Q4 2021 Waters Corp Earnings Call
Speaker 1: as well as the cautionary language included in this morning's press release, including with respects to risks related to the effects of the COVID-19 pandemic on our business. We further caution you that the company does not intend to update any of its predictions or projections except during our regularly scheduled quarterly earnings release conference calls and webcasts, or as otherwise required by law. The next earnings release call and webcast is currently planned for May 3, 2022.
Your language included in this morning's press release, including with respect to risks related to the effects of the COVID-19 pandemic on our business.
We further caution you that the company does not intend to update any of its predictions or projections, except during our regularly scheduled quarterly earnings release conference calls and webcasts or as otherwise required by law.
Next earnings release call and webcast is currently planned for <unk> 2022.
Speaker 1: During today's call, we will be referring to certain non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are attached to our earnings release issued this morning and in the appendix of our presentation, which are available on the company's website.
During today's call, we will be referring to certain non-GAAP financial measures reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are attached to our earnings release issued this morning and in the appendix of our presentation, which are available on the company's website.
Speaker 1: In our discussions of the results of operations, we may refer to non-GAAP results which exclude the impact of items such as those outlined in our schedule titled Reconciliation of GAAP to Adjusted non-GAAP Financials, included in this morning's press release and in the appendix of our presentation.
In our discussions of the results of operations, we may refer to non-GAAP results, which exclude the impact of items such as those outlined in our schedule titled reconciliation of GAAP to adjusted non-GAAP financials included in this morning's press release and in the appendix of our presentation.
Speaker 1: unless stated otherwise references to quarterly results, increasing or decreasing, or in comparison to the fourth quarter of fiscal year 2020.
Unless stated otherwise references to quarterly results, increasing or decreasing are in comparison to the fourth quarter of fiscal year 2020.
Speaker 1: In addition, unless stated otherwise, all year over year revenue growth rates, including revenue growth ranges given on today's call, given on a comparable constant currency base.
In addition, unless stated otherwise all year over year revenue growth rates, including revenue growth ranges given on today's call are given on a comparable constant currency basis.
Speaker 2: Now, I'd like to turn the call over to Dr. Udip Batra, what is President and CEO , who is it? Thank you, Kasper, and good morning, everyone. Along with Kasper joining me on this morning's call, there's Amole Chowbo, Water Senior Vice President and Chief Financial Officer. She vented a very successful year at Waters. In end markets, it's a thing of both drivers, we have revived a resilient business, and a now focused on growing up with four years.
Now I'd like to turn the call over to Doctor, who departure water's President and CEO .
Thank you Kasper and good morning, everyone along with Gasbuddy joining me on this morning's call I'm always although what as senior Vice President and Chief Financial Officer.
We've ended a very successful year at waters.
<unk> end markets at sustainable growth both drivers we have revived our resilient business and are now focused on growing our portfolio.
Speaker 2: Despite higher comparables, we saw strong growth continue with an acceleration on a stacked basis as the year went on. The strength we've seen in our instrument portfolio is a positive indicator for the future. As our new products have gained traction and this also supports the sustainable future growth we expect to see in our consumables and service.
Despite higher Comparables, we saw strong growth to continue with an acceleration on a stacked basis as the year went on.
The strength, we've seen in our instrument portfolio is a positive indicator for the future as our new products have gained traction and this all supports the sustainable future growth, we expect to see in our consumables and service.
Speaker 2: Before summarizing the quarter and fully are let me start by thanking my colleagues around the globe who represented the indomitable spirit of water throughout 2021.
Before summarizing the quarter and full year, let me start by thanking my colleagues around the globe, who represented the inbound Macdougall Spinet Award us throughout 2021.
Speaker 2: We remain focused on supporting our customers and delivering exciting new products despite the challenging conditions of the pandemic.
Main focused on supporting our customers and delivering exciting new products. Despite the challenging conditions of the pandemic.
Speaker 2: Achieving these results in a normal year would have been quite an accomplishment, but to do so while balancing the continued ups and downs of the pandemic with a major transformation and a new leadership team is indeed quite remarkable.
