Waters Corporation (NYSE:WAT) Q1 2025 Earnings Call Transcript

Waters Corporation (NYSE:WAT) Q1 2025 Earnings Call Transcript May 6, 2025

Waters Corporation beats earnings expectations. Reported EPS is $2.25, expectations were $2.22.

Operator: Good morning. Welcome to the Waters Corporation First Quarter 2025 Financial Results Conference Call. All participants will be in a listen-only mode, until the question-and-answer session begins. This call is being recorded. If you have any objections, please disconnect at this time. It is now my pleasure to turn the call over to Mr. Caspar Tudor, Head of Investor Relations. Please go ahead, sir.

Caspar Tudor: Thank you, Leila, and good morning, everyone. Welcome to Waters Corporation’s first quarter earnings call. Joining me today are Dr. Udit Batra, our President and Chief Executive Officer; and Amol Chaubal, our Senior Vice President and Chief Financial Officer. Before we begin, I will cover the cautionary language. In this conference call, we will make forward-looking statements, regarding future events, or future financial performance of the Company. We will provide guidance regarding possible future results as well as commentary on potential market and business conditions that may impact Waters Corporation over the second quarter of 2025 and full-year 2025. These statements are only our present expectations and actual events or results may differ materially.

Please see the risk factors included within our Form 10-K, our Form 10-Qs, and the cautionary language included in this morning’s earnings release. During today’s call, we will refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are attached to our earnings release and in the appendix of the slide presentation accompanying today’s call. Both are available on the Investor Relations section of our website. Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the first quarter of fiscal year 2024. In addition, unless stated otherwise all year-over-year revenue growth rates and ranges given on today’s call are on a comparable constant currency basis.

Finally, we do not intend to update our guidance predictions or projections except as part of a regularly scheduled earnings release or as otherwise required by law. Now, as we begin, thank you all for joining us today. We’ve structured today’s call to highlight how Waters resilient growth profile, operational agility and innovation driving strong results, as we navigate a dynamic global environment including recently announced tariffs. Udit will start by framing our key messages and cover how we are well positioned to deliver against our 2025 objectives. Amol will then walk you through a detailed review of our first quarter performance, updated guidance, and the actions we have taken to stay ahead of revolving external conditions. After their remarks, we will open the lines for questions.

With that, let me turn it over to Udit.

Udit Batra: Thank you, Caspar, and good morning, everyone. We had a fantastic start to the year. Double-digit instrument growth drove our performance as customer spending, especially in Pharma, exceeded expectations. Demand remained solid across all our end markets and geographies. These results are driven by our strong commercial execution and our steadfast commitment to operational excellence. I want to take a moment to thank all my colleagues for their dedication and outstanding performance. Their focus and agility enable us to accelerate the benefits of pioneering science and deliver solid financial outcomes, especially in dynamic market conditions. We have consistently shown leadership through turbulent times. Just look at the last five years, where we have successfully navigated the pandemic, the global chip shortage, supply chain disruptions and inflationary pressures.

Through it all, Waters has become a stronger company by focusing on three guiding principles. First, we stay close to our customers and work tirelessly and with urgency to support their evolving needs as conditions shift. Second, while mitigating risks, we never lose sight of opportunities to enhance our competitive position, we remain focused on launching differentiated new products and investing in our capabilities. Third, we redoubled support and communication with our colleagues who are dedicated to the mission of the company and lead with an indomitable spirit. Staying true to these principles has enabled us to consistently deliver robust results over the past five years. Today, we continue to navigate a dynamic macro environment. However, our resilient downstream weighted revenue profile and swift operational actions position us to deliver high single-digit earnings growth this year, even after accounting for newly announced tariffs.

Amol and I will discuss these points in greater detail later in the call. Turning now to our results. In the first quarter, sales grew 4% as reported and 7% in constant currency, landing at the high end of our guidance. Instruments grew 11%, led by mid-teens sales growth in both liquid chromatography and mass spectrometry with strength driven by Pharma and industrial end markets. Recurring revenue increased mid-single digits, which is in line with our expectations for a quarter with two fewer days. In China, sales grew 5%, led by double-digit growth in both industrial and academic and government applications. Earnings per share were also at the high end of guidance, supported by strong sales volume and an improvement in FX. Non-GAAP earnings per share were $2.25, reflecting low single-digit growth and high single-digit growth in constant currency terms.

On a GAAP basis, EPS was $2.03. Our 11% instrument growth was led by mid-teens growth in Pharma. Additionally, order growth exceeded sales growth, highlighting continued momentum in our business. These results underscore our strong position in attractive secular markets particularly as customer CapEx spending has continued its recovery. As I highlight the drivers behind our strength, our message remains consistent. First, our team is executing well in an analytical instruments market still early in its recovery. Second, our revitalized portfolio closely aligns with customer needs at a time when instruments are ripe for replacement. Our innovation remains highly differentiated in markets that we serve, commanding premium pricing. And thirdly, our leadership position in downstream high-volume applications enables us to capture growth across an exciting mix of fast-growing testing opportunities such as those of GLP-1, PFAS and genetic testing.

Innovation played a key role this quarter, reflecting an excellent customer adoption of our new products. In liquid chromatography, sales of our Alliance IS HPLC system more than tripled year-over-year, driven by growth across replacement and greenfield opportunities. Within replacement, customers are upgrading to leverage its smart features, flexibility and productivity advantages. At the same time, adoption at new and expanding manufacturing facilities within Pharma is particularly strong, notably among large U.S. CapEx investments. We recently expanded the Alliance IS Bio HPLC product line by adding the photodiode array detector to enhance spectral insights for biopharma development and QC. Waters now has four configurations of Alliance IS HPLC platform to support routine quantitative analysis and expanded spectral analysis of small and large molecules in development and in QC.

