Waters Reports Fourth Quarter And Full Year 2016 Financial Results

Waters Corporation (NYSE: WAT) reported fourth quarter 2016 sales of $629 million, a 7% increase versus sales of $587 million in the fourth quarter of 2015. Foreign currency translation reduced sales growth by 2% in the quarter. On a GAAP basis, earnings per diluted share (EPS) for the fourth quarter was up 17% to $2.15 compared to $1.83 for the fourth quarter of 2015. On a non-GAAP basis, including the adjustments in the attached reconciliation, EPS increased 13% to $2.21 from $1.96 in the fourth quarter of 2015. A description and reconciliation of GAAP to non-GAAP EPS is attached and can be found on the Company's website at http://www.waters.com under the caption "Investors."

For the full year, sales for the Company were $2,167 million, up 6% compared with sales of $2,042 million in 2015. Foreign currency translation reduced sales growth by 1% in the year. On a GAAP basis, EPS for 2016 was up 13% to $6.41 compared to $5.65 in 2015. On a non-GAAP basis and including adjustments in the attached reconciliation, EPS increased 12% to $6.62 in 2016 as compared to $5.89 in 2015.

Commenting on the Company's performance, Christopher J. O'Connell, President and Chief Executive Officer said, "I am pleased to report that our fourth quarter featured broad-based sales growth across our major markets, and balance across all product lines. The global Waters team executed well throughout 2016 and delivered strong financial results, while we continued to invest for future growth."

Unless otherwise noted, sales growth percentages are presented on an as reported basis and are the same as the sales growth percentages presented on a constant currency basis, each of which are detailed in the attached reconciliation of GAAP to non-GAAP sales.

Results from the Company's markets in the quarter were highlighted by 4% sales growth (6% in constant currency) from the broadly defined pharmaceutical market, 13% sales growth (14% in constant currency) from the industrial market, and 5% sales growth (6% in constant currency) from the governmental and academic market. For the full year, sales to the pharmaceutical market grew 9% (10% in constant currency), sales to the industrial market grew 6%, and sales to the governmental and academic market fell 4% (3% in constant currency).

Geographically, sales during the quarter grew 16% in Asia, 5% in Europe (9% in constant currency), and 1% in the Americas (2% in constant currency). For the full year, sales grew 13% in Asia (12% in constant currency), 4% in Europe (6% in constant currency), and 2% in the Americas (3% in constant currency).

The Company's recurring revenues, the combination of service and chemistry consumables, posted 7% sales growth (8% in constant currency), while instrument system sales grew 7% (9% in constant currency) in the quarter. For the full year, the Company's recurring revenues grew 8%, while instrument system sales grew by 4% (6% in constant currency).

As communicated in a prior press release, Waters Corporation will webcast its fourth quarter 2016 financial results conference call this morning, January 24, 2017 at 8:00 a.m. eastern time. To listen to the call, connect to www.waters.com, choose "Investors" and click on the "Live Webcast." A replay will be available through January 31, 2017 at midnight eastern time, similarly by webcast and also by phone at 203-369-1050.

About Waters Corporation

Waters Corporation (NYSE: WAT) develops and manufactures advanced analytical science technologies for laboratory-dependent organizations. For more than 50 years, the Company has pioneered a connected portfolio of separations science, laboratory information management, mass spectrometry and thermal analysis systems.

Non-GAAP Financial Measures

This press release contains financial measures, such as constant currency growth rate, adjusted operating income, adjusted earnings per diluted share and adjusted operating income, 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 among the Company's various market sectors from economic, sovereign and political uncertainties; the affect 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 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 ability to access capital, maintain liquidity and service our 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, 2015 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
Condensed Preliminary Unclassified Consolidated Balance Sheets
(In thousands and unaudited)
       
 
 
December 31, 2016 December 31, 2015
 
 
Cash, cash equivalents and investments $ 2,813,032 $ 2,399,263
Accounts receivable 489,340 468,315
Inventories 262,682 263,415
Property, plant and equipment, net 337,118 333,355
Intangible assets, net 207,055 218,022
Goodwill 352,080 356,864
Other assets 200,752 229,443
Total assets $ 4,662,059 $ 4,268,677
 
 
Notes payable and debt $ 1,827,263 $ 1,668,336
Other liabilities 532,847 541,490
Total liabilities 2,360,110 2,209,826
 
Total equity 2,301,949 2,058,851
Total liabilities and equity $ 4,662,059 $ 4,268,677
 
 
Waters Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
               
 
Three Months Ended Twelve Months Ended
December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015
 