Keeping these with us in a normal normally it would have been quite an accomplishment, but to do so while balancing the continued ups and downs of the pandemic with a major transformation in the new leadership team is indeed quite remarkable.
Speaker 2: Now I'm turning to slide three. We have three messages. We have a resilient and attractive portfolio of instrument systems, chemistry, consumables, and services in end markets that are supported by sustainable growth drivers.
Turning to slide three.
We have three messages.
The average resilient and attractive portfolio of instrument systems chemistry, consumables and services and end markets that are supported by sustainable growth drivers.
Speaker 2: We revitalized this goal by engaging our customers, progressing on a number of growth initiatives, and continuing to innovate across our portfolio while launching exciting new products. And now we're focused on growth of our core business, as well as accessing high volume applications in faster growing adjacent.
Revitalize the score by engaging our customers progressing on a number of growth initiatives and continuing to innovate across our portfolio by launching exciting new products and now we're focused on growth of our core business as well as accessing high volume applications in faster growing adjacencies.
Speaker 2: I will now provide a brief overview of our fourth quarter and full year operating results, as well as commentary on our end market geographies and technologies. I'm all will then review our financial results in detail and provide comments on our financial outlook. We will then open up the phone nine to take your questions. Moving on.
I will now provide a brief overview of our fourth quarter and full year operating results as well as commentary on our.
Our end markets geographies and technologies I'm. All will then review our financial results in detail and provide comments on our financial outlook. We will then open up the phone line to take your questions moving on to slide four.
Speaker 2: In the fourth quarter, our revenue grew 6% as reported, and 8% on a constant currency basis. Reflecting broad strength across our end markets and geographies with double digit year-end demand for our instruments and continued growth in our recurring revenue product.
<unk> fourth quarter, our revenue grew 6% as reported and 8% on a constant currency basis, reflecting broad strength across our end markets and geographies with double digit year end demand for our instruments and continued growth in our recurring revenue products. This translates to a seven 5%.
Speaker 2: This translates to a 7.5% two-year stacked gager for the quarter versus 2019 on a constant 70 days.
Stacked CAGR for the quarter versus 2019 on a constant currency basis.
Speaker 2: For the full year, revenue grew 18% as it voted and 16% in constant currency as we saw strong growth in 2021 across all our regions led by farmer and industrial and markets. This translates to a 7% to your stacked kegur for the year versus 2019 in constant currency.
For the full year revenue group revenue grew 18% as reported and 16% in constant currency as we saw strong growth in 2021 across all our regions led by pharma and industrial end markets. This translates to a 7% two year stack the CAGR for the year versus 2019 in constant currency.
Speaker 2: R24 non-GAPA just did earnings per share with $3.67 per share, up 1% year on year on year and
Our Q4 non-GAAP adjusted earnings per share of $3 $67 per share up 1%.
Year on year on year, and 7% stacked.
Speaker 2: including the effect of our prior year COVID cross-actions and effects EPS group 8% versus last.
Excluding the effect of a variety of Covid cost actions and FX EPS grew 8% versus last year.
Speaker 2: For the full year, non-GAP adjusted earnings per share grew 24% to $11.20, and 12% on a two-year start-way.
For the full year non-GAAP adjusted earnings per share grew 24% to $11 20.
And 12% on a two year stack basis.
Speaker 2: Now looking more closely at our top-line results for the quarter on slide 5, in constant currency first by operating segment, the Waters division grew 7% while TA grew 16%.
Now looking more closely at our topline results for the quarter on slide five in constant currency first by operating segment.
Waters Division grew 7%, while EBITDA grew 16%.
Speaker 2: by end-market or largest market category, 4-1-8% industrial grew, 7% and academic and government grew at 5.
By end market, our largest market category pharma grew 8% industrial grew 7% in academic and government grew 5%.
Speaker 2: In farmer v. soft continued broad base strength in sales across segments, geographies and applications.
