaining full-year guidance, the company faces uncertainties in market conditions, particularly in China, which could affect future performance.
Q & A Highlights
Q: Can you provide more details on the performance in China and how it deviated from expectations?
A: (Udit Batra - President, CEO & Director) China performed better than expected, though it still saw a high decline in the twenties percentage-wise. The improvement was partly due to better activity in replacing LCs in the Branded Generics segment. The new stimulus in China, which is significantly larger and spans three years, has not been factored into the guidance yet but is expected to positively influence CapEx spending psychology later in the year.
Q: What is driving the improved funnel activity noted this quarter, and what are the expectations for growth normalization in the latter half of the year?
A: (Udit Batra - President, CEO & Director) The improved funnel activity is primarily due to higher quality orders across all segments, particularly in pharma and biotech in Europe and the U.S. The expectation is that this will translate into actual orders later in Q2 and more significantly in the second half of the year, following historical revenue patterns of a 45-55 split between H1 and H2.
Q: Can you elaborate on the end market performance, particularly in the Americas, and any changes in the outlook for the year?
A: (Amol Chaubal - Senior VP & CFO) The performance in the Americas was slightly below expectations, but overall, the guidance remains unchanged as the company has derisked other areas of the guide. The focus remains on executing well in China and maintaining stable performance in other regions.
Q: How is the Wyatt acquisition progressing, and why was there a slight adjustment in the M&A contribution expectations?
A: (Amol Chaubal - Senior VP & CFO) The Wyatt acquisition is progressing well, with synergies being realized faster than expected. The slight adjustment in M&A contribution from 1.3% to 1.1% is due to minor timing shifts in instrument deliveries, but overall, the acquisition is performing well.
Q: Regarding the pharma performance in China, can you discuss the impact of the BIOSECURE Act and the performance of Tier 1 versus Tier 2 and 3 CDMOs?
A: (Amol Chaubal - Senior VP & CFO) The pharma market in China is stabilizing, with no new significant downturns. The BIOSECURE Act has not had a new impact as the market had already adjusted to previous changes. The performance across different tiers of CDMOs remains consistent with these adjustments.
Q: Could you provide more insight into the expected impact of the China stimulus on the business and the types of instruments and industries that might benefit?
A: (Udit Batra - President, CEO & Director) The China stimulus is broad and covers various industries, not just academia. Waters is actively working with customers on proposals as they learn more about the stimulus details. The impact of the stimulus is expected to be more psychological initially, improving CapEx spending confidence, particularly in replacing aging LC fleets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