Mass spectrometry growth was led by our Xevo TQ Absolute system, our top-selling mass spec again this quarter, achieving sales growth of over 50%. Its superior sensitivity and sustainable design continue to drive demand, particularly in high-volume testing areas such as food and environmental analysis and Pharma quantitation. In our chemistry consumables business, MaxPeak Premier Columns again significantly exceeded expectations, growing more than 30%. These products provide excellent solutions for separating complex molecules such as biologics and novel therapeutic modalities. Our differentiated portfolio continues to command strong pricing. As we look ahead, this combination serves us well as a mechanism to provide offsets and capitalize on new demand opportunities in a dynamic global environment.

Our unique exposure to emerging high-volume testing drivers also contributed meaningfully to our growth this quarter. For GLP-1 testing, we saw continued demand of our PATROL UPLC system. This advanced analytical tool has become indispensable for in-process testing of these peptides during manufacturing. Additionally, our chemistry and HPLC offerings saw continued momentum in post fill finish quality testing, supported by solid CapEx investment and production volumes. While we have a leading position in the analytical testing of current GLP-1 injectables on the market today, we are also very well positioned for future oral introductions. PFAS-related testing sales grew over 90% in the first quarter, continuing the 40%-plus growth trend seen both in 2023 and 2024.

LC-MS has become the dominant workhorse technique for regulated analysis of these compounds, including drinking water, soil and wastewater compliance monitoring. This is because most regulated compounds are polar and nonvolatile, making them best suited for liquid chromatography. We expect emerging regulations governing PFAS to drive testing in areas like food packaging and consumer products, which is an attractive opportunity for Waters. Given the need to detect the same nonvolatile compounds, LC-MS is also the method of choice in these areas. Our India team again delivered revenue growth close to 20% in constant currency driven by strong demand from generics manufacturers and CDMOs. Looking ahead, as outlined at our recent Investor Day, we expect approximately 30 basis points of annual growth accretion from both GLP-1 and PFAS testing and an additional 70 basis points to 100 basis points from growth in India.

These volume growth drivers, combined with the instrument replacement cycle and our strong pricing performance present a compelling high single-digit plus growth profile for our company in the near to midterm. Turning now to new products. In the first quarter, we launched two new products in the TA division, the ElectroForce APeX-1 for precise mechanical testing of high-performance polymers and composites, and TGA Smart-Seal Pans, which support analysis of atmosphere sensitive materials in battery, polymer and drug development testing. Today, we also announced the launch of Empower for multi-angle light scattering detectors, which is an important milestone and commitment from our integration of Wyatt. This advancement expands the scope of critical quality attributes that a biopharmaceutical laboratory can manage and submit to regulators using our Empower software.

Our steady stream of innovation continues to strengthen our core business and support our expansion into higher growth adjacencies. I will now cover our updated 2025 full-year guidance. Waters has a unique and resilient revenue profile anchored by our focused exposure to downstream high-volume applications. This includes Pharma QA/QC where growth is closely tied to manufacturing output and CapEx spending trends. Within these segments, customer spending has remained robust. Looking ahead, customer manufacturing needs continue to evolve, with potential for additional investment driven by tariff-related capacity shifts and U.S. Pharma reshoring initiatives. Our team continues to execute well with our revitalized portfolio, particularly as the instrument replacement cycle continues to ramp.

We also expect sustained contribution from our idiosyncratic growth drivers and continued achievement of strong like-for-like pricing gains. Given our better-than-expected first quarter performance, we are raising our full-year constant currency sales growth guidance to 5% to 7%, while adequately accounting for U.S. policy developments in the academic and government end market. Our adjustment to ANG growth expectation represents a 50 basis point impact on our full-year growth outlook. But incremental price accretion from tariff-related actions is separately expected to contribute an equivalent 50 basis point tailwind. As such, our growth assumptions for the rest of the year remain unchanged. I will now talk about the current tariff situation and how Waters is positioned to meet the challenges from recent global trade policy changes.

Our manufacturing footprint is highly globalized and it includes a strong existing U.S. presence. A significant portion of our ex U.S. manufacturing also takes place in jurisdictions subject only to the lower baseline tariff rate. We also do not have a significant tariff exposure to goods entering the U.S. from China or vice versa. After the tariffs were announced, we quickly stood up a cross-functional task force to assess tariff exposure and implement mitigation plans. We rapidly assess the impact of tariff exposure and implemented supply chain adjustments, selective surcharges for tariffs and limits to discretionary spending. Thanks to our swift and decisive actions, we are well positioned to limit the net impact of the newly announced tariffs to a modest $10 million on our 2025 adjusted operating margin, effectively offsetting the majority of a $45 million gross impact.

Within our EPS, the combined resulting effect of tariffs and U.S. policy changes is fully offset by favorable foreign exchange movements. As a result, there is no net impact to our original earnings per share guidance. Reflecting our first quarter outperformance, we are raising our full-year 2025 adjusted EPS guidance to a range of $12.75 to $13.05. This translates to approximately 8% to 10% EPS growth or 10% to 12% on a constant currency basis. Now I will pass the call over to Amol to cover our financial results in more detail and provide further details on our guidance. Amol?