In pharma, we saw continued broad based strength in sales across segments geographies and applications.
Speaker 2: biopharma and contract organizations grew well above 20 percent.
Biopharma and contract organizations grew well above 20%.
Speaker 2: Industrial growth was led by RTA business which saw strong global strength in thermal as well as micro-calrymetry and theology.
And industrial growth was led by our <unk> business, which saw strong global strength in thermal as well as Microcap calorimetry embryology.
Speaker 2: Within the waters division we saw broad demand for LC instruments across our geographies as well as our customers, as well as our customer segments who continue to invest in new capital economies.
Within the waters Division, we saw broad demand for LTE instruments across our geographies as well as our customers as well as our customer segments will continue to invest in new capital equipment.
Speaker 2: Turning to academic and government, we saw an improvement with growth across most of our geographies into the UN.
Turning to academic and government, we saw an improvement with growth across most of our geographies into the year end.
Actively revitalizing our relationships with Kols, which is an integral part of achieving long term success in academic and government.
Speaker 2: While it takes some time for us to regain traction, waters have familiarity and a fan base amongst KOLs who have often used instruments throughout their careers. This last week, I was talking with the head of a leading core lab at one of the top medical institutions in the United States. He's worked closely with waters for the better part of two decades to build up proteomics capabilities at this institution and currently has over 40 waters, those LTs and 20 Markspectre instruments from our company.
While it takes some time for us to regain traction waters as familiarity and a fan base amongst kols, who have often used instruments throughout their careers.
Just last week I was talking with the head of our leading core lab at one of our one of the top medical institutions in the United States. He has worked closely with waters for the better part of two decades to build our proteomics capabilities at this institution and currently has over 40, Waters' LC and 20 mass spec instruments from our company.
Speaker 2: Moving now to our sales performance by geography. On a constant currency basis, sales in Asia grew 9%, with China up 13%, America's 8%, with US, up 8% in Europe grew 5%.
Moving now to our sales performance by geography on a constant currency basis sales in Asia grew 9% with China up 13% Americas, 8% with U S up 8% and Europe grew 5%.
Speaker 2: In China, we saw strong demand throughout the quarter with growth led by contract orgs, biopharma, and a strong recovery in clinical. We also saw strong growth in food testing and chemical assets.
In China, we saw strong demand throughout the quarter with growth led by contract arcs, Biopharma and a strong recovery in clinical we.
<unk> also saw strong growth in food testing and chemical assays.
Speaker 2: The US growth came from ongoing strength in our farmer and industrial environment.
In the U S growth came from ongoing strength in our pharma and industrial end markets and finance sales were strong in LC and mass spec, which combined grew in the mid teens with chemistry up low double digits in industrial our VA business saw strong instrument placement across applications.
Speaker 2: And Pharma sales was strong in LC and mass spec, which combined grew in the mid-teens with chemistry up low double digits. In industrial, our TA business saw strong instrument placement across applications led by advanced materials, chemicals, and battery tests.
Led by advanced materials chemicals and battery deck.
Speaker 2: In Europe , all end markets continue to grow, led by pharma and industrial, with food and environmental businesses resulting in strong demand for our tandem quads. Meanwhile, pharma sales remain solid, with growth led by large-molecule applications.
In Europe , all end markets continued to grow led by pharma and industrial with food and environmental businesses.
Strong demand for our tandem quads. Meanwhile, final sales remained solid with growth led by large molecule applications.
Speaker 2: By product and services, customer demand for our instruments finished the year strong, continuing the trend of instrument growth that we saw throughout the year, while demand for recurring revenue products remains strong.
Product and services customer demand for our instruments finished the year strong continuing the trend of instrument growth that we saw throughout the year by demand for our recurring revenue products remained strong.
Speaker 2: Overall instrument sales grew 12% for the quarter with robust demand driven by our commercial execution and new product contribution. In LC, ARC HPLC continued to see strong global growth in our core segments as demand continues to ramp. Meanwhile, our ACQUITY and ARC PREMIER instruments continue to see strong adoption driven by applications in large molecule and novel modalities such as mRNA.
