SEC Form 10-Q filed by Waters Corporation
Table of Contents
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| ☒ | Accelerated filer | ☐ | ||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
Table of Contents
September 28, 2024 |
December 31, 2023 |
|||||||
ASSETS |
(In thousands, except per share data) |
|||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Investments |
||||||||
| Accounts receivable, net |
||||||||
| Inventories |
||||||||
| Other current assets |
||||||||
| |
|
|
|
|||||
| Total current assets |
||||||||
| Property, plant and equipment, net |
||||||||
| Intangible assets, net |
||||||||
| Goodwill |
||||||||
| Operating lease assets |
||||||||
| Other assets |
||||||||
| |
|
|
|
|||||
| Total assets |
$ | $ | ||||||
| |
|
|
|
|||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Notes payable and debt |
$ | $ | ||||||
| Accounts payable |
||||||||
| Accrued employee compensation |
||||||||
| Deferred revenue and customer advances |
||||||||
| Current operating lease liabilities |
||||||||
| Accrued income taxes |
||||||||
| Accrued warranty |
||||||||
| Other current liabilities |
||||||||
| |
|
|
|
|||||
| Total current liabilities |
||||||||
| Long-term liabilities: |
||||||||
| Long-term debt |
||||||||
| Long-term portion of retirement benefits |
||||||||
| Long-term income tax liabilities |
||||||||
| Long-term operating lease liabilities |
||||||||
| Other long-term liabilities |
||||||||
| |
|
|
|
|||||
| Total long-term liabilities |
||||||||
| |
|
|
|
|||||
| Total liabilities |
||||||||
| Commitments and contingencies (Notes 6, 7 and 9) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, par value $ per share, 2024 and December 31, 2023 |
||||||||
| Common stock, par value $ issued, |
||||||||
| Additional paid-in capital |
||||||||
| Retained earnings |
||||||||
| Treasury stock, at cost, 2023, respectively |
( |
) | ( |
) | ||||
| Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity |
||||||||
| |
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended |
||||||||
September 28, 2024 |
September 30, 2023 |
|||||||
(In thousands, except per share data) |
||||||||
| Revenues: |
||||||||
| Product sales |
$ | $ | ||||||
| Service sales |
||||||||
| |
|
|
|
|||||
| Total net sales |
||||||||
| Costs and operating expenses: |
||||||||
| Cost of product sales |
||||||||
| Cost of service sales |
||||||||
| Selling and administrative expenses |
||||||||
| Research and development expenses |
||||||||
| Purchased intangibles amortization |
||||||||
| Litigation provision |
||||||||
| |
|
|
|
|||||
| Total costs and operating expenses |
||||||||
| |
|
|
|
|||||
| Operating income |
||||||||
| Other (expense) income, net |
( |
) | ||||||
| Interest expense |
( |
) |
( |
) | ||||
| Interest income |
||||||||
| |
|
|
|
|||||
| Income before income taxes |
||||||||
| Provision for income taxes |
||||||||
| |
|
|
|
|||||
| Net income |
$ | $ | ||||||
| |
|
|
|
|||||
| Net income per basic common share |
$ | $ | ||||||
| Weighted-average number of basic common shares |
||||||||
| Net income per diluted common share |
$ | $ | ||||||
| Weighted-average number of diluted common shares and equivalents |
||||||||
Nine Months Ended |
||||||||
September 28, 2024 |
September 30, 2023 |
|||||||
(In thousands, except per share data) |
||||||||
| Revenues: |
||||||||
| Product sales |
$ | $ | ||||||
| Service sales |
||||||||
| |
|
|
|
|||||
| Total net sales |
||||||||
| Costs and operating expenses: |
||||||||
| Cost of product sales |
||||||||
| Cost of service sales |
||||||||
| Selling and administrative expenses |
||||||||
| Research and development expenses |
||||||||
| Purchased intangibles amortization |
||||||||
| Litigation provision |
||||||||
| |
|
|
|
|||||
| Total costs and operating expenses |
||||||||
| |
|
|
|
|||||
| Operating income |
||||||||
| Other income, net |
||||||||
| Interest expense |
( |
) |
( |
) | ||||
| Interest income |
||||||||
| |
|
|
|
|||||
| Income before income taxes |
||||||||
| Provision for income taxes |
||||||||
| |
|
|
|
|||||
| Net income |
$ | $ | ||||||
| |
|
|
|
|||||
| Net income per basic common share |
$ | $ | ||||||
| Weighted-average number of basic common shares |
||||||||
| Net income per diluted common share |
$ | $ | ||||||
| Weighted-average number of diluted common shares and equivalents |
||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
(In thousands) |
(In thousands) |
|||||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss): |
||||||||||||||||
| Foreign currency translation |
( |
) | ( |
) | ||||||||||||
| Unrealized (losses) gains on derivative instruments before reclassifications |
( |
) |
||||||||||||||
| Amounts reclassified to interest income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Unrealized (losses) gains on derivative instruments before income taxes |
( |
) | ( |
) | ||||||||||||
| Income tax benefit (expense) |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Unrealized (losses) gains on derivative instruments, net of tax |
( |
) | ( |
) | ||||||||||||
| Retirement liability adjustment before reclassifications |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Amounts reclassified to other income, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Retirement liability adjustment before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax benefit |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Retirement liability adjustment, net of tax |
( |
) | ( |
) | ( |
) |
( |
) | ||||||||
| Other comprehensive income (loss) |
( |
) |
( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive income |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Nine Months Ended |
||||||||
September 28, 2024 |
September 30, 2023 |
|||||||
(In thousands) |
||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Stock-based compensation |
||||||||
Deferred income taxes |
( |
) | ||||||
Depreciation |
||||||||
Amortization of intangibles |
||||||||
Realized gain on sale of investment |
( |
) | ||||||
Change in operating assets and liabilities: |
||||||||
Decrease in accounts receivable |
||||||||
Increase in inventories |
( |
) | ( |
) | ||||
Decrease (increase) in other current assets |
( |
) | ||||||
Increase in other assets |
( |
) | ( |
) | ||||
Increase (decrease) in accounts payable and other current liabilities |
( |
) | ||||||
Increase in deferred revenue and customer advances |
||||||||
Decrease in other liabilities |
( |
) | ( |
) | ||||
Net cash provided by operating activities |
||||||||
Cash flows from investing activities: |
||||||||
Additions to property, plant, equipment and software capitalization |
( |
) | ( |
) | ||||
Business acquisitions, net of cash acquired |