Amol Chaubal: Thank you, Udit, and good morning, everyone. For the first quarter, we delivered sales of $662 million, up 4% on a reported basis and 7% in constant currency, placing us at the high end of our guidance range. Orders growth exceeded sales growth, underscoring our strong momentum. By end market, Pharma grew 8%, industrial grew 6% and academic and government grew 3%. Pharma saw double-digit growth in Asia and the Americas and 3% growth in Europe. Industrial was led by Waters Division, which grew high-single digits, driven by PFAS applications growing more than 90%. TA Instruments continued to benefit from battery testing demand. Within Academic & Government, as Udit highlighted, China grew double digits as we continue to leverage our local market presence.

Regionally, Asia grew 13% with China growing 5%, Americas grew 6% and Europe grew low-single digits. By product line, instrument sales grew 11%, driven by mid-teens growth in both liquid chromatography and mass spectrometry. Recurring revenues grew mid-single digits as expected, given the two fewer days in the quarter. Customer activity remains strong and installed base utilization remains high with our consistent results supported by our commercial initiatives in service plan attachment, e-commerce adoption and the launch of new bioseparations columns. Overall, the first quarter execution was strong across markets, regions and product lines and our resilient growth exposure positions us well for the remainder of the year. Now I will comment on our first quarter non-GAAP financial performance.

Earnings per share reached $2.25 coming in at high end of guidance, supported by robust sales volume and an improvement in FX rates. This represents 2% reported growth and 7% growth in constant currency. GAAP earnings per share were $2.03. Gross margin came in at 58.2% and adjusted operating margin came in at 25.5%, consistent with our expectations. Our operating tax rate for the quarter was 16% and our average diluted share count was 59.7 million shares. Turning now to free cash flow, capital deployment and our balance sheet. First quarter free cash flow was $234 million after funding $26 million of capital expenditures. This represents 35% of first quarter sales and a free cash flow to adjusted net income ratio of 174%. Our strong free cash flow generation allowed us to rapidly delever our balance sheet.

In the first quarter, we reduced debt by approximately $170 million. Our net debt position is now approximately $1.1 billion, returning to pre-Wyatt acquisition levels. This results in a net debt-to-EBITDA ratio of roughly 1x. We maintain a strong balance sheet, access to liquidity and well-structured debt maturity profile. This strength allows us to prioritize investing in growth. We continue to actively evaluate M&A opportunities that will enhance long-term shareholder value. Additionally, we will assess the potential resumption of our share repurchase program during the course of 2025. Now I will share further commentary on our full-year outlook and provide you with our second quarter guidance. Waters has a unique and resilient revenue profile anchored by our focused exposure to downstream high-volume applications.

Within these segments, the recovery in customer CapEx spending has remained robust. Additionally, customer manufacturing needs continue to evolve, with potential for additional investments in new capacity driven by tariff-related capacity shifts and U.S. pharma reshoring initiatives, which is not included in our guidance. We continue to execute well with our revitalized portfolio, particularly as instrument replacement gains further momentum. We also expect to sustain contributions from our idiosyncratic growth drivers and strong like-for-like pricing gains. We are raising our full-year constant currency sales growth guidance to 5% to 7%, reflecting our better-than-expected first quarter performance, while adequately accounting for the recent U.S. policy developments in the academic and government end market.

U.S. A&G customers account for approximately 3% of our total revenue making it a relatively modest part of our business. As part of our disciplined approach to forecasting, we have proactively adjusted our outlook for this segment by $15 million to reflect recent market developments. While this adjustment represents 50 basis points to our full-year growth outlook, incremental pricing accretion from tariff-related actions are separately expected to contribute 50 basis points of tailwind. As a result, our growth assumption for the remainder of the year remains unchanged. We are also raising our reported sales growth guidance to a range of 4% to 6%, reflecting our strong momentum in the first quarter plus recent tailwinds from FX rate assumptions.

Turning now to the current impact of tariffs. As Udit outlined, we have acted swiftly to limit the net impact of the announced tariffs to a modest $10 million on our adjusted operating margin for 2025. Approximately 80% of our gross $45 million exposure relates to finished products manufactured in U.K., Singapore and Ireland for U.S. operations as well as raw materials imported to support U.S. manufacturing. The remaining 20% is tied to the trade between the U.S. and China. Approximately $8 million of our net exposure and $39 million of our gross exposure relates to the second half of 2025. To respond quickly and decisively, we established a cross-functional task force that immediately mobilized to assess risk, implement mitigation strategies and safeguard our financial objectives.

Thanks to the team’s rapid actions, including targeted supply chain adjustments, selective surcharges, and disciplined discretionary spend management, we have substantially mitigated this impact. While incremental pricing actions related to tariffs help preserve profit, their impact on the reported margin percentage differs. Accounting for the modest net impact of tariffs, together with the incremental favorable benefit of foreign exchange rates, we now expect our full-year 2025 gross margin to be approximately 59% and our adjusted operating margin to be approximately 31%. In both cases, this reflects a margin percentage that is roughly in line with our 2024 levels. Below the line, we now expect full-year net interest expense to be approximately $40 million, reflecting better-than-expected debt pay down in the first quarter.

Our guidance assumes average diluted share count remains at approximately 59.7 million shares. We continue to anticipate full-year tax rate of around 16.5%, in line with last year. Consequently, we are raising our full-year 2025 EPS guidance to account for better-than-expected first quarter performance, while absorbing the full impact of tariffs and U.S. policy changes without any degradation to our prior earnings expectations. We now expect full-year 2025 adjusted earnings per fully diluted share to be in the range of $12.75 to $13.05 inclusive of all tariff impacts. This is approximately 8% to 10% growth and 10% to 12% on a constant currency basis. Our guidance accounts for announced tariffs that are currently enacted and those scheduled for after the 90-day pause.

