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Text: It is one that has brought significant change and sacrifices.
From navigating the pandemic and resulting short-term cost-saving initiatives earlier this year to changes in leadership, the Waters team has responded with drive, determination, and an indomitable spirit.
I am impressed by and grateful for our team's resilience and commitment to our customers and to each other.
During today's call, I will provide a brief overview of our 4th quarter and full-year operating results as well as an update on the, on the stabilization that we have seen in the LC market and a few factors influencing our thinking for 2021.
Mike will then review our financial results in detail and provide comments on our first quarter and full-year financial outlook.
Briefly reviewing our operating results for the 4th quarter, revenue grew 10% as reported, 7% on a constant currency basis and adjusted, adjusted earnings per share grew 14%.
For the full year, revenue declined 2% and adjusted earnings per share was up 1%.
The strong finish to the end of a challenging year was driven by the pharmaceutical market improvement, capital spending recovery in the second half of the year, strong -- strong execution and early contributions from our near-term growth initiatives.
Looking more closely at our top line results, first from a customer perspective.
Our largest market category pharma was the primary growth driver in the quarter with 15% growth.
Our industrial market grew 5% while academia and government declined 15%.
On a constant currency basis, sales in Asia were up 12% with China, up 19%.
Meanwhile, sales in the Americas grew 3% for the US growing 4% and European sales grew at 6%.
From a product perspective, our Waters branded products and services grew approximately 8% while TA declined by around 1% on a constant currency basis.
While still navigating the global pandemic, we are seeing clear signs of improving customer activity, positive growth trends in our recurring revenues, and an evidence of stabilization in LC instrument demand.
Services grew 10% while consumables business grew approximately 14% driven largely by global pharma strength, including sales of our recently launched PREMIER Columns, which performed exceedingly well in the first quarter on the market.
LC Instruments grew most -- grew across most of our major geographies with high single-digit growth.
This improvement in capital equipment purchasing reflects the combination of the return of some of the planned capital spending that was delayed from the first half of the year, a normal pharma year end budget flush, and early contributions from our LC replacement initiatives.
Following last June's release of the Arc HPLC System in the core HPLC market with a particular focus on the small molecule development and QA-QC space, we look forward to the continued expansion of our liquid chromatography portfolio.
On February 10, we will launch ACQUITY PREMIER, a next generation UPLC system that offers customers an extraordinary breakthrough in efficiency, sensitivity, and overall capability.
This new system will benefit both large and small molecule discovery and development as well as biomedical research.
This new system has even more profound benefits when paired with our ACQUITY PREMIER Columns, which I mentioned earlier and were launched in the 4th quarter.
The combined solution will alleviate non-specific binding absorption losses and provide a significant leap forward with enhanced reproducibility, reduced passivation, and an increased confidence in analytical results.
After a very strong 3rd quarter, mass spec sales were about flat in Q4.
As you know, the mass spec business can be lumpy, which we saw with biomedical research.
There was also a general softness in clinical diagnostics as budgets were diverted to COVID-19 testing.
Notably, however, mass spec sales to pharma customers grew double-digits, driven by the strong double-digit growth of both BioAccord and the QDA.
Finally, to TA, revenues declined low single digits, which was -- which was much improved from earlier in the year.
We saw the core thermal business start to pick up driven by market improvement in Asia.
In particular, life sciences including pharma and medical devices grew double-digits.
Combined these, comprised approximately 10% to 15% of TA's total revenues.
However, this was not enough to offset declines from TA's industrial customers.
Looking now, at our geographies, all major regions grew.
The Americas grew low single digits, Europe grew mid-single digits, and Asia grew double-digits.
In the US, the growth was driven by pharma, which was partially offset by declines in material science, environmental, academic, and government.
Though Latin America continued to decline, it improved meaningfully relative to earlier in the year.
Europe also experienced strong pharma performance, partially offset by material science, food, and academic and government.
In both US and Europe, pharma growth was broad-based including strength in big pharma, large molecule customers, genetics, and contract labs.
China had an impressive quarter with strong double-digit growth driven by continuing acceleration in pharma as well as strong environmental growth.