Overall instrument sales grew 12% for the quarter with robust demand driven by our commercial execution and new product contribution and LC <unk>.
<unk> continued to see strong global growth in our core segments as demand continues to ramp.
Meanwhile, our acuity in our Premier instruments continued to see strong adoption driven by applications and large molecule and novel modalities such as mrna.
In mass spec.
Speaker 2: We saw growth in our high-end tandem quad portfolio led by Xevo TQ-XS, Xevo TQ and Xevo TQ-XS Micro. We also saw strong demand from our biopharma and CRO customers as well as for food safety applications.
We saw growth in our high end tandem quad portfolio led by vivo DQ excess legal to Youtube and Diebold EQ excess micro we also saw strong demand from our biopharma and CRO customers as well as for food safety applications and our high res mass spec portfolio, we saw the demand for cyclic with drug discovery applications.
Speaker 2: In our high-res mass spec portfolio, we saw the demand for cyclic with drug discovery applications. We're also encouraged by the early adoption of our new select series MRT time-of-flight platform with customers using it for biopharma, discovery, and omics applications.
We're also encouraged by the early adoption of a new the next.
Cds MRP time of flight platform with customers using it for Biopharma discovery and <unk> applications.
For recovery for recurring revenues.
Speaker 2: Despite the quarter having six fewer days than the fourth quarter of 2020, chemistry fails to 5 percent, led by continued high utilization by our pharma customers.
<unk> the quarter, having six fewer days in the fourth quarter of 2020 chemistry sales grew 5% led by continued high utilization biopharma customers.
Speaker 2: our new MaxPeak Premier columns continue to provide incremental growth for our chemistry base.
New Max peak Premier columns continue to provide incremental growth for our chemistry business. This technology provides important benefits and separation and purification of mrna oligonucleotides peptides and <unk>, which is effectively answering the needs of our customers as they work with more complex molecules.
Speaker 2: This technology provides important benefits in separation and purification of mRNA, oligonucleotides, peptides, and glycans, which is effectively answering the needs of our customers as they work with more complex molecules.
Speaker 2: Service grew 2% despite a tough double-digit comparison a year ago, with strong growth in both China and in India, which has been a theme throughout the year. Finally, TA had another great quarter, with sales up 16%, led by strong growth in thermal analysis, microcalorimetry, and rheology.
Service grew two 2% despite a tough double digit comparison, a year ago with strong growth in both China and in India, which has been a theme throughout the year. Finally da had another great quarter with sales up 16% led by strong growth in thermal analysis micro calorimetry in rheology.
Speaker 2: Demand for TA products continues to be strong in all regions with growth driven by advanced materials and chemicals including batteries and electronics.
Demand for <unk> products continues to be strong in all regions with growth driven by advanced materials, and chemicals, including batteries and electronics.
Looking now at our topline results for the full year on slide six in constant currency the.
Speaker 2: Looking now at our top-line results for the full year on slide 6, in constant currency, the waters division grew 15% while TA grew 25%.
For the waters Division grew 15%, while EBITDA grew 25% by.
Speaker 2: By end market, pharma grew 19% and industrial grew 15% while academic and government came at 5% for the year.
By end market pharma grew 19% and industrial grew 15%, while academic and government came at 5% for the year.
Speaker 2: Pharma, which is our largest market, has grown 10% on a two-year stack basis, driven by strong demands in our instruments and recurring revenues, with strength in both large and small-molecule applications.
Pharma, which is our largest market.
<unk> grown 10% on a two year stack basis, driven by strong demand.
In our instruments and recurring revenues with strength in both large and small molecule applications. We've also seen ongoing strength in our industrial and applied market, which has grown 6% on a two year stack basis led by China, as well as North America and Europe .
Speaker 2: We've also seen ongoing strength in our industrial and applied market, which has grown 6% on a two-year stack basis, led by China as well as North America and Europe .