( |
) | ||||||
| (Investments in) proceeds from unaffiliated companies |
( |
) | ||||||
Purchases of investments |
( |
) | ( |
) | ||||
Maturities and sales of investments |
||||||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from debt issuances |
||||||||
Payments on debt |
( |
) |
( |
) | ||||
Payments of debt issuance costs |
( |
) | ||||||
Proceeds from stock plans |
||||||||
Purchases of treasury shares |
( |
) | ( |
) | ||||
Proceeds from derivative contracts |
||||||||
Net cash (used in) provided by financing activities |
( |
) | ||||||
Effect of exchange rate changes on cash and cash equivalents |
||||||||
Decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
Cash and cash equivalents at beginning of period |
||||||||
Cash and cash equivalents at end of period |
$ | $ | ||||||
Number of Common Shares |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Total Stockholders’ Equity |
||||||||||||||||||||||
Balance July 1, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Other comprehensive loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Issuance of common stock for employees: |
||||||||||||||||||||||||||||
Employee Stock Purchase Plan |
— | — | — | — | ||||||||||||||||||||||||
Stock options exercised |
— | — | — | |||||||||||||||||||||||||
Treasury stock |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
Balance September 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
Number of Common Shares |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Total Stockholders’ Equity |
||||||||||||||||||||||
Balance June 29, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Other comprehensive income |
— | — | — | — | — | |||||||||||||||||||||||
Issuance of common stock for employees: |
||||||||||||||||||||||||||||
Employee Stock Purchase Plan |
— | — | — | — | ||||||||||||||||||||||||
Stock options exercised |
— | — | — | — | ||||||||||||||||||||||||
Treasury stock |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Stock-based compensation |
— | — | — | — | ||||||||||||||||||||||||
Balance September 28, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
Number of Common Shares |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Total Stockholders’ Equity |
||||||||||||||||||||||
| Balance December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Issuance of common stock for employees: |
||||||||||||||||||||||||||||
| Employee Stock Purchase Plan |
— | — | — | — | ||||||||||||||||||||||||
| Stock options exercised |
— | — | — | |||||||||||||||||||||||||
| Treasury stock |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
| Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance September 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Number of Common Shares |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Total Stockholders’ Equity |
||||||||||||||||||||||
| Balance December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | |||||||||||||||||||||||
| Issuance of common stock for employees: |
||||||||||||||||||||||||||||
| Employee Stock Purchase Plan |
— | — | — | — | ||||||||||||||||||||||||
| Stock options exercised |
— | — | — | |||||||||||||||||||||||||
| Treasury stock |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
| Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance September 28, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at Beginning of Period |
Additions |
Deductions and Other |
Balance at End of Period |
|||||||||||||
| Allowance for Credit Losses |
||||||||||||||||
| September 28, 2024 |
$ | $ | $ | ( |
) | $ | ||||||||||
| September 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||
Total at September 28, 2024 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
| Assets: |
||||||||||||||||
| Time deposits |
$ | $ | — | $ | $ | — | ||||||||||
| Waters 401(k) Restoration Plan assets |
— | — | ||||||||||||||
| Foreign currency exchange contracts |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Foreign currency exchange contracts |
$ | $ | — | $ | $ | — | ||||||||||
| Interest rate cross-currency swap agreements |
— | — | ||||||||||||||
| Interest rate swap cash flow hedge |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Total at December 31, 2023 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
| Assets: |
||||||||||||||||
| Time deposits |
$ | $ | — | $ | $ | — | ||||||||||
| Waters 401(k) Restoration Plan assets |
— | — | ||||||||||||||
| Foreign currency exchange contracts |
— | — | ||||||||||||||
| Interest rate cross-currency swap agreements |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Foreign currency exchange contracts |
— | — | ||||||||||||||
| Interest rate cross-currency swap agreements |
— | — | ||||||||||||||
| Interest rate swap cash flow hedge |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
September 28, 2024 |
December 31, 2023 |
|||||||||||||||
Notional Value |
Fair Value |
Notional Value |
Fair Value |
|||||||||||||
| Foreign currency exchange contracts: |
||||||||||||||||
| Other current assets |
$ | $ | $ | $ | ||||||||||||
| Other current liabilities |
$ | $ | $ | $ | ||||||||||||
| Interest rate cross-currency swap agreements: |
||||||||||||||||
| Other assets |
$ | — | $ | — | $ | $ | ||||||||||
| Other liabilities |
$ | $ | $ | $ | ||||||||||||
| Accumulated other comprehensive loss |
$ | ( |
) | $ | ( |
) | ||||||||||
| Interest rate swap cash flow hedges: |
||||||||||||||||
| Other liabilities |
$ | $ | $ | $ | ||||||||||||
| Accumulated other comprehensive loss |
$ | ( |
) | $ | ( |
) | ||||||||||
Financial Statement Classification |
Three Months Ended |
Nine Months Ended |
||||||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||||||
| Foreign currency exchange contracts: |
||||||||||||||||||||
| Realized (losses) gains on closed contracts |
Cost of sales | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | |||||||||
| Unrealized (losses) gains on open contracts |
Cost of sales | ( |
) | ( |
) | |||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Cumulative net pre-tax (losses) gains |
Cost of sales | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||||||
| Interest rate cross-currency swap agreements: |
||||||||||||||||||||
| Interest earned |
Interest income | $ | $ | $ | $ | |||||||||||||||
| Unrealized (losses) gains on open contracts |
Other comprehensive income |
|
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||||
| Interest rate swap cash flow hedges: |
||||||||||||||||||||
| Interest earned |
Interest income | $ | $ | $ | $ | |||||||||||||||
| Unrealized (losses) gains on open contracts |
Other comprehensive income |
|
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||||