The pharma growth was driven by both small and large molecule customers including particularly strong growth at contract labs.
India also continued to grow double-digits.
In summary, overall in the 4th quarter, we saw further relative strength in the market and benefited from strong year end spending trends.
Now for the year, our pharmaceutical market category achieved 1% growth with the US, Europe, and India all seeing positive growth.
Industrial declined 3% for the full year and academic and government declined 16%.
Notably, our pharma market category grew 10% in the second half compared to the first half decline of 8% owed in part to strength in small molecules, the industry recovered from lock-downs.
Industrial also grew in the second half at 4% while academic and government declined 12% compared to the first half declines of 10% and 22% respectively.
Geographically for the year, Asia sales were down 4% with China -- China sales down 8%.
Sales in Americas were down 4%; for the US, down 2%.
Europe sales were up 2%.
Notably, all our major geographies grew in the second half of the year with the US up 4% and Europe up 6% following first half declines of 9% and 3% respectively.
China market grew in the second half, up 11%, reversing much of its sharp 31% decline in the first half of the year.
Now, I would like to share some of the progress we've made in our transformation program, as several of the initiatives we're putting interaction are starting to contribute to growth.
First, I would talk about our instrument replacement initiative, then our progress in contract lab expansion followed by e-commerce and lastly, I'll give you a BioAccord update.
First, as it relates to our instrument replacement initiative, which is the most advanced initiative under way, we delivered our first quarterly LC Instrument revenue growth in two years and our LC Instrument win-loss was the highest it has been in three years.
Initial customer feedback has been very positive on the Arc HPLC as well.
Second, as part of our contract lab expansion initiatives, we have made important progress in targeting this high growth customer group.
We have contacted a number of customers globally, particularly in China and have strengthened our value proposition with expanded alternative revenue and service offerings, which have -- which have been well received by the segment.
It is still early days, but we're pleased with the progress we're making.
Third, our e-commerce initiative is still in the early stages, but waters.com traffic is up double digits, driven by search engine optimization and paid search.
While there isn't a one-to-one relationship between traffic and revenue, increased traffic is an important first step in driving revenue growth through the e-commerce channel.
In tandem with our e-commerce actions, we've also enhanced our e-procurement platform on which we have expanded our coverage of customers leveraging this channel.
This supported strong e-procurement growth indicating that it's now easier to work with Waters.
Fourth, driving launch excellence.
BioAccord sales exceeded expectations in the quarter as our market development efforts and our specialty sales model have started to take effect, particularly in the US and Europe.
Many customers are increasingly adopting BioAccord for manufacturing and several have placed follow-on orders.
Once we get BioAccord applications on an enterprise software platform, we believe we will be, we will be seeing more follow-on orders.
More importantly, customer activity continues to be encouraging, which makes us optimistic about 2021.
Lastly, I'd like to highlight our efforts to help mitigate the public health crisis.
In addition to the significant efforts by our innovation response team, we are encouraged to see Waters consumable specked in on QA-QC methods for COVID vaccines and therapeutics.
We're also seeing an uptick in COVID driven demand for our instruments and consumables.
This peaked in the 4th quarter were COVID revenues contributed an estimated 1 to 2 percentage points to the growth, driven by those pharmaceutical customers developing COVID vaccines and therapeutics who saw meaningfully higher growth than manufacturers that don't have COVID-related programs.
In summary, as a wrap up to 2020, we've done a great job at keeping our employees safe and our operations running.
Our teams have focused not only on getting products out the door, but we have also assisted our customers engaged in COVID-related efforts.
Meanwhile, our base business is showing signs of recovery, and our transformation is well under way.
Turning to 2021, while the business environment remains uncertain, we look forward to building on the 4th quarter momentum.
Mike will provide further details on our outlook for 2021, which is based on three key factors.
One, we're assuming a gradual improvement in customer activity led by the pharma market.
Two, we expect all major geographies to perform better than they did in 2020, led by growth in China.
Lastly, our near-term growth initiatives are expected to continue to ramp up, led by our LC replacement initiative, which we expect to increasingly contribute to performance.
