WATERS CORP DE

Current report

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current report

Tariffs

Current report

The Company sells and services its customers in over 35 countries outside of the U.S. and we have manufacturing operations in the U.S., Ireland, U.K. and in Singapore where we utilize subcontractors with worldwide capabilities.

Current report

In 2025, the U.S. government issued varying levels of tariffs on all imported goods into the U.S. The effective date of these tariffs has been delayed until July 2025 for all countries except China, as the U.S. seeks to negotiate these tariffs with each of the respective countries. These tariffs, any resulting retaliatory tariffs and any related supply-chain disruptions could have a significant impact on the Company’s consolidated statement of operations and statement of cash flows. In response to the proposed tariffs (or, in the case of China, the tariffs as currently in effect), the Company is continuing to evaluate and implement a series of actions and policies that are intended to offset a portion of the impact of the tariffs on the Company’s financial position and results of operations. While the Company believes that these actions and policies will mitigate a substantial portion of the impact of the tariffs, the Company cannot provide any assurances that the tariffs or any resulting impediments to trade will not have a material effect on the Company’s consolidated statement of operations and statement of cash flows.

Current report

The Company’s net sales increased 4% in the first quarter of 2025, as compared to the first quarter of 2024, with foreign currency translation decreasing total sales growth by 3%. The first quarter sales growth was broad-based across most major regions, primarily driven by the increase in customer demand for our LC, MS and LC & MS instrument systems.

Current report

Instrument system sales increased 9% in the first quarter of 2025 primarily driven by broad-based higher customer demand in all regions of the world, except for Europe, where instrument sales declined 3%. Foreign currency translation decreased instrument system sales growth by 3% in the first quarter of 2025.

Current report

Recurring revenues (combined sales of precision chemistry consumables and services) increased 1% in the first quarter of 2025, with foreign currency translation decreasing sales growth by 3%. In addition to this negative effect of foreign currency translation, recurring revenues were also negatively impacted by two fewer days in the first quarter of 2025 as compared to the first quarter of 2024, resulting in service revenue growth being flat and chemistry sales increasing 3% in the first quarter of 2025.

Current report

Operating income was $152 million in the first quarter of 2025, an increase of 13% as compared to $134 million in the first quarter of 2024. The increase in operating income was primarily attributed to the higher sales volume in the first quarter of 2025 and the absence of $8 million of restructuring expense and $10 million of patent litigation expense incurred in the first quarter of 2024.

Current report

Results of Operations

Current report

Sales by Geography

Current report

Geographic sales information is presented below for the three months ended March 29, 2025 and March 30, 2024 (dollars in thousands):

Current report

Geographically, the Company’s sales increase in the first quarter of 2025 was broad-based across most major regions except for Europe, which decreased 1%. Foreign currency translation decreased Europe’s sales by 2%. Asia’s sales increased 6% in the quarter, led by India where sales grew 9%. Foreign currency translation decreased Asia’s sales growth by 6%, primarily driven by the Japanese yen.

Current report

Sales by Trade Class

Current report

Net sales by customer class are presented below for the three months ended March 29, 2025 and March 30, 2024 (dollars in thousands):

Current report

During the first quarter of 2025, sales to pharmaceutical customers increased 5%, with all regions growing except for China, where sales to pharmaceutical customers declined 9%. Foreign currency translation decreased pharmaceutical sales growth by 3%. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, increased 4% in the first quarter of 2025, with foreign currency translation decreasing sales growth by 2%.

Current report

Our combined sales to academic and government customers were flat in the first quarter of 2025, with foreign currency translation decreasing sales growth by 3%. Sales to our academic and government customers are highly dependent on when institutions receive funding to purchase our instrument systems and, as such, sales can vary significantly from period to period.