Turning to the second quarter of 2025, we expect constant currency sales growth of 5% to 7%. Net of currency translation, reported sales growth is expected to be in the range of 4% to 6%. For EPS, we anticipate our second quarter non-GAAP earnings per fully diluted share to be in the range of $2.88 and $2.98. This represents approximately 10% to 13% reported EPS growth or 12% to 15% growth on a constant currency basis. With that, I will hand the call back to Udit for closing comments. Udit?

Udit Batra: Thank you, Amol. So in summary, our first quarter results reflect excellent momentum and reinforce our confidence in both the recovery of the instrument market and the steady growth of our recurring revenues. We are executing from a position of strength, anchored by resilient sources of growth and a revitalized portfolio that continues to command strong pricing. We remain firmly on track to achieve our 2025 objectives despite the recently announced tariffs and no expected impact to our original EPS expectations for the year. Our commitment to operational excellence, financial discipline and rapid execution continues to deliver solid outcomes and creates value for our shareholders. We are energized by our progress, confident in our positioning and immensely proud of our team who have been instrumental in achieving these strong outcomes. So with that, I will turn the call back to Caspar.

Caspar Tudor: Thanks, Udit. That concludes our prepared remarks. We are now happy to open the lines and take your questions.

Q&A Session

Operator: We will now begin the Q&A. [Operator Instructions] Our first question will come from Jack Meehan with Nephron. Your line is open. Please go ahead.

Jack Meehan: Thank you. Good morning.

Udit Batra: Good morning, Jack.

Jack Meehan: I wanted to start – talk a little bit more about the replacement cycle dynamics that you’re seeing called out in the script that it’s still ramping. Can you just talk about the different customer classes within Pharma biotech, what you’re seeing there? And then for Amol, within the 2025 guide now, is there any update to what your forecast was for instruments?

Udit Batra: Jack, good morning and thank you. Look, instruments performed extremely strongly in Q1 came in ahead of expectations, right? So double-digit growth driven by both LC and mass spec growing in the mid-teens. Now your question is around the replacement cycle in Pharma, in particular, LC and Pharma also grew in the mid-teens, really, really strong growth. There, the growth was led by large Pharma, where I’ll remind you that our focus is on late-stage resilient applications in QC, in manufacturing and in the generic segment, so large Pharma, generics and CDMOs, which is about 75% of our Pharma business all grew in double digits. So the replacement cycle is well and truly underway. The funnel is quite strong, and our customers are really responding well both in greenfield and brownfield opportunities to the Alliance iS building a stake there as well. Amol on the 2025 guide.

Amol Chaubal: Yes. And so the only change for the remainder of the year in our guide is mainly around the U.S. A&G business. It’s a very small portion of our business, like 3%. What we’ve done is we’ve proactively meaningfully derisked our U.S. A&G forecast. So we’ve prudently assumed 20% decline for U.S. A&G for the rest of the year, which brings our overall A&G for the full-year to a mid single-digit decline for the full-year. And that creates a 50 basis points topline headwind. Now separately, our selective surcharge actions on tariffs add about 50 basis points on the topline. And so for rest of the year, net of the two, there is no impact. So that’s roughly the guide change.

Jack Meehan: Great. And one follow-up. In the Pharma biotech customer class, have you seen any change in behavior related to tariffs, like specifically from what you can tell? Was there any pull forward in the first quarter? Or have you seen any increase in ordering in the second quarter just around customers’ positioning around tariffs? Any color on that would be great.

Udit Batra: So really no change in behavior, Jack, at all, right? The funnels are quite strong. I mean we’ve seen momentum through the quarter. So really no change in behavior. And in terms of the tariff impact on Pharma itself, look, just like us, the Pharma customers are spending time thinking through what actions they would take if tariffs were implemented on their products. And just like us, they’re thinking through supply chain modifications. And you must have read sort of the over $160 billion commitment that many large Pharma players have made to restore in the U.S., we’re very well positioned with all of them. And if and when that comes, we are sure to benefit from it. It’s not included in our guide. But seeing absolutely no change on the replacement dynamics in large Pharma, in particular.

Now I just want to take the opportunity also to take a step back, right? We’re getting caught up in sort of the small – the changes that are occurring every single day. The Pharma industry remains one of the most attractive end markets. Look, I’ve spent close to 30 years of my career, half of it in Pharma and half of it sort of serving Pharma through the life science tools industry. And I can tell you, innovation has never been stronger. It is there to meet the needs of an aging population, both on the acute and chronic side. So we feel very good about our position in serving the Pharma industry as we together work to getting the benefits of this pioneering science to many, many customers in need. So very positive about the long-term prospects of Pharma, but in the short-term, really no change in dynamics on the replacement cycle.

Operator: Our next question will come from Tycho Peterson with Jefferies. Your line is open. Please go ahead.

Tycho Peterson: Hey, thanks. Congrats on the quarter. I want to probe into price. I don’t think I’ve ever heard you guys use pricing so much on an earnings call. So maybe talk a little bit about what you’re expecting on pricing this year, where you’re seeing the greatest ability to push price? And are you not all concerned about pharma pushing back on pricing, and that does seem to be one of the things we’re talking about in response to tariffs is leading on their own suppliers.