In the 4th quarter, we recorded net sales of $787 million, an increase of approximately 7% in constant currency.
Currency translation increased sales growth by approximately 3% resulting in sales growth of 10% as reported.
For the full year, sales declined about 2% in constant currency and as reported.
Looking at product line growth, our reoccurring revenue, which represents the combination of precision chemistry products and service revenue increased by 11% in the quarter while instrument sales increased 4%.
For the full year, reoccurring revenue grew 3% while instrument sales declined 9%.
Chemistry revenue were up 14% in the quarter, driven by strong pharma growth.
On the service side of our business, revenues were up 10%, as customers continue to reopen labs, catch up on performance maintenance in professional services, and repair visits.
As we noted last quarter, recurring sales were impacted by two additional calendar days in the quarter, which resulted in a slight increase in service revenue sales.
Looking ahead, there are five additional calendar days in the first quarter and six fewer calendar days in the 4th quarter of 2021 compared to 2020.
Breaking 4th quarter product sales down further, sales related to Waters' branded products and services grew 8% while sales of TA-branded products and services declined 1%.
Combined LC and LCMs instrument sales were up 5% while TA system sales declined 4%.
Now, I'd like to comment on our 4th quarter and full year non-GAAP financial performance versus the prior year.
Gross margin for the quarter was 59.2%, an increase compared to the 58.2% in the 4th quarter of 2019, primarily due to the higher sales volume in FX.
On non -- on a full year basis, gross margin was 57.4% compared to 58% in the prior year on lower overall sales volumes in 2020.
Moving down the 4th quarter P&L, operating expenses increased by approximately 6% on a constant currency basis and 8% on a reported basis.
The increase was primarily attributed to variable expenses related to the strong sales performance.
For the year, operating expenses were 1% lower before currency translation and flat after.
In the quarter and for the full year, our effective operating tax rate was 14.9% and 14.8% respectively, an increase from last year at the comparable period included some favorable discrete items.
Net interest expense was $7 million for the quarter, a decrease of about 3 million, as anticipated on lower outstanding debt balances.
Our average share count came in at 62.5 million shares, a reduction of approximately 3% or about 2 million shares lower than in the 4th quarter of last year.
This is a result of shares repurchased through the end of the first quarter of 2020 subsequent to which we paused our share repurchase program.
Our non-GAAP earnings per fully diluted share for the 4th quarter increased 40% to $3.65 in comparison to the $3.20 last year.
On a GAAP basis, our earnings per fully diluted share increased to $3.49 compared to $3.12 last year.
For the full year, our non-GAAP earnings per fully diluted share were up 1% at $9.05 per share versus $8.99 last year.
On a GAAP basis, full year earnings per share were $8.36 versus $8.69 in 2019.
Turning to free cash flow, capital deployment in our balance sheet, I would like to summarize our 4th quarter results and activities.
We define free cash flow as cash from operations less capital expenditures and excluding special items.
In the 4th quarter of 2020, free cash flow grew 52% year-over-year to $240 million after funding $47 million of capital expenditures.
Excluded from free cash flow was $19 million related to the investment in our Taunton precision chemistry operation.
In the 4th quarter, this resulted in $0.30 of each dollar of sales converted into free cash flow.
For the full year in 2020, free cash flow generation was $726 million after funding $172 million of capital expenditures.
This represents a 26% increase and $0.31 per dollar of sales converted into free cash flow.
Excluded from free cash flow was $70 million related to our investment in our Taunton chemistry operations and a $38 million transition tax payment related to the 2017 US tax reform.
Our increased free cash flow is primarily a result of our cost actions -- cost saving actions and improvements in our cash conversion cycle.
In the 4th quarter, accounts receivables days sales outstanding came in at 70 days, down seven days compared to the 4th quarter of last year.
Inventories decreased by 16 million in comparison to the prior quarter -- prior year quarter, reflecting stronger revenue growth in revised production schedules.
Waters maintains a strong balance sheet, access to liquidity, and a well structured debt maturity profile.
We ended the quarter with cash and short-term investments of $443 million and debt of 1.4 billion on our balance sheet at the end of the quarter.