Current report

Waters Products and Services Net Sales

Current report

Net sales for Waters products and services were as follows for the three months ended March 29, 2025 and March 30, 2024 (dollars in thousands):

Current report

Waters products and service sales increased 5% in the first quarter of 2025, with the effect of foreign currency translation decreasing sales growth by 3%. Waters instrument system sales increased 11% in the first quarter of 2025 due to stronger customer demand for our Acquity and Xevo TQ-S instrument systems. Waters service sales growth was flat in the first quarter of 2025 due to the negative impact from foreign currency translation which decreased service sales growth by 3% and the two fewer days in the first quarter of 2025 as compared to the first quarter of 2024.

Current report

TA Product and Services Net Sales

Current report

Net sales for TA products and services were as follows for the three months ended March 29, 2025 and March 30, 2024 (dollars in thousands):

Current report

TA sales declined 1% in the first quarter of 2025 due to lower customer demand for TA products in most major regions except for Asia, where sales increased 15%. Foreign currency translation decreased TA sales growth by 1% in the quarter.

Current report

Cost of Sales

Current report

Cost of sales increased by 6% in the first quarter 2025, primarily due to higher sales volume and changes in the sales mix. Cost of sales is affected by many factors, including, but not limited to, foreign currency translation, product mix, product costs of instrument systems and amortization of software platforms.

Current report

Selling and Administrative Expenses

Current report

Selling and administrative expenses were flat in the first quarter of 2025 compared to the first quarter of 2024. The effect of foreign currency translation decreased selling and administrative expenses by 2% in the first quarter of 2025.

Current report

As a percentage of net sales, selling and administrative expenses were 26.4% and 27.4% for the first quarter of 2025 and 2024, respectively.

Current report

Research and Development Expenses

Current report

Research and development expenses increased 5% in the first quarter of 2025, primarily driven by merit compensation and costs associated with the development of new product and technology initiatives. The impact of foreign currency exchange did not have a significant impact in the first quarter of 2025.

Current report

Litigation Provisions

Current report

The Company recorded $10 million of patent litigation settlement provisions and related costs in the first quarter of 2024. No litigation provisions were recorded by the Company in the first quarter of 2025.

Current report

Interest Expense, net

Current report

Interest expense, net, decreased $11 million in the first quarter of 2025, which can be primarily attributed to the repayment of outstanding debt.

Current report

Provision for Income Taxes

Current report

The four principal jurisdictions in which the Company manufactures are the U.S., Ireland, the U.K. and Singapore, where the statutory tax rates were 21%, 12.5%, 25% and 17%, respectively, as of March 29, 2025. The Company has a Development and Expansion Incentive in Singapore that provides a concessionary income tax rate of 5% on certain types of income for the period April 1, 2021 through March 31, 2026. The effect of applying the concessionary income tax rate rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income by $0.5 million and $2 million and increased the Company’s net income per diluted share by $0.01 and $0.03 for the first quarter of 2025 and 2024, respectively.

Current report

The Company’s effective tax rate for the first quarter of 2025 and 2024 was 15.1% and 11.0%, respectively. The income tax provision includes a $2 million and a $1 million income tax benefit related to stock-based compensation for the first quarter of 2025 and 2024, respectively. The remaining differences between the effective tax rates can primarily be attributed the impact of discrete tax benefits in the prior year and to differences in the proportionate amounts ofpre-tax income recognized in jurisdictions with different effective tax rates.

Current report

Effective in 2024, various foreign jurisdictions began implementing aspects of the guidance issued by the Organization for Economic Co-operation and Development related to the new Pillar Two system of global minimum tax rules. These changes in tax law did not have a material impact on the Company’s financial position, results of operations and cash flows for the first quarter of 2025. The Company continues to monitor the adoption of the Pillar Two rules in additional jurisdictions.