Speaker 2: In academic and government, which has been our slowest market to recover, sales in Europe and the U.S. are close to pre-pandemic levels, while China has furthered in its recovery as university spending continues to be constrained.
In academic and government, which has been our slowest market to recover sales in Europe and the U S are close to pre pandemic levels by China has further in its recovery as University spend spending continues to be constrained.
Speaker 2: by geography, Asia grew 19%, China growing 25%, America grew at 16%, with the U.S. growing at 14%, and Europe also grew 14%.
By geography, Asia grew 19%, China growing 25%.
Medical at 16% with the U S growing at 14% and Europe also grew 14%.
Speaker 2: For the full year, on a two-year stack basis, our three largest geographies, the US, China and Europe , grew 6%, 7% and 8% respectively. What is especially pleasing is that the demand is balanced across all geographies, including a robust recovery in the US.
For the full year on a two year stack basis, our three largest geographies.
China, and Europe grew six seven and 8% respectively.
What is especially pleasing is that the demand is balanced across all geographies, including a robust recovery in the U S.
Speaker 2: By products and services, instruments grew 23% for the year, chemistry 15% and service grew 9%.
By products and services instruments grew 23% for the year demonstrates 15% and service grew 9%.
Speaker 2: On a stack basis, instruments give 6%, chemistry 9%, and service 6%, showing strong performance above our historical average.
On a stack basis instruments grew 6% chemistry, 9% and service.
So the 6% showing strong performance above our historical averages.
Speaker 2: The strength we've seen in our LC instrument portfolio throughout the year remains a positive indicator for sustainable future growth in consumables as well as service. Our growth in recurring revenues has also been supported by the progress we've made in e-commerce as well as delivering higher attachment rates and service.
The strength, we've seen in our LC instrument portfolio throughout the year remains a positive indicator for sustainable future growth in consumables as well as service.
Growth in recurring revenues has also been supported by the by the progress we've made in e-commerce , as well as delivering higher attachment rates and service.
Speaker 2: Given the global nature of our business, we're certainly not immune to the ongoing supply chain constraints and inflationary pressures, but we are proactively addressing these challenges, leveraging our global manufacturing footprint and working closely with our customers and suppliers.
Given the global nature of our business, we are certainly not immune to the ongoing supply chain constraints and inflationary pressures, but we are proactively addressing these challenges leveraging our global manufacturing footprint and working closely with our customers and suppliers.
Speaker 2: Now moving on to slide number seven, we covered this in our Q3 earnings call and also at the recent JPMorgan conference. Our initiatives across instrument replacement, service attachment, contract organizations, e-commerce, and new product launch excellence have all been important components for us regaining our momentum and delivering strong performance in 2021.
Now moving on to slide number seven.
We covered this in a few key earnings call and also at the recent Jpmorgan conference our initiatives across instrument replacement.
This attachment contract organizations E Commerce, and new product launch excellence have all been important components for us regaining our momentum in delivering strong performance in 2021.
Speaker 2: will continue to exceed expectations and milestones on these initiatives and believe that each has further one way not just in 2022 but in years beyond providing an average incremental growth impact of roughly 100 basis points annually across the base business in the next two to three years as our transformation program is firmly on track.
We have continued to exceed expectations and milestones on these initiatives and believe that each has further runway not just in 2022, but in years beyond providing an average incremental growth impact of roughly 100 basis points annually across the base business in the next two to three years.
As our transformation program is firmly on track.
Speaker 2: Moving now on to slide 8, the strength of our business is being supported by instrument innovation with recent product launches that have revitalized our core. Waters continues to build on its robust base, deep customer relationships, and importantly,
Moving now on to slide eight the strength of our business is being supported by instrument innovation with recent product launches that have revitalized our core waters continues to build on its robust base deep customer relationships and importantly.
Speaker 2: It's highly technical team of scientists and engineers with deep understanding of our customers' problems to solve. For example, ARK HPLC, which was launched in 2020, allows customers to increase the performance and capabilities for their high volume workhorse instruments without revalidating their existing methods. This is absolutely critical in compliant environments and helps us provide the benefits of newer technology to our customers while ensuring backwards compatibility.
