-
Sales of $514 million declined 3% as reported and were flat
in constant currency - Recurring revenue growth offset by declines in instrument sales
-
Growth in broader Asia and the U.S. offset by weakness in China and
Europe -
GAAP EPS of $1.51; non-GAAP EPS of $1.60, a slight increase from
prior year
MILFORD, Mass.–(BUSINESS WIRE)–Waters Corporation (NYSE: WAT) today announced first quarter 2019
sales of $514 million, a 3% decrease as reported, compared to sales of
$531 million for the first quarter of 2018. Foreign currency translation
negatively impacted sales growth by approximately 3% for the quarter.
On a GAAP basis, diluted earnings per share (EPS) for the first quarter
of 2019 increased to $1.51, compared to $1.40 for the first quarter of
2018. On a non-GAAP basis, EPS increased to $1.60, compared to $1.59 in
the first quarter of 2018. 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 $176
million for the first quarter of both 2019 and 2018. On a non-GAAP
basis, adjusted free cash flow for the first quarter of 2019 was $158
million versus $160 million for the first quarter of 2018.
“Sales in the first quarter fell short of our expectations. Softer
demand during the quarter was driven by greater-than-expected macro
impacts in China and Europe, as well as a slow release of budgets by key
pharmaceutical and industrial customers,” commented Chris O’Connell,
Chairman and Chief Executive Officer of Waters Corporation. “We remain
confident in our strong market position, underlying customer activity,
and the contribution of new product introductions underway and planned
for 2019.”
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 first quarter of 2019, sales into the pharmaceutical market
declined 4% as reported and were flat in constant currency, sales into
the industrial market declined 4% as reported and 2% in constant
currency, and sales into the academic and governmental markets grew 2%
as reported and 4% in constant currency.
During the first quarter, recurring revenues, which represent the
combination of service and precision chemistries revenues, grew 1% as
reported and 4% in constant currency, while instrument system sales
declined 8% as reported and 6% in constant currency.
Geographically, sales in Asia during the quarter were flat as reported
and grew 2% in constant currency, sales in the Americas were flat (with
U.S. sales growing 2%), and sales in Europe declined 12% as reported and
5% in constant currency.
Second Quarter and Fiscal Year 2019 Financial Outlook
The Company expects second quarter 2019 constant currency sales growth
in the range of 2% to 4%. As of today, currency translation is expected
to decrease second quarter sales growth by one to two percentage points.
The Company also expects second quarter 2019 non-GAAP earnings per fully
diluted share in the range of $2.05 to $2.15. Please refer to the tables
below for a reconciliation of the projected GAAP to non-GAAP financial
outlook for the second quarter.
In addition, the Company is updating its previously issued full-year
guidance, and currently expects full-year 2019 constant currency sales
growth in the range of 2% to 4%, compared to the prior range of 4% to
6%. As of today, currency translation is expected to decrease full-year
sales growth by one to two percentage points. The Company also now
expects full-year 2019 non-GAAP earnings per fully diluted share in the
range of $9.05 to $9.25, compared to our prior range of $9.20 to $9.45.
Please refer to the tables below for a reconciliation of the projected
GAAP to non-GAAP financial outlook for the full year.
Conference Call
Waters Corporation will webcast its first quarter 2019 financial results
conference call today, April 23, 2019 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 April 30, 2019 at midnight Eastern Time on the same
website by webcast and also by phone at 203-369-0637.
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 approximately 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
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
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 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 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;
impact of the newly enacted tax reform legislation in the U.S.; 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, 2018 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 | ||||||||||
March 30, 2019 | March 31, 2018 | |||||||||
Net sales | $ | 513,862 | $ | 530,670 | ||||||
Costs and operating expenses: | ||||||||||
Cost of sales | 221,031 | 221,421 | ||||||||
Selling and administrative expenses | 134,339 | 130,407 | ||||||||
Research and development expenses | 35,060 | 34,480 | ||||||||
Purchased intangibles amortization | 2,281 | 1,659 | ||||||||
Litigation settlement | – | (1,672 | ) | |||||||
Operating income | 121,151 | 144,375 | ||||||||
Other (expense) income | (525 | ) | 346 | |||||||
Interest expense, net | (3,248 | ) | (4,172 | ) | ||||||
Income from operations before income taxes | 117,378 | 140,549 | ||||||||
Provision for income taxes(1) | 8,392 | 28,598 | ||||||||
Net income | $ | 108,986 | $ | 111,951 | ||||||
Net income per basic common share | $ | 1.52 | $ | 1.42 | ||||||
Weighted-average number of basic common shares | 71,704 | 78,883 | ||||||||
Net income per diluted common share | $ | 1.51 | $ | 1.40 | ||||||
Weighted-average number of diluted common shares and equivalents | 72,415 | 79,715 |
(1) The provision for income taxes for the three months ended March 30,
2019 and March 31, 2018 included a $3 million benefit and a $12 million
expense, respectively, 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 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 March 30, 2019 and
March 31, 2018, respectively.