Current report

Liquidity and Capital Resources

Current report

Condensed Consolidated Statements of Cash Flows (in thousands):

Current report

Cash Flow from Operating Activities

Previous report

Wyatt Acquisition

Previous report

On May 16, 2023, the Company completed the acquisition of Wyatt Technology, LLC and its three operating subsidiaries, Wyatt Technology Europe GmbH, Wyatt Technology France and Wyatt Technology UK Ltd. (collectively, “Wyatt”), for a total purchase price of $1.3 billion in cash. Wyatt is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories, and services. The acquisition expanded Waters’ portfolio and increase exposure to large molecule applications. The Company financed this transaction with a combination of cash on its balance sheet and borrowings under its revolving credit facility. The Company’s financial results for the three and nine months ended September 28, 2024 include the financial results of Wyatt. The Company’s financial results for the first nine months of 2023 only include four-and-a-half months of Wyatt’s financial results as the closing of the acquisition occurred during the second quarter of 2023.

Previous report

The Company’s net sales increased 4% in the third quarter of 2024, as compared to the third quarter of 2023, with foreign currency translation having minimal impact on total sales growth. For the first nine months of 2024, the Company’s net sales decreased 2%, with the effect of foreign currency translation decreasing sales growth by 1% as compared to the first nine months of 2023. The net sales growth in the third quarter of 2024 was driven by strong customer demand across most major geographies, end markets, and product categories. For the first nine months of 2024, the Company’s net sales were negatively impacted by our customers delaying purchases of our instrument systems as they remained cautious with their capital spending during the first half of 2024; except in India, where sales growth increased 15% for the first nine months of 2024. The Wyatt acquisition increased sales growth by 2% for the first nine months of 2024. In addition, the Company’s first nine months of 2024 had one less calendar day than the first nine months of 2023. At current foreign currency exchange rates, the Company expects that foreign currency translation will have a negative impact on sales for the remainder of 2024.

Previous report

Instrument system sales increased 1% for the third quarter of 2024 primarily driven by the increase in customer demand across our existing and newly introduced LC, LC-MS and Thermal Analysis instrument system sales. Instrument system sales decreased 11% for the first nine months of 2024 primarily driven by weaker customer demand across all major regions during the first half of 2024 caused by delayed capital spending. This decline in instrument system sales was broad-based across all of our instrument systems and was led by our mass spectrometry instrument systems, which are higher priced instruments that are significantly impacted by the timing and level of funding our academic and government customers receive. The Wyatt acquisition increased instrument system sales growth by 3% for the first nine months of 2024. Foreign currency translation had minimal impact on instrument system sales growth for both the third quarter and first nine months of 2024.

Previous report

Recurring revenues (combined sales of precision chemistry consumables and services) increased 6% and 5% for the third quarter and first nine months of 2024, respectively, with foreign currency translation decreasing sales growth by 1% for both the third quarter and first nine months of 2024. Service revenues increased 6% and 5% for the third quarter and first nine months of 2024, respectively. Wyatt contributed 1% to service revenue growth for the first nine months of 2024. Chemistry sales growth increased 8% and 4% for the third quarter and first nine months of 2024, respectively.

Previous report

Operating income increased 18% for the third quarter of 2024 primarily due to higher sales volume and cost savings from recent workforce reductions being partially offset by an increase in annual incentive compensation. In addition, the increase in operating income was impacted by $23 million of severance-related costs incurred in the third quarter of 2023 in connection with a worldwide reduction in the Company’s workforce.

Previous report

Operating income decreased 3% for the first nine months of 2024, due to lower sales volume and the increases in annual incentive compensation expense, purchased intangibles amortization associated with the Wyatt acquisition, severance-related costs associated with a workforce reduction in China in the first quarter of 2024 and certain litigation settlements. In addition, the change in operating income was also impacted by the cost savings from the workforce reductions and the costs incurred in the first nine months of 2023, which included $13 million of transaction costs related to the Wyatt acquisition and $27 million of severance-related costs in connection with a worldwide reduction in the Company’s workforce in 2023. The negative effect of foreign currency translation lowered operating income by approximately $3 million and $19 million for the third quarter and first nine months of 2024, respectively.