Net sales $ 628,787 $ 586,610 $ 2,167,423 $ 2,042,332
 
Costs and operating expenses:
Cost of sales 251,579 237,915 891,453 842,672
Selling and administrative expenses 130,238 128,681 513,031 495,747
Research and development expenses 32,753 28,336 125,187 118,545
Acquired in-process research and development - 3,855 - 3,855
Purchased intangibles amortization 2,358 2,576 9,889 10,123
Litigation provisions 3,524 3,939 3,524 3,939
 
Operating income 208,335 181,308 624,339 567,451
 
Interest expense, net (5,756 ) (6,070 ) (24,225 ) (25,532 )
 
Income from operations before income taxes 202,579 175,238 600,114 541,919
 
Provision for income taxes 28,201 24,184 78,611 72,866
 
Net income $ 174,378 $ 151,054 $ 521,503 $ 469,053
 
 
Net income per basic common share $ 2.17 $ 1.85 $ 6.46 $ 5.70
 
Weighted-average number of basic common shares 80,366 81,650 80,786 82,336
 
 
Net income per diluted common share $ 2.15 $ 1.83 $ 6.41 $ 5.65
 
Weighted-average number of diluted common shares and equivalents 80,954 82,382 81,417 83,087
 
                           
Waters Corporation and Subsidiaries
Reconciliation of GAAP to Adjusted Non-GAAP
Net Sales by Operating Segment, Products & Services, Geography and Markets
Three Months Ended December 31, 2016 and December 31, 2015
(In thousands)
 
 
Constant
Three Months Ended Percent Currency Currency
December 31, 2016 December 31, 2015 Change Impact Growth Rate (a)
 
NET SALES - OPERATING SEGMENT
 
Waters $ 554,226 $ 509,393 9 % $ (8,057 ) 10 %
TA 74,561 77,217 (3 %) (789 ) (2 %)
           
Total $ 628,787 $ 586,610 7 % $ (8,846 ) 9 %
 
 
NET SALES - PRODUCTS & SERVICES
 
Instruments $ 352,717 $ 329,568 7 % $ (6,370 ) 9 %
 
Service 185,969 173,196 7 % (2,999 ) 9 %
Chemistry   90,101   83,846 7 %   523   7 %
Total Recurring 276,070 257,042 7 % (2,476 ) 8 %
           
Total $ 628,787 $ 586,610 7 % $ (8,846 ) 9 %
 
 
NET SALES - GEOGRAPHY
 
Americas $ 222,422 $ 219,676 1 % $ (1,189 ) 2 %
Europe 180,717 171,967 5 % (6,912 ) 9 %
Asia 225,648 194,967 16 % (745 ) 16 %
           
Total $ 628,787 $ 586,610 7 % $ (8,846 ) 9 %
 
 
NET SALES - MARKETS
 
Pharmaceutical $ 335,075 $ 320,764 4 % $ (5,274 ) 6 %
Industrial 210,899 186,708 13 % (2,404 ) 14 %
Government & Academic 82,813 79,138 5 % (1,168 ) 6 %
           
Total $ 628,787 $ 586,610 7 % $ (8,846 ) 9 %
 
       
 

(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
Net Sales by Operating Segment, Products & Services, Geography and Markets
Twelve Months Ended December 31, 2016 and December 31, 2015
(In thousands)
 
 
Constant
Twelve Months Ended Percent Currency Currency
December 31, 2016 December 31, 2015 Change Impact Growth Rate (a)
 
NET SALES - OPERATING SEGMENT
 
Waters $ 1,928,063 $ 1,806,868 7 % $ (12,733 ) 7 %
TA 239,360 235,464 2 % (880 ) 2 %
           
Total $ 2,167,423 $ 2,042,332 6 % $ (13,613 ) 7 %
 
 
NET SALES - PRODUCTS & SERVICES
 
Instruments $ 1,114,883 $ 1,067,315 4 % $ (11,654 ) 6 %
 
Service 707,127 657,076 8 % (4,848 ) 8 %
Chemistry   345,413   317,941 9 %   2,889   8 %
Total Recurring 1,052,540 975,017 8 % (1,959 ) 8 %
           
Total $ 2,167,423 $ 2,042,332 6 % $ (13,613 ) 7 %
 
 
NET SALES - GEOGRAPHY
 
Americas $ 807,182 $ 790,483 2 % $ (4,287 ) 3 %
Europe 577,257 555,886 4 % (9,352 ) 6 %
Asia 782,984 695,963 13 % 26 12 %
           
Total $ 2,167,423 $ 2,042,332 6 % $ (13,613 ) 7 %
 
 
NET SALES - MARKETS
 
Pharmaceutical $ 1,206,316 $ 1,106,229 9 % $ (9,827 ) 10 %
Industrial 690,119 653,213 6 % (1,281 ) 6 %
Government & Academic 270,988 282,890 (4 %) (2,505 ) (3 %)
           