Waters Corporation and Subsidiaries | |||||||||||||||||||||
Reconciliation of GAAP to Adjusted Non-GAAP | |||||||||||||||||||||
Net Sales by Operating Segment, Products & Services, Geography and Markets |
|||||||||||||||||||||
Three Months Ended March 30, 2019 and March 31, 2018 | |||||||||||||||||||||
(In thousands) | |||||||||||||||||||||
Current | |||||||||||||||||||||
Period | Constant | ||||||||||||||||||||
Three Months Ended |
|
Percent |
Currency | Currency | |||||||||||||||||
March 30, 2019 | March 31, 2018 |
|
Change |
Impact | Growth Rate (a) | ||||||||||||||||
NET SALES – OPERATING SEGMENT | |||||||||||||||||||||
Waters | $ | 459,914 | $ | 471,146 | (2%) | $ | (13,957) | 1% | |||||||||||||
TA | 53,948 | 59,524 | (9%) | (878) | (8%) | ||||||||||||||||
Total | $ | 513,862 | $ | 530,670 | (3%) | $ | (14,835) | – | |||||||||||||
NET SALES – PRODUCTS & SERVICES | |||||||||||||||||||||
Instruments | $ | 221,250 | $ | 240,407 | (8%) | $ | (5,869) | (6%) | |||||||||||||
Service | 193,359 | 191,553 | 1% | (5,848) | 4% | ||||||||||||||||
Chemistry | 99,253 | 98,710 | 1% | (3,118) | 4% | ||||||||||||||||
Total Recurring | 292,612 | 290,263 | 1% | (8,966) | 4% | ||||||||||||||||
Total | $ | 513,862 | $ | 530,670 | (3%) | $ | (14,835) | – | |||||||||||||
NET SALES – GEOGRAPHY | |||||||||||||||||||||
Asia | $ | 200,512 | $ | 200,280 | – | $ | (4,197) | 2% | |||||||||||||
Americas | 181,868 | 181,710 | – | (485) | – | ||||||||||||||||
Europe | 131,482 | 148,680 | (12%) | (10,153) | (5%) | ||||||||||||||||
Total | $ | 513,862 | $ | 530,670 | (3%) | $ | (14,835) | – | |||||||||||||
NET SALES – MARKETS | |||||||||||||||||||||
Pharmaceutical | $ | 294,512 | $ | 305,328 | (4%) | $ | (10,522) | – | |||||||||||||
Industrial | 155,218 | 162,330 | (4%) | (3,206) | (2%) | ||||||||||||||||
Academic & Governmental | 64,132 | 63,012 | 2% | (1,107) | 4% | ||||||||||||||||
Total | $ | 513,862 | $ | 530,670 | (3%) | $ | (14,835) | – | |||||||||||||
(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 | |||||||||||||||||||||||||||||||||
Three Months Ended March 30, 2019 and March 31, 2018 | |||||||||||||||||||||||||||||||||
(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 |
Income |
Percentage |
Taxes |
Taxes |
Income |
per Share |
||||||||||||||||||||||||||
Quarter Ended March 30, 2019 | |||||||||||||||||||||||||||||||||
GAAP | $ | 136,620 | $ | 35,060 | $ | 121,151 | 23.6% | $ | 117,378 | $ | 8,392 | $ | 108,986 | $ | 1.51 | ||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||||
Purchased intangibles amortization (b) | (2,281) | – | 2,281 | 0.4% | 2,281 | 494 | 1,787 | 0.02 | |||||||||||||||||||||||||
Restructuring costs and certain other items (c) | (10,061) | – | 10,061 | 2.0% | 10,061 | 2,633 | 7,428 | 0.10 | |||||||||||||||||||||||||
Tax reform (d) | – | – | – | – | – | 3,229 | (3,229) | (0.04) | |||||||||||||||||||||||||
Certain income tax items (e) | – | – | – | – | – | (674) | 674 | 0.01 | |||||||||||||||||||||||||
Adjusted Non-GAAP | $ | 124,278 | $ | 35,060 | $ | 133,493 | 26.0% | $ | 129,720 | $ | 14,074 | $ | 115,646 | $ | 1.60 | ||||||||||||||||||
Quarter Ended March 31, 2018 | |||||||||||||||||||||||||||||||||
GAAP | $ | 130,394 | $ | 34,480 | $ | 144,375 | 27.2% | $ | 140,549 | $ | 28,598 | $ | 111,951 | $ | 1.40 | ||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||||
Purchased intangibles amortization (b) | (1,659) | – | 1,659 | 0.3% | 1,659 | 202 | 1,457 | 0.02 | |||||||||||||||||||||||||
Restructuring costs and certain other items (c) | (568) | – | 568 | 0.1% | 568 | 132 | 436 | 0.01 | |||||||||||||||||||||||||