Balance at Beginning of Period |
Accruals for Warranties |
Settlements Made |
Balance at End of Period |
|||||||||||||
Accrued warranty liability: |
||||||||||||||||
September 28, 2024 |
$ | $ | $ | ( |
) | $ | ||||||||||
September 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||
September 28, 2024 |
September 30, 2023 |
|||||||
Balance at the beginning of the period |
$ | $ | ||||||
Recognition of revenue included in balance at beginning of the period |
( |
) |
( |
) | ||||
Revenue deferred during the period, net of revenue recognized |
||||||||
Balance at the end of the period |
$ | $ | ||||||
September 28, 2024 |
||||
Deferred revenue and customer advances expected to be recognized in: |
||||
| $ | ||||
Total |
$ | |||
September 28, 2024 |
December 31, 2023 |
|||||||
Raw materials |
$ | $ | ||||||
Work in progress |
||||||||
Finished goods |
||||||||
Total inventories |
$ | $ | ||||||
September 28, 2024 |
December 31, 2023 |
|||||||||||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Weighted- Average Amortization Period |
Gross Carrying Amount |
Accumulated Amortization |
Weighted- Average Amortization Period |
|||||||||||||||||||||||||||
Capitalized software |
$ | $ | years |
$ | $ | years |
||||||||||||||||||||||||||
Purchased intangibles |
years |
years |
||||||||||||||||||||||||||||||
Trademarks |
— | — | — | — | ||||||||||||||||||||||||||||
Licenses |
years |
years |
||||||||||||||||||||||||||||||
Patents and other intangibles |
years |
years |
||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total |
$ | $ | years |
$ | $ | years |
||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||||||||||
September 28, 2024 |
December 31, 2023 |
|||||||
| Senior unsecured notes - Series G - |
||||||||
| |
|
|
|
|||||
| Total notes payable and debt, current |
||||||||
| Senior unsecured notes - Series K - |
||||||||
| Senior unsecured notes - Series L - |
||||||||
| Senior unsecured notes - Series M - |
||||||||
| Senior unsecured notes - Series N - |
||||||||
| Senior unsecured notes - Series O - |
||||||||
| Senior unsecured notes - Series P - |
||||||||
| Senior unsecured notes - Series Q - |
||||||||
| Credit agreement |
||||||||
| Unamortized debt issuance costs |
( |
) |
( |
) | ||||
| |
|
|
|
|||||
| Total long-term debt |
||||||||
| |
|
|
|
|||||
| Total debt |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended September 28, 2024 |
||||||||||||
Net Income (Numerator) |
Weighted- Average Shares (Denominator) |
Per Share Amount |
||||||||||
Net income per basic common share |
$ | $ | ||||||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities |
— | ( |
) | |||||||||
Net income per diluted common share |
$ | $ | ||||||||||
Three Months Ended September 30, 2023 |
||||||||||||
Net Income (Numerator) |
Weighted- Average Shares (Denominator) |
Per Share Amount |
||||||||||
Net income per basic common share |
$ | $ | ||||||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities |
— | ( |
) | |||||||||
Net income per diluted common share |
$ | $ | ||||||||||
Nine Months Ended September 28, 2024 |
||||||||||||
Net Income (Numerator) |
Weighted- Average Shares (Denominator) |
Per Share Amount |
||||||||||
Net income per basic common share |
$ | $ | ||||||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities |
— | ( |
) | |||||||||
Net income per diluted common share |
$ | $ | ||||||||||
Nine Months Ended September 30, 2023 |
||||||||||||
Net Income (Numerator) |
Weighted- Average Shares (Denominator) |
Per Share Amount |
||||||||||
Net income per basic common share |
$ | $ | ||||||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities |
— | ( |
) | |||||||||
Net income per diluted common share |
$ | $ | ||||||||||
Currency Translation |
Unrealized Loss on Retirement Plans |
Unrealized Loss on Derivative Instruments |
Accumulated Other Comprehensive Loss |
|||||||||||||
Balance at December 31, 2023 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Other comprehensive income (loss), net of tax |
( |
) | ( |
) | ||||||||||||
Balance at September 28, 2024 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
| Product net sales: |
||||||||||||||||
| Waters instrument systems |
$ | $ | $ | $ | ||||||||||||
| Chemistry consumables |
||||||||||||||||
| TA instrument systems |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total product sales |
||||||||||||||||
| Service net sales: |
||||||||||||||||
| Waters service |
||||||||||||||||
| TA service |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total service sales |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total net sales |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
| Net Sales: |
||||||||||||||||
| Asia: |
||||||||||||||||
| China |
$ | $ | $ | $ | ||||||||||||
| Japan |
||||||||||||||||
| Asia Other |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total Asia |
||||||||||||||||
| Americas: |
||||||||||||||||
| United States |
||||||||||||||||
| Americas Other |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total Americas |
||||||||||||||||
| Europe |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total net sales |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
| Pharmaceutical |
$ | $ | $ | $ | ||||||||||||
| Industrial |
||||||||||||||||
| Academic and government |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total net sales |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 28, 2024 |
September 30, 2023 |
September 28, 2024 |
September 30, 2023 |
|||||||||||||
Net sales recognized at a point in time: |
||||||||||||||||
Instrument systems |
$ | $ | $ | $ | ||||||||||||
Chemistry consumables |
||||||||||||||||
Service sales recognized at a point in time (time & materials) |
||||||||||||||||
Total net sales recognized at a point in time |
||||||||||||||||
Net sales recognized over time: |
||||||||||||||||
Service and software maintenance sales recognized over time (contracts) |
||||||||||||||||
Total net sales |
$ | $ | $ | $ | ||||||||||||
Table of Contents
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
The Company has two operating segments: WatersTM and TATM. Waters products and services primarily consist of high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLCTM” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”), light scattering and field-flow fractionation instruments (Wyatt), and precision chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Company’s products are used by pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and government customers. These customers use the Company’s products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids in various industrial, consumer goods and healthcare products.