Amol Chaubal: Yes. So look, I mean, Q1, we did 200 basis points of like-for-like price. As you know, we don’t include upsell in our price embedded in our previous guide and also in this guide is excluding tariffs, 200 basis points of like-for-like pricing gains. Now we are doing selective surcharges associated with tariffs and they are going to contribute about $15 million or 50 basis points incremental to this 200 basis points of like-for-like pricing gains, and that is embedded in our revised guide.

Udit Batra: Right. And in terms of your second part – the second part of your question on pushback from pharma. Look, I mean, we’ve had very close collaboration with our customers. As far as the 200 basis points on innovative products is concerned, I mean, that’s always sort of welcome if you’re introducing new products. As far as the tariff surcharge is concerned, that’s been conversation – that’s been conversations with one-by-one with customers, and we track the stick rate on a daily basis. And I would say between 80% to 90% customers have fully understood what we’re trying to do with 10%, you have to have a debate and explain the reasons why and what parts but we’re very confident on both the $200 million on the – driven by the product differentiation and the additional 50 basis points that is a surcharge due to the tariffs.

Tycho Peterson: Okay. And then a follow-up on India. This has obviously been a nice growth driver. You’ve got some tailwinds heading into 2026 with Semaglutide moving over there. How do you think about maybe longer-term risks around that business with manufacturing moves more onshoring? Do you think that what you’re seeing there is sustainable?

Udit Batra: Yes, it’s a good question, Tycho. Look, I mean, just like the innovative pharma industry, generics have a strong role to play in relieving funding for reinvestment in innovation. And India has played a strong role in supplying genetics to the rest of the world, like our large pharma customers, Indian generics companies also have global footprints, right? And they’re in a very straightforward way able to reshore in other geographies. None of them have initiated any of those discussions. But I think if at all, there are tariffs, they will again look at the same levers that we have or large pharma companies have including supply chain adjustments, and we’re ready and we have the best relationships with them to help them navigate through it.

Now that said, the results in India, again, were close to 20% constant currency growth, and we’re extremely proud of the team in India that is taking our new innovative products and really embedding them in the generics value chain.

Operator: Our next question will come from Puneet Souda with Leerink. Please go ahead.

Puneet Souda: Yes. Hi, Udit, Amol, Caspar, thanks for taking my questions here. First one on the tariffs and supply chain realignment side. Can you elaborate on what’s already completed and what remains to be in terms of supply chain realignment in terms of Wilmslow, Singapore versus U.S. and what remains to be optimized? And then is – are the LCs and mass specs affected by the IP domiciling and transfer pricing issues that affect the API for the drugs – or are you largely not impacted from that? And I have a follow-up? Thank you.

Amol Chaubal: Yes. So Puneet, a couple of things. I’d like, look, our gross impact is $45 million. And most of that shows up in the second half of the year, primarily because in Q2, you have some inventory, but our teams did an excellent job of bringing more inventory and stockpiling before the deadlines. And that partly is also the reason why the cost associated with that was the drug on our Q2 gross margins. But then sort of second half is pretty clean and can be extrapolated into the future. Within that, if you say within the $45 million, roughly $15 million is offset with surcharges roughly $14 million is manufacturing cost actions that are largely on the landing mode. I mean, the actions that we have embedded in our guide are pretty much on the landing mode at this point.

So we feel pretty comfortable there and roughly $6 million is discretionary spend management. In terms of – your other question on IP and – so it does affect, right, because at the end of the day, where you are manufacturing, you have an IP there. So you are bringing the product into another domicile at a certain transfer price. You can’t change those transfer prices very easily without sort of moving the IP in the first place. So the $45 million exposure that we’ve outlined includes all of that impact in it. Again, there are more moves sort of planned that will go live at the beginning of next year, which will allow us to completely offset the impact as we go into 2026.

Udit Batra: And so Puneet, just one embellishment to what Amol has said. Look, none of this stuff happens automatically. And I think you’re used to us reacting rather rapidly to a changing and challenging environment. And many of you had the chance to meet our team at our Investor Day. I mean these are folks who are extremely dedicated to assessing the problems on a daily basis. We meet daily developing solutions and implementing them rapidly. And we continue that cadence on a daily basis, and I’m extremely thankful to the dedication of the team to be able to offset 35 out of the 45 gross rose $35 million impact – $45 million impact that we saw for the full-year.

Puneet Souda: That’s great. Thanks for all the details. My follow-up is, I mean, you’re indeed outperforming significantly versus the peers. And that comes to the differentiation of what Waters is, its products, the quality and where it’s situated in the pharma servicing the pharma customers. I’m wondering, can you talk – take a minute and talk about how the pharma customers in the U.S. and Europe versus the pharma customers in India are thinking about in this macro environment, I think the questions are still about the second half and the confidence of these pharma customers and your positioning there that helps you gives you the confidence to raise the guide and see outperformance in the second half as well. Maybe could you elaborate a bit on that? Because obviously, we’re not seeing this from the rest of the industry.

Udit Batra: Puneet, thank you for the question and the opportunity to comment on this rather important topic. Look, what does – as you know, it positioned extremely well downstream in high-volume applications where regulations are key. And we’ve made that our home. We’ve been executing in that domain extremely well. Now we’re at the beginning of the replacement cycle, which helps our instrument growth. And you saw double-digit instrument growth already in Q1 – we’re not seeing any slowdown in replacement discussions with our large pharma customers, our genetics customers or our CDMO customers, all of which are continuing to grow in mid-teens, right? So we grew in pharma high single-digit. These three segments are growing in the double digits, right?