Litigation settlement (f) | 1,672 | – | (1,672) | (0.3%) | (1,672) | (401) | (1,271) | (0.02) | |||||||||||||||||||||||||
Stock award modification (g) | (1,014) | – | 1,014 | 0.2% | 1,014 | 243 | 771 | 0.01 | |||||||||||||||||||||||||
Tax reform (d) | – | – | – | – | – | (12,450) | 12,450 | 0.16 | |||||||||||||||||||||||||
Certain income tax items (e) | – | – | – | – | – | (692) | 692 | 0.01 | |||||||||||||||||||||||||
Adjusted Non-GAAP | $ | 128,825 | $ | 34,480 | $ | 145,944 | 27.5% | $ | 142,118 | $ | 15,632 | $ | 126,486 | $ | 1.59 | ||||||||||||||||||
(a) Selling & administrative expenses include purchased intangibles
amortization and litigation provisions.
(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 and
certain other items were excluded as the Company believes that the cost
to consolidate operations and reduce overhead 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 provision for income taxes for the three months
ended March 30, 2019 and March 31, 2018 included a $3 million benefit
and a $12 million expense, respectively, 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 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 March 30, 2019 and March 31, 2018, respectively. The impact
of the tax on the change in foreign currency exchange rates was excluded
as the Company believes this expense is not indicative of the Company’s
normal or future income tax expense.
(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 settlement gains were excluded as these
costs are isolated, unpredictable and not expected to recur regularly.
(g)
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.
Waters Corporation and Subsidiaries | |||||||||||
Preliminary Condensed Unclassified Consolidated Balance Sheets | |||||||||||
(In thousands and unaudited) | |||||||||||
March 30, 2019 | December 31, 2018 | ||||||||||
Cash, cash equivalents and investments | $ | 1,167,263 | $ | 1,735,224 | |||||||
Accounts receivable | 508,285 | 568,316 | |||||||||
Inventories | 333,308 | 291,569 | |||||||||
Property, plant and equipment, net | 355,965 | 343,083 | |||||||||
Intangible assets, net | 243,415 | 246,902 | |||||||||
Goodwill | 356,632 | 355,614 | |||||||||
Other assets | 284,860 | 186,718 | |||||||||
Total assets | $ | 3,249,728 | $ | 3,727,426 | |||||||
Notes payable and debt | $ | 1,148,546 | $ | 1,148,350 | |||||||
Other liabilities | 1,133,440 | 1,011,818 | |||||||||
Total liabilities | 2,281,986 | 2,160,168 | |||||||||
Total equity | 967,742 | 1,567,258 | |||||||||
Total liabilities and equity | $ | 3,249,728 | $ | 3,727,426 |
Waters Corporation and Subsidiaries | |||||||||||||
Preliminary Condensed Consolidated Statements of Cash Flows | |||||||||||||
Three Months Ended March 30, 2019 and March 31, 2018 | |||||||||||||
(In thousands and unaudited) | |||||||||||||
Three Months Ended | |||||||||||||
March 30, 2019 | March 31, 2018 | ||||||||||||
Cash flows from operating activities: | |||||||||||||
Net income | $ | 108,986 | $ | 111,951 | |||||||||
Adjustments to reconcile net income to net | |||||||||||||
cash provided by operating activities: | |||||||||||||
Stock-based compensation | 9,941 | 9,892 | |||||||||||
Depreciation and amortization | 24,764 | 28,640 | |||||||||||
Change in operating assets and liabilities, net | 32,088 | 25,358 | |||||||||||
Net cash provided by operating activities | 175,779 | 175,841 | |||||||||||
Cash flows from investing activities: | |||||||||||||
Additions to property, plant, equipment | |||||||||||||