Wyatt Acquisition
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.
Financial Overview
The Company’s operating results are as follows for the three and nine months ended September 28, 2024 and September 30, 2023 (dollars in thousands, except per share data):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
% change |
September 28, 2024 |
September 30, 2023 |
% change |
|||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||
| Product sales |
$ | 462,011 | $ | 448,081 | 3 | % | $ | 1,273,306 | $ | 1,362,464 | (7 | %) | ||||||||||||
| Service sales |
278,294 | 263,611 | 6 | % | 812,367 | 774,478 | 5 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total net sales |
740,305 | 711,692 | 4 | % | 2,085,673 | 2,136,942 | (2 | %) | ||||||||||||||||
| Costs and operating expenses: |
||||||||||||||||||||||||
| Cost of sales |
301,655 | 291,407 | 4 | % | 851,685 | 876,863 | (3 | %) | ||||||||||||||||
| Selling and administrative expenses |
169,097 | 186,748 | (9 | %) | 516,880 | 555,657 | (7 | %) | ||||||||||||||||
| Research and development expenses |
45,336 | 41,995 | 8 | % | 136,113 | 130,559 | 4 | % | ||||||||||||||||
| Purchased intangibles amortization |
11,759 | 12,116 | (3 | %) | 35,337 | 20,410 | 73 | % | ||||||||||||||||
| Litigation provision |
1,326 | — | 100 | % | 11,568 | — | 100 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income |
211,132 | 179,426 | 18 | % | 534,090 | 553,453 | (3 | %) | ||||||||||||||||
| Operating income as a % of sales |
28.5 | % | 25.2 | % | 25.6 | % | 25.9 | % | ||||||||||||||||
| Other (expense) income, net |
(338 | ) | 328 | (203 | %) | 1,619 | 1,364 | 19 | % | |||||||||||||||
| Interest expense, net |
(17,177 | ) | (26,559 | ) | (35 | %) | (57,824 | ) | (56,174 | ) | 3 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income before income taxes |
193,617 | 153,195 | 26 | % | 477,885 | 498,643 | (4 | %) | ||||||||||||||||
| Provision for income taxes |
32,114 | 18,643 | 72 | % | 71,449 | 72,614 | (2 | %) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income |
$ | 161,503 | $ | 134,552 | 20 | % | $ | 406,436 | $ | 426,029 | (5 | %) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income per diluted common share |
$ | 2.71 | $ | 2.27 | 19 | % | $ | 6.83 | $ | 7.19 | (5 | %) | ||||||||||||
25
Table of Contents
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.
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.
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.
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.
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.
The Company generated $522 million and $373 million of net cash from operating activities in the first nine months of 2024 and 2023, respectively, driven by lower annual incentive bonus payments and an improvement in working capital in the current year. Net cash used in investing activities included capital expenditures related to property, plant, equipment and software capitalization of $90 million and $119 million in the first nine months of 2024 and 2023, respectively, primarily due to the completion of the Company’s new manufacturing facilities.
26
Table of Contents
Results of Operations
Sales by Geography
Geographic sales information is presented below for the three and nine months ended September 28, 2024 and September 30, 2023 (dollars in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
% change | September 28, 2024 |
September 30, 2023 |
% change | |||||||||||||||||||
| Net Sales: |
||||||||||||||||||||||||
| Asia: |
||||||||||||||||||||||||
| China |
$ | 100,049 | $ | 102,081 | (2 | %) | $ | 285,899 | $ | 333,127 | (14 | %) | ||||||||||||
| Japan |
43,096 | 40,069 | 8 | % | 111,995 | 123,943 | (10 | %) | ||||||||||||||||
| Asia Other |
108,184 | 96,078 | 13 | % | 298,425 | 288,862 | 3 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Asia |
251,329 | 238,228 | 5 | % | 696,319 | 745,932 | (7 | %) | ||||||||||||||||
| Americas: |
||||||||||||||||||||||||
| United States |
236,182 | 231,773 | 2 | % | 670,952 | 673,033 | — | |||||||||||||||||
| Americas Other |
42,954 | 43,706 | (2 | %) | 123,823 | 131,794 | (6 | %) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Americas |
279,136 | 275,479 | 1 | % | 794,775 | 804,827 | (1 | %) | ||||||||||||||||
| Europe |
209,840 | 197,985 | 6 | % | 594,579 | 586,183 | 1 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total net sales |
$ | 740,305 | $ | 711,692 | 4 | % | $ | 2,085,673 | $ | 2,136,942 | (2 | %) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Geographically, the Company’s sales growth in the third quarter of 2024 was broad-based across most major regions, with the exception of China and Americas Other, which both declined 2%. The decline in China was primarily driven by lower demand for our instrument systems. Excluding China, the Company’s net sales increased 5% for the third quarter of 2024. During the third quarter of 2024, sales increased 6% in Europe, 2% in the U.S., and 13% in Asia Other. Foreign currency translation increased sales growth by 2% in Europe and decreased sales growth by 3% in Japan in the third quarter of 2024.