So driving the growth and they’re a large part of the story is the replacement cycle. Now as you look at each of these different segments I commented earlier as well, not only is the funnel strong, the conversations are extremely strong. And as they think about navigating the complex macro environment, they are talking to us about changing of their manufacturing footprint, different supply chain reconfigurations. And given our relationships with these customers, we stand to benefit from it. And that gives us the confidence to raise the full-year guide given the outperformance in Q1. Pharma is a large part of that story and our downstream presence, our innovation, which is meeting these unmet needs, the focus on idiosyncratic growth drivers like GLP-1 testing, like the India generics outperformance, like the focus on biologics is all helping.

So really excited about what we’re seeing from our customers and their focus on ensuring that they play a strong role in getting safe medicines to people and we have a strong role to play there.

Operator: Our next question will come from the line of Catherine Schulte with Baird. Your line is open. Please go ahead.

Catherine Schulte: Hey guys. Thanks for the questions. Maybe just what are your expectations for China for the balance of the year? Are you seeing any hesitation in customer spend there? And then what are your latest assumptions for stimulus?

Udit Batra: Good morning, Catherine. And thank you for the question. Look, China came in ahead of expectations, around 5% growth for the first quarter. And this was driven by a strong performance in stimulus-related opportunities in the academic and government segment, where – we’re benefiting from our wider distribution as well as the localized footprint and equally benefiting from our TA portfolio, which did extremely well in the battery testing arena, right? So A&G actually came in double digits for China for the start of the year. Now as we look at the balance of the year, we’ve assumed that China basically remained stable at a low single-digit growth. So we’ve just taken it down from the 5% growth in Q1. We’ve assumed that it is low single-digit growth.

And any wins in the balance of the stimulus would be considered upside, right? So basically low single-digit for the balance of the year, even with a strong start for the year. So a bit of prudence built in there.

Amol Chaubal: Yes. I mean Q1 was consistent, right, even if you exclude the stimulus, we were relatively flat and we have a strong local presence that is executing really well on not just the stimulus, but the broader business, which reflects in our overall number.

Catherine Schulte: Great. And then maybe a follow-up on reshoring. How do you think about that as a potential tailwind? And how long after some of these capacity announcements do you typically see the demand start coming for your products? I know you said it isn’t in 2025 guidance, but just curious how you think that rolls out from a cadence perspective?

Udit Batra: So Catherine, it’s early days. I mean, these are just being announced. We’re in close conversation with all our customers. Nobody yet has detailed plans on exactly what they’re going to do. And as they emerge, we expect to play a strong role given that our focus is and it remains on late stage or marketed compounds, which is where a lot of these capacity expansions will come to support existing products, right? So we feel very confident about our position, but it’s early days. There’s not a lot of detail on exactly where these manufacturing facilities going to be put up across the U.S.

Amol Chaubal: And just having a service organization with the best NPS scores really puts us in a driver’s seat, right? Because they are part of all these conversations around tech transfers and site movements. But as Udit alluded, like none of this has converted into orders. None of this is in our guidance.

Udit Batra: And Amol’s point is an excellent one. Look, I mean the service team is the first one to find out when you’re opening up a new manufacturing site, customers want to be sure that the software is transferred appropriately. The methods are transported appropriately and the new products that the new instruments that they purchase really have sync up with the software as well as with their other sites. So when – if and when it starts, we will be one of the first to find out.

Operator: Our next question will come from Sung Ji Nam with Scotia Bank. Please go ahead.

Sung Ji Nam: Hi. Thanks for taking the questions. I’ll just ask one, it’s a multi-parter on academic, especially U.S. academic. Obviously, it’s a very small portion of your revenue. But could you remind us kind of what is the latest number for that in terms of your exposure? And then also curious kind of what you’re seeing on the ground currently. Are you actually seeing meaningful weakness from your customer base? And then lastly, with all the structural changes that are being proposed, are there opportunities for Waters to kind of actually take advantage in terms of future opportunities in academic, especially in U.S. academic? Thank you.

Udit Batra: I’ll start and then I’ll pass it on to Amol. Look, you’re right, in academia and government is the smallest end market for us. So we’re not really reflective of exactly what’s going on in that segment as many of our peers might be. The U.S. portion of that is roughly 3-ish percent. Now ironically, the start to the year was excellent, right? That segment grew double digits, driven by PFAS testing and Department of Defense orders, right? So starting the year with a double-digit growth. But as Amol pointed out in the prepared remarks, we have assumed a significant decline for the balance of the year, right. The year started with double-digit growth. But for the rest of the year, we’ve said is going to go down by 20%. Amol, do you want to build?

Amol Chaubal: Yes. No. I mean, look, Q1 was double-digit growth for rest of the year. I mean it’s a full-year $90 million or rest of the year, $70 million business for us, a really small in grand scheme of things. We’ve run a meaningful haircut of $15 million to it, which is assuming the rest of the year is minus 20%. It’s prudent. It’s just derisking, and we’ll see how it plays out?

Sung Ji Nam: Thank you.

Operator: Our next question will come from Brandon Couillard with Wells Fargo. Please go ahead.

Brandon Couillard: Thanks. Good morning. Did the PFAS business thing to really accelerate quite a bit here in the quarter, clocking a new high up 90%. Is there any timing benefit in that growth rate? What are you assuming for the year? And maybe just unpack that acceleration a little bit for us?