and software capitalization | (25,666 | ) | (15,992 | ) | |||||||||
Investment in unaffiliated company | – | (3,215 | ) | ||||||||||
Net change in investments | 459,705 | 915,046 | |||||||||||
Net cash provided by investing activities | 434,039 | 895,839 | |||||||||||
Cash flows from financing activities: | |||||||||||||
Net change in debt | 86 | (749,919 | ) | ||||||||||
Proceeds from stock plans | 27,631 | 24,287 | |||||||||||
Purchases of treasury shares | (753,105 | ) | (282,370 | ) | |||||||||
Other cash flow from financing activities, net | 2,254 | 1,937 | |||||||||||
Net cash used in financing activities | (723,134 | ) | (1,006,065 | ) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 2,006 | 8,588 | |||||||||||
(Decrease) increase in cash and cash equivalents | (111,310 | ) | 74,203 | ||||||||||
Cash and cash equivalents at beginning of period | 796,280 | 642,319 | |||||||||||
Cash and cash equivalents at end of period | $ | 684,970 | $ | 716,522 | |||||||||
Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flow (a) |
|||||||||||||
Net cash provided by operating activities – GAAP | $ | 175,779 | $ | 175,841 | |||||||||
Adjustments: | |||||||||||||
Additions to property, plant, equipment | |||||||||||||
and software capitalization | (25,666 | ) | (15,992 | ) | |||||||||
Major facility renovations | 7,496 | – | |||||||||||
Free Cash Flow – Adjusted Non-GAAP | $ | 157,609 | $ | 159,849 | |||||||||
(a) 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.
Waters Corporation and Subsidiaries | ||||||||||||||||||||||||||||
Reconciliation of Projected GAAP to Adjusted Non-GAAP Financial Outlook |
||||||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||
June 29, 2019 | December 31, 2019 | |||||||||||||||||||||||||||
Range | Range | |||||||||||||||||||||||||||
Projected Sales | ||||||||||||||||||||||||||||
Projected constant currency sales growth rate | 2% | – | 4% | 2% | – | 4% | ||||||||||||||||||||||
Projected currency impact | (2%) | – | (1%) | (2%) | – | (1%) | ||||||||||||||||||||||
Projected sales growth rate as reported | 0% | – | 3% | 0% | – | 3% | ||||||||||||||||||||||
Projected Earnings Per Diluted Share | Range | Range | ||||||||||||||||||||||||||
Projected GAAP earnings per diluted share | $ | 2.01 | – | $ | 2.11 |
$ |
8.84 |
– |
$ |
9.04 |
||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||
Purchased intangibles amortization | $ | 0.03 | – | $ | 0.03 | $ | 0.11 | – | $ | 0.11 | ||||||||||||||||||
Certain other items | $ | – | – | $ | – |
$ |
0.11 |
– |
$ |
0.11 |
||||||||||||||||||
Certain income tax items | $ | 0.01 | – | $ | 0.01 | $ | (0.01 | ) | – | $ | (0.01 | ) | ||||||||||||||||
Projected adjusted non-GAAP earnings per diluted share | $ | 2.05 | – | $ | 2.15 | $ | 9.05 | – | $ | 9.25 |
Constant currency growth rates are a non-GAAP financial measure that
measures the change in net sales between current and prior year periods,
ignoring the impact of foreign currency exchange rates during the
current period. These amounts are estimated at the current foreign
currency exchange rates and based on the forecasted geographical sales
in local currency, as well as an assessment of market conditions as of
today, and may differ significantly from actual results.
These forward-looking adjustment estimates do not reflect future gains
and charges that are inherently difficult to predict and estimate due to
their unknown timing, effect and/or significance.
Contacts
Bryan Brokmeier, CFA, Senior Director, Investor Relations, 508-482-3448