During the first nine months of 2024, the Company’s sales declined 2% and 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. The strong sales growth in India was offset by weakness across most other major regions. Excluding China, the Company’s net sales were flat for the first nine months of 2024. The Wyatt acquisition increased sales growth by 2% and foreign currency translation decreased sales growth by 1% in the first nine months of 2024. Foreign currency translation increased sales growth by 2% in Europe and decreased sales growth by 8% in Japan in the first nine months of 2024.
27
Table of Contents
Sales by Trade Class
Net sales by customer class are presented below for the three and nine months ended September 28, 2024 and September 30, 2023 (dollars in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 28, 2024 |
September 30, 2023 |
% change | September 28, 2024 |
September 30, 2023 |
% change | |||||||||||||||||||
| Pharmaceutical |
$ | 430,138 | $ | 421,535 | 2 | % | $ | 1,220,092 | $ | 1,233,177 | (1 | %) | ||||||||||||
| Industrial |
227,740 | 209,449 | 9 | % | 644,459 | 648,754 | (1 | %) | ||||||||||||||||
| Academic and government |
82,427 | 80,708 | 2 | % | 221,122 | 255,011 | (13 | %) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total net sales |
$ | 740,305 | $ | 711,692 | 4 | % | $ | 2,085,673 | $ | 2,136,942 | (2 | %) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
During the third quarter of 2024, sales to pharmaceutical customers increased 2%, as growth in Europe, India, and Japan was partially offset by weakness in the U.S. and China. Foreign currency translation decreased pharmaceutical sales growth by 1%. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, increased 9% in the third quarter of 2024, with foreign currency translation increasing sales growth by 2%. Combined sales to academic and government customers increased 2% in the third quarter of 2024, with foreign currency translation increasing sales growth by 2%.
During the first nine months of 2024, sales to pharmaceutical customers decreased 1%, primarily driven by weakness in customer demand in China, with foreign currency translation decreasing pharmaceutical sales growth by 1% and Wyatt contributing 2%. Combined sales to industrial customers decreased 1%, with foreign currency having minimal impact on sales growth and Wyatt contributing 1% to industrial sales growth. 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. Combined sales to academic and government customers decreased 13%, with foreign currency translation increasing sales growth by 1% and Wyatt contributing 2% to the Company’s academic and government sales growth. This overall decline in sales of 13% to our academic and government customers in the first nine months of 2024 compares to a 20% increase in academic and government sales in the first nine months of 2023, which represents a two-year compound annual growth rate of 2%.
28
Table of Contents
Waters Products and Services Net Sales
Net sales for Waters products and services were as follows for the three and nine months ended September 28, 2024 and September 30, 2023 (dollars in thousands):
| Three Months Ended | ||||||||||||||||||||
| September 28, 2024 |
% of Total |
September 30, 2023 |
% of Total |
% change | ||||||||||||||||
| Waters instrument systems |
$ | 265,273 | 40 | % | $ | 262,142 | 42 | % | 1 | % | ||||||||||
| Chemistry consumables |
138,935 | 22 | % | 128,650 | 20 | % | 8 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Waters product sales |
404,208 | 62 | % | 390,792 | 62 | % | 3 | % | ||||||||||||
| Waters service |
251,444 | 38 | % | 238,556 | 38 | % | 5 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Waters net sales |
$ | 655,652 | 100 | % | $ | 629,348 | 100 | % | 4 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Nine Months Ended | ||||||||||||||||||||
| September 28, 2024 |
% of Total |
September 30, 2023 |
% of Total |
% change |
||||||||||||||||
| Waters instrument systems |
$ | 691,760 | 38 | % | $ | 786,293 | 42 | % | (12 | %) | ||||||||||
| Chemistry consumables |
414,227 | 22 | % | 398,084 | 21 | % | 4 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Waters product sales |
1,105,987 | 60 | % | 1,184,377 | 63 | % | (7 | %) | ||||||||||||
| Waters service |
734,125 | 40 | % | 700,281 | 37 | % | 5 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Waters net sales |
$ | 1,840,112 | 100 | % | $ | 1,884,658 | 100 | % | (2 | %) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Waters products and service sales increased 4% for the third quarter of 2024 and decreased 2% for the first nine months of 2024, with the effect of foreign currency translation having minimal impact on sales growth for the third quarter of 2024 and decreasing sales growth by 1% for the first nine months of 2024. The contribution from Wyatt increased Waters products and service sales growth by 2% for the first nine months of 2024.
Waters instrument system sales increased by 1% for the third quarter of 2024 and decreased 12% for the first nine months of 2024, due to weaker customer demand for our instrument systems led by the decline in sales of mass spectrometry instrument systems. Wyatt’s instrument system sales contributed 4% to Waters instrument system sales growth for the first nine months of 2024. The increase in Waters chemistry consumables sales was primarily due to the continued demand in most major geographies, driven by the uptake in columns and application-specific testing kits to pharmaceutical and industrial customers. Waters service sales increased 5% for both the third quarter and first nine months of 2024 due to higher service demand billing in most major regions, partially offset by the negative impact from foreign currency translation which decreased service sales growth by 1% for both the third quarter and first nine months of 2024. Wyatt service revenues added 1% to Waters service revenue growth for the first nine months of 2024.