Udit Batra: Yes. So really happy with the performance on PFAS testing, Brandon, and thanks for the question. Look, we’ve gone from strength to strength. I’ll remind you that for the last two years, that business has grown 40% each year. So it’s not a one-quarter phenomenon. And this quarter, it grew 90% across the food and environmental segment, but also academia, especially in the United States. We did not see any semblance of a pull forward on that, right. Our Xevo TQ Absolute remains the instrument of choice and the funnel is extremely strong on the food and environmental side in – for the balance of the year, not just in the U.S. but in other geographies. And recently, the – despite sort of move towards deregulation across many different segments, PFAS has the opposite trend going for it, right?

So on April 28th, the EPA announced 21 measures to combat PFAS pollution. So this includes, of course, aligning PFAS across many agencies, but in no small part, limiting the affluent PFAS in affluence for metal finishers and other customers. And equally, ramping up the development of testing methods to improve detection and strategies to address PFAS, right? So this is not a onetime event, and we’re seeing even more focus from the EPA on implementing regulations and asking for even better detection methods. And the reason I went on that diatribe is to illustrate the need for the most sensitive instrument in the industry, and that’s where the TQ Absolute continues to do extremely, extremely well.

Brandon Couillard: Okay. That’s helpful. And to follow-up – the balance sheet is in great shape. Net debt is down to back where it was through Wyatt acquisition. What’s your appetite for another $1 billion-plus deal or maybe even something more transformative? And do you expect the macro volatility to actually lead to more assets becoming available perhaps in more attractive valuations? Thanks.

Udit Batra: So Brandon, thanks for the question. Look, Wyatt is a poster child for an acquisition. The strategic fit has been excellent, and it’s played out exactly like we thought. It has helped us build our bioanalytical business, which we want to continue to build on. Second, we committed to taking light scattering into QA/QC. As of this morning, we announced that light scattering is now compatible. That is the Wyatt instruments are compatible with Empower which allows our customers and many of whom have been talking to us about this, to take light scattering into QA/QC basically post haste. So this is a significant opportunity. Now don’t ask me to quantify it. I will not do it today and we will look at the facts after the sales are consummated.

But extremely excited about what we’ve seen with Wyatt. And yes, if we find other acquisitions like Wyatt, there are several in the pipeline and valuations have become a lot more reasonable, we would go for it. But again, as Amol as said many, many times, if the strategic fit and the financials don’t make sense, we will resume our share buybacks.

Operator: Our next question will come from Vijay Kumar with Evercore ISI. Please go ahead.

Vijay Kumar: Hi, Udit and Amol. Good morning and thanks for taking my questions. Congrats on a nice sprint here. Maybe on instruments here, Q1 very pleased with double-digit growth. Your prior guidance I think, assume something like 4% to 5% to hit the midpoint of the guidance. Is your instrument outlook changing? How should we think about 2Q and balance of the year on instrument growth?

Udit Batra: So Vijay, good morning and thank you for the question. Yes, I mean, a great start to the year with instruments, double-digit growth, both LC and mass spec in the mid-teens – when you look at the guidance for the balance of the year, look, we’ve raised it, but it’s basically 5% to 7%. And the guidance philosophy has not really changed. Recurring revenues basically take in the high end of the guidance of 6% to 7%. And for the balance of the year, we don’t see any issues with the number of days in the quarter, right? So it should land between 6% and 7%. In fact, there’s an extra day in the fourth quarter, if I’m not wrong. So 6% to 7% on the high end, bringing in the high-end, which is 60% of the business. Instruments, we are still assuming roughly 5-ish percent, right.

In such a dynamic environment, we think we will get constructive as the year goes along, right. Great start, good funnel, both LC and mass spec doing well with the replacement cycle fully underway, new products making a difference, idiosyncratic growth drivers doing what they’re supposed to do and according to our prediction, but we still want to have sufficient level of prudence in the guide. So we’ve assumed roughly 4% to 5% instrument growth for the balance of the year.

Amol Chaubal: Yes. I mean largely unchanged for rest of the year other than the meaningful downsizing of U.S. A&G.

Vijay Kumar: That’s helpful. Then maybe one quick follow-up on Amol view. Share count assumptions went up a tad versus prior guidance. Curious why no buyback assumptions within the guide?

Amol Chaubal: Yes. I mean it’s net neutral versus the previous guide. We took down our interest expense assumptions, and we took up our share count assumptions. But when you net the two, it’s net neutral on EPS.

Operator: Our next question will come from Matt Sykes with Goldman. Please go ahead.

Matthew Sykes: Hi. Good morning. Thanks for taking my questions. Maybe just the first one, sort of a high-level question for you, Udit. When you look at sort of the commercial exposure you have, is clearly where you want to be in this current market environment. But just given all the challenges we’re seeing sort of more upstream and research, given your lower levels of exposure there, does this make you want to take advantage of the environment to perhaps invest a little bit more in upstream, either organically or inorganically or are you fairly content with remaining sort of commercial for this time being, just given the macro uncertainty?

Udit Batra: I think Matt, firstly, good morning. We’re very happy with our commercial exposure as you pointed out. And I think the fact that we have high-volume applications in a recurring setting, which are regulated, I mean, plays to our strength. And there’s a lot to do here, right? I mean there’s a lot more to do with the hand that we have rather than thinking about the hand we should have or we should get. So many examples, right? I mean this morning, we announced that we are taking light scattering into QA/QC with Empower. I mean, several of you asked that question in the past, and we are finally here. There’s a lot more to do there, right? We want to continue to develop new products that go and fit into QA/QC with Empower as our primary highway to do so.