Total $ 2,167,423 $ 2,042,332 6 % $ (13,613 ) 7 %
 
       
 

(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
Quarters and Twelve Months Ended December 31, 2016 and December 31, 2015
(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 (a)   Income Percentage   Taxes   Taxes   Income   per Share
Quarter Ended December 31, 2016
GAAP $ 136,120 $ 32,753 $ 208,335 33.1 % $ 202,579 $ 28,201 $ 174,378 $ 2.15
Adjustments:
Purchased intangibles

amortization (b)
(2,358 ) - 2,358 0.4 % 2,358 661 1,697 0.02
Restructuring costs,

asset impairments,

acquisition-related costs

& certain other items (d)
(304 ) - 304 0.0 % 304 312 (8 ) -
Litigation provisions (f) (3,524 ) - 3,524 0.6 % 3,524 1,321 2,203 0.03
Certain income

tax items (g)
  -     -     -   -     -   (739 )   739     0.01
Adjusted Non-GAAP $ 129,934   $ 32,753   $ 214,521   34.1 % $ 208,765 $ 29,756   $ 179,009   $ 2.21
 
Quarter Ended December 31, 2015
GAAP $ 135,196 $ 32,191 $ 181,308 30.9 % $ 175,238 $ 24,184 $ 151,054 $ 1.83
Adjustments:
Purchased intangibles

amortization (b)
(2,576 ) - 2,576 0.4 % 2,576 729 1,847 0.02
Restructuring costs,

asset impairments,

acquisition-related costs

& certain other items (d)
(2,435 ) - 2,435 0.4 % 2,435 606 1,829 0.02
Acquired in-process research and development (e) - (3,855 ) 3,855 0.7 % 3,855 786 3,069 0.04
Litigation provisions (f) (3,939 ) - 3,939 0.7 % 3,939 1,478 2,461 0.03
Certain income

tax items (g)
  -     -     -   -     -   (959 )   959     0.01
Adjusted Non-GAAP $ 126,246   $ 28,336   $ 194,113   33.1 % $ 188,043 $ 26,824   $ 161,219   $ 1.96
 
Twelve Months Ended December 31, 2016
GAAP $ 526,444 $ 125,187 $ 624,339 28.8 % $ 600,114 $ 78,611 $ 521,503 $ 6.41
Adjustments:
Purchased intangibles

amortization (b)
(9,889 ) - 9,889 0.5 % 9,889 2,864 7,025 0.09
Stock award

modification (c)
(7,085 ) - 7,085 0.3 % 7,085 2,657 4,428 0.05
Restructuring costs,

asset impairments,

acquisition-related costs

& certain other items (d)
(6,856 ) - 6,856 0.3 % 6,856 2,812 4,044 0.05
Litigation provisions (f) (3,524 ) - 3,524 0.2 % 3,524 1,321 2,203 0.03
Certain income

tax items (g)
  -     -     -   -     -   135     (135 )   -
Adjusted Non-GAAP $ 499,090   $ 125,187   $ 651,693   30.1 % $ 627,468 $ 88,400   $ 539,068   $ 6.62
 
Twelve Months Ended December 31, 2015
GAAP $ 509,809 $ 122,400 $ 567,451 27.8 % $ 541,919 $ 72,866 $ 469,053 $ 5.65
Adjustments:
Purchased intangibles

amortization (b)
(10,123 ) - 10,123 0.5 % 10,123 2,888 7,235 0.09
Restructuring costs,

asset impairments,

acquisition-related costs

& certain other items (d)
(7,455 ) - 7,455 0.4 % 7,455 2,377 5,078 0.06
Acquired in-process research and development (e) - (3,855 ) 3,855 0.2 % 3,855 786 3,069 0.04
Litigation provisions (f) (3,939 ) - 3,939 0.2 % 3,939 1,478 2,461 0.03
Certain income

tax items (g)
  -     -     -   -     -   (2,326 )   2,326     0.03
Adjusted Non-GAAP $ 488,292   $ 118,545   $ 592,823   29.0 % $ 567,291 $ 78,069   $ 489,222   $ 5.89
 
 
 

(a) Selling & administrative expenses include purchased intangibles amortization and litigation provisions. Research & development expenses include acquired in-process research and development.(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) 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.(d) Restructuring costs, asset impairments, acquisition-related costs and certain other items were excluded as the Company believes that the cost to consolidate operations and reduce overhead; the cost to complete acquisitions; the non-cash expense to record asset impairments 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.(e) Acquired In-Process Research and Development was excluded as it relates to milestone payments associated with a licensing arrangement for mass spectrometry that the Company believes is infrequent, unusual and not indicative of its normal business operations.(f) Litigation Provisions were excluded as these costs are isolated, unpredictable and not expected to recur regularly.(g) 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.

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