29
Table of Contents
TA Product and Services Net Sales
Net sales for TA products and services were as follows for the three and nine months ended September 28, 2024 and September 30, 2023 (dollars in thousands):
| Three Months Ended | ||||||||||||||||||||
| September 28, 2024 |
% of Total |
September 30, 2023 |
% of Total |
% change | ||||||||||||||||
| TA instrument systems |
$ | 57,803 | 68 | % | $ | 57,289 | 70 | % | 1 | % | ||||||||||
| TA service |
26,850 | 32 | % | 25,055 | 30 | % | 7 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total TA net sales |
$ | 84,653 | 100 | % | $ | 82,344 | 100 | % | 3 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Nine Months Ended | ||||||||||||||||||||
| September 28, 2024 |
% of Total |
September 30, 2023 |
% of Total |
% change | ||||||||||||||||
| TA instrument systems |
$ | 167,319 | 68 | % | $ | 178,087 | 71 | % | (6 | %) | ||||||||||
| TA service |
78,242 | 32 | % | 74,197 | 29 | % | 5 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total TA net sales |
$ | 245,561 | 100 | % | $ | 252,284 | 100 | % | (3 | %) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
TA sales growth for the third quarter of 2024 was broad-based across most major geographies, with the exception of China, and was primarily driven by strong customer demand for our thermal analysis instruments and services. During the first nine months of 2024, TA sales decreased 3% due to lower customer demand for TA instrument systems across most major regions. Foreign currency translation increased sales by 1% for the third quarter and decreased 1% for the first nine months of 2024.
Cost of Sales
Cost of sales increased 4% in the third quarter of 2024 and decreased 3% in the first nine months of 2024. The increase in the third quarter is primarily due to higher sales volume, while the decrease in the first nine months of 2024 is primarily due to lower sales volume and changes in 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. At current foreign currency exchange rates, the Company expects foreign currency translation to decrease gross profit during 2024.
Selling and Administrative Expenses
Selling and administrative expenses decreased 9% and 7% in the third quarter and first nine months of 2024, respectively, as the cost savings from the recent workforce reductions that occurred in March 2024 and the absence of costs incurred in the prior year relating to severance charges in connection with the 2023 workforce reduction, the Wyatt acquisition-related retention expenses and the Wyatt acquisition costs were partially offset by an increase in annual incentive compensation expenses. The effect of foreign currency translation had minimal impact on selling and administrative expenses for the third quarter of 2024 and decreased expenses by 1% for the first nine months of 2024.
As a percentage of net sales, selling and administrative expenses were 22.8% and 24.8% for the third quarter and first nine months of 2024, respectively, and 26.2% and 26.0% for the third quarter and first nine months of 2023, respectively.
Research and Development Expenses
Research and development expenses increased 8% and 4% in the third quarter and first nine months of 2024, respectively. The increase in these periods was driven by costs associated with the development of new product and technology initiatives. The impact of foreign currency exchange increased expenses by 3% for both the third quarter and first nine months of 2024.
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Purchased Intangibles Amortization
The increase in purchased intangibles amortization of $15 million in the first nine months of 2024, is due to the Wyatt acquisition intangible assets.
Litigation Provisions
The Company incurred $12 million of litigation provisions in the first nine months of 2024, primarily related to a patent litigation settlement.
Interest Expense, net
Interest expense, net decreased $9 million in the third quarter of 2024 as a result of lower average outstanding debt as compared to the third quarter of 2023. For the first nine months of 2024, interest expense increased $2 million as a result of slightly higher average outstanding debt as compared to the first nine months of 2023. The average outstanding debt in these periods was impacted by the timing of the borrowings to fund the Wyatt acquisition, which closed in May 2023, as well as the timing of the repayment of $755 million of debt since the completion of the acquisition.
Provision for Income Taxes
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 September 28, 2024. 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 $9 million and $11 million and increased the Company’s net income per diluted share by $0.15 and $0.18 for the third quarter of 2024 and 2023, respectively.
The Company’s effective tax rate for the third quarter of 2024 and 2023 was 16.6% and 12.2%, respectively. The increase in the effective tax rate can be primarily attributed to the impact of discrete tax benefits in the prior year and differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.
The Company’s effective tax rate for the first nine months of 2024 and 2023 was 15.0% and 14.6%, respectively. The increase in the effective tax rate can be attributed to the impact of discrete tax benefits in the prior year and differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.
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 third quarter and first nine months of 2024. The Company continues to monitor the adoption of the Pillar Two rules in additional jurisdictions.
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Liquidity and Capital Resources
Condensed Consolidated Statements of Cash Flows (in thousands):
| Nine Months Ended | ||||||||
| September 28, 2024 |
September 30, 2023 |
|||||||
| Net income |
$ | 406,436 | $ | 426,029 | ||||
| Depreciation and amortization |
143,250 | 117,845 | ||||||
| Stock-based compensation |
32,993 | 32,224 | ||||||
| Deferred income taxes |
(1,967 | ) | 267 | |||||
| Change in accounts receivable |
27,457 | 100,327 | ||||||
| Change in inventories |
(2,032 | ) | (81,415 | ) | ||||
| Change in accounts payable and other current liabilities |
36,485 | (130,065 | ) | |||||
| Change in deferred revenue and customer advances |
37,972 | 38,959 | ||||||
| Other changes |
(158,610 | ) | (131,484 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
521,984 | 372,687 | ||||||
| Net cash used in investing activities |
(91,910 | ) | (1,404,321 | ) | ||||
| Net cash (used in) provided by financing activities |
(503,097 | ) | 885,438 | |||||
| Effect of exchange rate changes on cash and cash equivalents |
8,461 | 2,081 | ||||||
|
|
|
|
|
|||||
| Decrease in cash and cash equivalents |
$ | (64,562 | ) | $ | (144,115 | ) | ||
|
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|
|
|
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Cash Flow from Operating Activities
Net cash provided by operating activities was $522 million and $373 million during the first nine months of 2024 and 2023, respectively. The increase in 2024 operating cash flow was primarily a result of higher cash collections, lower inventory levels and lower incentive bonus payments, partially offset by lower net income. The changes within net cash provided by operating activities include the following significant changes in the sources and uses of net cash provided by operating activities, aside from the changes in net income:
| • | The changes in accounts receivable were primarily attributable to the timing of payments made by customers and timing of sales. Days sales outstanding was 82 days at September 28, 2024 and 81 days at September 30, 2023. |
| • | The change in inventory can primarily be attributed to the reduction in our production plan as a result of the decline in sales. |
| • | The change in accounts payable and other current liabilities for the nine months ended September 28, 2024 compared to 2023 were attributable to lower annual incentive payments of $48 million, lower tax payments of $38 million in the current year and the timing of payments to vendors. |
| • | Other changes were attributable to variation in the timing of various provisions, expenditures, prepaid income taxes and accruals in other current assets, other assets and other liabilities. |
Cash Flow from Investing Activities
Net cash used in investing activities totaled $92 million and $1.4 billion in the first nine months of 2024 and 2023, respectively. Additions to fixed assets and capitalized software were $90 million and $119 million in the first nine months of 2024 and 2023, respectively, primarily due to the completion of the Company’s new manufacturing facilities.