When you look at instruments, right? I mean I think back when I joined the company five years ago, people said, where the LC is a commoditized segments, especially for small molecules. Well, you introduce Alliance iS customers respond to innovation. Look at TQ Absolute, right. I mean the most sensitive mass spec in the industry and that’s benefiting from the PFAS testing. So there’s a lot to do where we are and our focus remains squarely on high-volume applications. And equally not to lose focus on battery testing on clinical, there’s a lot to do here, Matt. So not really getting distracted with other areas at this point.

Matthew Sykes: Thank you. And then just a follow-up. Just on services, it came in a little bit lighter than what we were expecting. Is this just a natural output of just having a very high instrument placement growth?

Amol Chaubal: Yes. I mean, look, we had two less days. So that accounts for roughly 2% lower growth. But then we also had lower purchases of parts from third-party service providers, people who also service our instruments, and that was a little bit of the drag on our service revenue for the quarter.

Operator: Our next question will come from the line of Dan Arias with Stifel. Please go ahead.

Daniel Arias: Thanks for your questions, guys. Can you just touch on TA for the quarter, 1% growth was a bit lower than I think where the Street was, but industrial was up, what are the moving parts that gets you from one to the other and then what’s going on from a product and customer standpoint? And then along those lines, what’s the outlook on the cyclical side of the business for the year.

Udit Batra: Yes. Look, so Dan, generally very pleased with TA overall, right? I mean it’s a heavy instrument business, so it can be quite lumpy. But that said, we did extremely well on battery testing, especially out of China, which grew double digits. The U.S. came in a bit lighter than we had initially hoped, but that is basically timing of different orders. So really pleased with where the TA business is. And again, this morning, we announced a couple of new launches in the TA business, focused on polymer testing, material testing and equally on helping our battery testing customers. So very happy in general with that business. I think it’s just lumpy, and so you see it go up and down quarter-on-quarter. I wouldn’t pay too much attention to it.

Daniel Arias: Okay. Thanks for that. And just as a follow-up, and I realize this is getting pretty specific, but is there anything that you can say about mass spec in biopharma? And the reason I asked just because very clear that PFAS is helping LC-MS pretty significantly. So just kind of curious what the market for instrumentation beyond LC looks like if you look at your core biopharma markets?

Udit Batra: Yes, it’s a great question, and thank you for the opportunity to comment on it. If you come up with a sensitive instrument that is easy to use and customers like it, of course, there are benefits in other segments. And the drug metabolism segment is one such segment. But historically, Waters has not had a strong presence largely due to limitations in our software. We worked very hard on improving the waters_connect software to make it simple to use, to make it reliable from a regulatory standpoint and several customers are testing that. And so we’re starting to see some traction in the DMPK segment. Both in large pharma, but equally in midsized CROs, right. And I will stop there and not comment on it anymore for competitive reasons.

But that said, very happy with what the team has been doing in taking a highly sensitive instrument, not just for PFAS testing into drug metabolism for pharma and also into clinical where mass spec is starting to play an increasingly important role in diagnostic testing.

Operator: Our final question will come from Dan Brennan with TD Cowen. Please go ahead. Dan, your line is open. Please feel free to unmute.

Daniel Brennan: Sorry about that. Can you hear me? Apologies. Udit, I think you got this question earlier, but I just wanted to go back to it a bit if you could. Just what are you seeing from pharma now, like as they contemplate possible tariffs later in the year? Are they trying to accelerate orders now? Is that a benefit maybe in the first half of the year? I think you didn’t see – I think you said you didn’t see any impact in the first quarter to Jack’s questions. Just wondering if there’s any kind of change in activity, what you’re seeing from that customer base?

Udit Batra: So same as I said Dan, earlier, no change at all, right. I mean, this is basically driven by the replacement cycle. The growth is driven by the replacement cycle, traction of Alliance iS and we can go customer by customer and seeing significant benefit of our downstream presence and that, of course, gets compounded if you look at our focus on GLP-1 testing, look at generics, look at the growth in CDMOs. So customers that are downstream that have high volume applications are continuing to replace instruments. This is across generics, CDMOs and pharma, which is over 75% of our Pharma sales. So no real pull forward that we can see.

Daniel Brennan: Great. And then just beyond QA/QC part of the portfolio, excuse me, because you talked about mid-teens growth and the rest of the pharma a little bit slower. Just what’s happening like discovery and development, even though it’s a smaller part of the business? Just wondering what you’re seeing there? Thank you.

Udit Batra: So continued pressure, Dan, I mean, like we also commented earlier, continued pressure on biotech, on drug discovery and pharma research. And I think these are segments probably that will recover down the line. But for now, we see continued pressure on those segments. So drug discovery, pharma research and CROs, all three are still under pressure. But again, I’ll remind you that’s less than 20% of our overall business, our overall pharma business.

Operator: And this concludes the Q&A portion of the call. I will now hand it back to Caspar Tudor.

Caspar Tudor: Thank you, Leila. I will hand it over to Udit to deliver our closing remarks.

Udit Batra: Thank you again for joining us on the call today. We had a wonderful start to the year, thanks to the focus on downstream high-volume applications driven by the momentum in the replacement cycle, game-changing new products as well as our idiosyncratic growth drivers. I want to thank our team who has risen yet again to meet another set of challenges, solving problems on a daily basis, collaborating closely with each other and with our customers, coming up with creative solutions in real-time and implementing them with excellence. Thank you for supporting Waters and the indomitable spirit of our colleagues.

Caspar Tudor: This concludes our call. We look forward to connecting with many of you at upcoming events and conferences.