This resulted in a net debt position of $913 million and a net debt to EBITDA ratio of about 1.1 times at the end of the 4th quarter.
Our capital deployment priorities remain consistent and better growth, balance sheet strength and flexibility, and return of capital to shareholders.
We remain committed to deploying capital against these priorities.
As such, our Board of Directors has approved a two-year extension of our January 2019 share repurchase authorization that was set to expire last month.
As of today, we have 1.5 billion remains available credit program for share repurchases.
As we look forward to the year ahead, I'd like to provide some broader context on our thoughts for 2021.
The business environment remains uncertain, and we are assuming a gradual improvement in customer activity led by the pharma market.
We expect all major geographies to perform better than they did in 2020 led by growth in China.
Our outlook does not anticipate a return to lock down seen in 2020.
We had a 1% tailwind from COVID-related revenue in 2000, three-quarters of which was in the second half of the year.
We expect a similar revenue impact in 2021, including a 1% to 2% growth tailwind in Q1.
We anticipate the first-half growth tailwind will moderate through the remainder of the year.
Improved execution on our near-term growth initiatives contributed to our 4th quarter growth, but the quarter also benefited from capital spending that were delayed from the first half into the second half of the year, which we don't expect to continue in 2021.
The second half of 2021, we'll have to content with a challenging comp resulting from the revenue shift that took place in 2020.
These dynamics support full-year 2021 guidance for constant currency sales growth of 5% to 8%.
At current rates, the positive currency translation to 2021 sales growth is expected to be 1 to 2 percentage points.
Gross margin for the full year is expected to be in the range of 57, 5% to 58.9%.
Every year, we look to balance growth, investment, and profitability.
Accordingly, we expect 2021 operating margins of 28% to 29% based on a combination of growth investments, normalization of COVID-related cost actions, and disciplined expense controls.
Moving now below the operating income line, other key assumptions for full-year guidance are net interest expense of 35 million to 38 million, a full year tax rate of between 15% and 16%, which includes our new five-year tax agreement with Singapore that will expire in March 2026, a restart of our share repurchase program in 2021 that will result in an average diluted 2021 share count of 61 to 61.5 million shares outstanding.
Over the course of the year, we will evaluate share repurchase program and provide quarterly updates as appropriate.
Rolling all of this together and on a non-GAAP basis, full year 2021 earnings per fully diluted share are projected in the range of $9.32 to $9.57, which assumes a positive currency impact on full year earnings-per-share growth of approximately 3 percentage points.
Looking at the first quarter of 2021, we expect constant currency sales growth to be 7% to 10%.
At today's rate, currency translation is expected to increase first quarter sales growth by approximately 3 percentage points.
First quarter non-GAAP earnings per fully diluted share are estimated to be in the range of $1.50 to $1.60.
At current rates, the positive currency impact on first quarter earnings-per-share growth is expected to be approximately 15 percentage points.
In summary, we're pleased with our resilience in the second half of 2020 and the strong finish to the year, which is a true testament to the determination of this team.
Though the environment remains variable, pharma markets have shown resilience and our transformation program is already demonstrating results and contributing to growth.
Despite the challenging environment, the progress we've made as an organization over the last five months is nothing short of extraordinary.
I remain ever more confident in the team, our portfolio, and our market position.
There remains a lot of work to do, but we have a tremendous opportunity in front of us to turn the business around.

user
compname reports q4 non-gaap earnings per share of $3.65.
q4 non-gaap earnings per share $3.65.
q4 gaap earnings per share $3.49.
q4 sales $787 million versus refinitiv ibes estimate of $713.7 million.
sees q1 non-gaap earnings per share $1.50 to $1.60.
sees fy 2021 non-gaap earnings per share $9.32 to $9.57.
expects q1 2021 constant-currency sales growth in range of 7% to 10%.
currency translation is expected to increase full-year sales growth by one to two percentage points.
expects full-year 2021 constant-currency sales growth in range of 5% to 8%.
currency translation is expected to increase q1 sales growth by approximately three percentage points.

assistant