During the first nine months of 2024 and 2023, the Company purchased $3 million and $2 million of investments, respectively, while $3 million and $2 million of investments matured, respectively, and were used for financing activities described below.
On May 16, 2023, the Company completed the acquisition of 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.
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Cash Flow from Financing Activities
The Company has a credit agreement with an aggregate borrowing capacity of $2.0 billion. As of September 28, 2024, the Company had a total of $1.8 billion in outstanding debt, which consisted of $1.3 billion in outstanding senior unsecured notes and $570 million borrowed under its credit agreement. The Company’s net debt borrowings decreased by $530 million and increased by $0.9 billion during the first nine months of 2024 and 2023, respectively, with the prior year increase primarily being due to the funding of the Wyatt acquisition.
In July 2024, the Company entered into a private Master Note Facility Agreement (the “Shelf Agreement”) pursuant to which the Company may, at its option, authorize the issuance and sale of senior promissory notes (the “Shelf Notes”) up to an aggregate amount of $200 million. The Company entered into the Shelf Agreement to increase its borrowing capacity for general corporate purposes. The Company has not issued any Shelf Notes pursuant to the Shelf Agreement through the date of these financial statements.
As of September 28, 2024, the Company had entered into interest rate cross-currency swap derivative agreements with durations up to three years with an aggregate notional value of $625 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its euro-denominated and yen-denominated net asset investments. As a result of entering into these agreements, the Company lowered net interest expense by approximately $8 million during both the first nine months of 2024 and 2023. The Company anticipates that these swap agreements will lower net interest expense by approximately $10 million in 2024.
In December 2023, the Company’s Board of Directors authorized the extension of its existing share repurchase program through January 21, 2025. The Company’s remaining authorization is $1.0 billion. During the first nine months of 2023, the Company repurchased $58 million of the Company’s outstanding common stock under the Company’s share repurchase program. In addition, the Company repurchased $13 million and $12 million of common stock related to the vesting of restricted stock units during the first nine months of 2024 and 2023, respectively. The Company believes that it has the financial flexibility to fund these share repurchases, as well as to invest in research, technology and business acquisitions, given current cash levels and debt borrowing capacity.
The Company received $25 million and $18 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the Company’s employee stock purchase plan during the first nine months of 2024 and 2023, respectively.
The Company had cash, cash equivalents and investments of $331 million as of September 28, 2024. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with $287 million held by foreign subsidiaries at September 28, 2024, of which $234 million was held in currencies other than U.S. dollars.
Contractual Obligations, Commercial Commitments, Contingent Liabilities and Dividends
A summary of the Company’s contractual obligations and commercial commitments is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024. The Company reviewed its contractual obligations and commercial commitments as of September 28, 2024 and determined that there were no material changes outside the ordinary course of business from the information set forth in the Annual Report on Form 10-K.
From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes that it has meritorious arguments in its current litigation matters and that any outcome, either individually or in the aggregate, will not be material to the Company’s financial position or results of operations.
During fiscal year 2024, the Company expects to contribute a total of approximately $3 million to $6 million to its defined benefit plans.
The Company has not paid any dividends and has no plans, at this time, to pay any dividends in the future.
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Critical Accounting Policies and Estimates
In the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024, the Company’s most critical accounting policies and estimates upon which its financial status depends were identified as those relating to revenue recognition, valuation of long-lived assets, intangible assets and goodwill, income taxes, uncertain tax positions and business combinations and asset acquisitions. The Company reviewed its policies and determined that those policies remain the Company’s most critical accounting policies for the nine months ended September 28, 2024. The Company did not make any changes in those policies during the nine months ended September 28, 2024.
New Accounting Pronouncements
Please refer to Note 13, Recent Accounting Standard Changes and Developments, in the Condensed Notes to Consolidated Financial Statements.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are not statements of historical fact may be deemed forward-looking statements. You can identify these forward-looking statements by the use of the words “feels”, “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “suggests”, “appears”, “estimates”, “projects”, “should” and similar expressions, whether in the negative or affirmative. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation:
| • | foreign currency exchange rate fluctuations potentially affecting translation of the Company’s future non-U.S. operating results, particularly when a foreign currency weakens against the U.S. dollar; |
| • | current global economic, sovereign and political conditions and uncertainties, including the effect of new or proposed tariff or trade regulations, as well as other new or changed domestic and foreign laws, regulations and policies, changes in inflation and interest rates, the impacts and costs of war, in particular as a result of the ongoing conflicts between Russia and Ukraine and in the Middle East, and the possibility of further escalation resulting in new geopolitical and regulatory instability and the Chinese government’s ongoing tightening of restrictions on procurement by government-funded customers; |
| • | the Company’s ability to access capital, maintain liquidity and service the Company’s debt in volatile market conditions; |
| • | risks related to the effects of any pandemic on our business, financial condition, results of operations and prospects; |
| • | changes in timing and demand for the Company’s products among the Company’s customers and various market sectors, particularly as a result of fluctuations in their expenditures or ability to obtain funding; |
| • | the ability to realize the expected benefits related to the Company’s various cost-saving initiatives, including workforce reductions and organizational restructurings; |
| • | the introduction of competing products by other companies and loss of market share, as well as pressures on prices from competitors and/or customers; |
| • | changes in the competitive landscape as a result of changes in ownership, mergers and continued consolidation among the Company’s competitors; |
| • | regulatory, economic and competitive obstacles to new product introductions, lack of acceptance of new products and inability to grow organically through innovation; |
| • | rapidly changing technology and product obsolescence; |
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| • | risks associated with previous or future acquisitions, strategic investments, joint ventures and divestitures, including risks associated with achieving the anticipated financial results and operational synergies; contingent purchase price payments; and expansion of our business into new or developing markets; |
| • | risks associated with unexpected disruptions in operations; |
| • | failure to adequately protect the Company’s intellectual property, infringement of intellectual property rights of third parties and inability to obtain licenses on commercially reasonable terms; |
| • | the Company’s ability to acquire adequate sources of supply and its reliance on outside contractors for certain components and modules, as well as disruptions to its supply chain; |
| • | risks associated with third-party sales intermediaries and resellers; |
| • | the impact and costs of changes in statutory or contractual tax rates in jurisdictions in which the Company operates as well as shifts in taxable income among jurisdictions with different effective tax rates, the outcome of ongoing and future tax examinations and changes in legislation affecting the Company’s effective tax rate; |
| • | the Company’s ability to attract and retain qualified employees and management personnel; |
| • | risks associated with cybersecurity and technology, including attempts by third parties to defeat the security measures of the Company and its third-party partners; |
| • | 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, and in connection with government contracts; |
| • | regulatory, environmental and logistical obstacles affecting the distribution of the Company’s products, completion of purchase order documentation and the ability of customers to obtain letters of credit or other financing alternatives; |
| • | risks associated with litigation and other legal and regulatory proceedings; and |
| • | the impact and costs incurred from changes in accounting principles and practices. |
Certain of these and other factors are discussed under the heading “Risk Factors” under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements, whether because of these factors or for other reasons. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this report. Except as required by law, the Company does not assume any obligation to update any forward-looking statements.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the risk of interest rate fluctuations from the investments of cash generated from operations. Investments with maturities greater than 90 days are classified as investments and are held primarily in U.S. dollar-denominated treasury bills and commercial paper, bank deposits and corporate debt securities. As of September 28, 2024, the Company estimates that a hypothetical adverse change of 100 basis points across all maturities would not have a material effect on the fair market value of its portfolio.
The Company is also exposed to the risk of exchange rate fluctuations. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of September 28, 2024 and December 31, 2023, $287 million out of $331 million and $321 million out of $396 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $234 million out of $331 million and $233 million out of $396 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at September 28, 2024 and December 31, 2023, respectively. As of September 28, 2024, the Company had no holdings in auction rate securities or commercial paper issued by structured investment vehicles.
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Assuming a hypothetical adverse change of 10% in year-end exchange rates (a strengthening of the U.S. dollar), the fair market value of the Company’s cash, cash equivalents and investments held in currencies other than the U.S. dollar as of September 28, 2024 would decrease by approximately $23 million, of which the majority would be recorded to foreign currency translation in other comprehensive income within stockholders’ equity.
There have been no other material changes in the Company’s market risk during the nine months ended September 28, 2024. For information regarding the Company’s market risk, refer to Item 7A of Part II of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s chief executive officer and chief financial officer (principal executive officer and principal financial officer), with the participation of management, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of September 28, 2024 (1) to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure and (2) to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
No change was identified in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 28, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II: Other Information
Item 1: Legal Proceedings
There have been no material changes in the Company’s legal proceedings during the nine months ended September 28, 2024 as described in Item 3 of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024, other than the $12 million litigation costs primarily related to patent settlements recorded in the nine months ended September 28, 2024.
Item 1A: Risk Factors
Information regarding risk factors of the Company is set forth under the heading “Risk Factors” under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024. The Company reviewed its risk factors as of September 28, 2024 and determined that there were no material changes from the ones set forth in the Form 10-K. Note, however, the discussion of certain factors under the subheading “Special Note Regarding Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may have a material adverse effect on the Company’s business, financial condition and operating results.
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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer
During the three months ended September 28, 2024, the Company purchased 216, 58 and 159 shares at a cost of $66 thousand, $20 thousand and $55 thousand with average prices paid of $304.43, $340.26 and $347.55 during fiscal July, August and September, respectively, of equity securities registered by the Company under the Exchange Act.
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock in open market or private transactions over a two-year period. This program replaced the remaining amounts available under the pre-existing authorization. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it expired on January 21, 2024 and increased the total authorization level to $4.8 billion, an increase of $750 million. In December 2023, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2025. As of September 28, 2024, the Company had repurchased an aggregate of 15.2 million shares at a cost of $3.8 billion under the January 2019 repurchase program and had a total of $1.0 billion authorized for future repurchases. The size and timing of these purchases, if any, will depend on our stock price and market and business conditions, as well as other factors.
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Item 6: Exhibits
| Exhibit Number |
Description of Document | |
| 31.1 | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(*) | |
| 32.2 | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(*) | |
| 101 | The following materials from Waters Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Operations (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Cash Flows (unaudited) and (vi) Condensed Notes to Consolidated Financial Statements (unaudited). | |
| 104 | Cover Page Interactive Date File (formatted in iXBRL and contained in Exhibit 101). | |
| (*) | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WATERS CORPORATION |
| /s/ Amol Chaubal |
| Amol Chaubal |
| Senior Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
| (Principal Accounting Officer) |
Date: November 1, 2024
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