It's highly technical team of scientists and engineers with deep understanding of our customers' problems to solve for example.
<unk>, which is which was launched in 2020 allows customers to increase the performance and capabilities for the high volume workhorse instruments without re validating that existing methods. This is absolutely critical and compliant environments and helps us provide the benefits of newer technology to our customers while ensuring backward.
Compatibility means.
Speaker 2: Meanwhile, our Max-Peak Premier technology provides important benefits and applications where sensitivity and reproducibility is key, by virtually eliminating the metal binding affinity of compounds like NRNAs, oligonucleotides, peptides and glycumsth.
Meanwhile, our Max peak Rainier technology provides important benefits in applications, where sensitivity and reproducibility of <unk> by virtually eliminating the metal binding affinity of compounds like mrna is oligonucleotides that tides and like hands on the instrument side activity Premier.
Speaker 2: On the instrument side, ACQUITY PREMIER is a UPLC that was custom designed for biologics and novel modality applications, providing 100 times better detection sensitivity than non-PREMIER instruments and a 50% reduction in peak tailing.
A plc that was custom designed for biologics and novel modality applications, We're writing 100 times better detection sensitivity than non premier instruments, and a 50% reduction in peak drilling.
Speaker 2: Within our chemistry portfolio, MaxB Premier columns, which also offer this high-performance surface coating, have set a record in terms of uptake for new columns as this technology continues to be well-received by our pharma companies.
Within our chemistry portfolio Mcafee Premier columns. It's also offer this high performance and surface coating has set a record in terms of uptake for new columns. As this technology continues to be well received biopharma customers.
Speaker 2: Turning to a mass-steak portfolio, one additional example of innovation is our select series MRT, which is our higher resolution, multi-reflecting time-of-flight instrument that provides remarkable accuracy at high speed without standing clarity. This instrument is setting the benchmark in mass accuracy.
Turning to our mass spec portfolio. One. Additionally, example of innovation is a select series MLP, which is a high resolution multi reflecting time of flight instrument that provides a marketable accuracy at high speed with outstanding clarity. This instrument is setting the benchmark in mass accuracy.
Speaker 2: It's high throughput, it's enabling large sample studies of proteins and metabolites, which previously would have taken too much time to conduct.
It's high throughput, enabling large sample studies of proteins and metabolites, which previously would have taken too much time too much time to conduct.
Speaker 2: And additionally, you may have seen our announcement this morning of Waters' acquisition of charge detection mass spec technology, CDMS.
Additionally, you may have seen our announcement. This morning of what does this acquisition of charge. This charge protection MOSFET technology CDMA Cds.
Speaker 2: CDMS overcomes limitations of conventional mass spec in characterizing, analyzing, and quantifying complex large molecules.
<unk> overcomes the limitations of conventional mass spec and characterizing analyzing and quantifying complex large molecules. This investments will allow waters to develop.
Speaker 2: This investments will allow waters to develop and commercialize CDMS technology to solve significant unmet needs in novel modalities that are such as cell and gene therapy for drug development.
And commercialize <unk> technology.
All significant unmet unmet needs in novel modality settings, such as cell and gene therapy for drug development.
Speaker 2: With the discipline my colleagues John Pratt and Jianqing Bennett have brought into launches new products have meaningfully grown in their contribution this year and with our product vitality index around 150 basis points up around up around 150 basis points to approximately 15 percent in Q4.
With a disciplined my colleague John Bratt, and Janssen Burnett have brought into launches new products have meaningfully grown.
In their contribution this year and with our product vitality index around 150 basis points up around up around 150 basis points to approximately 15% in Q4.
Turning now to slide nine.
Speaker 2: A key element of our informatics strategy is to provide customers with tools that help them better manage their workflows and achieve faster, easier results with high quality compliant data.
A key element of our informatics strategy is to provide customers with tools that help them better manage their workflows and achieve faster.
Easier results with high quality compliant data.
Speaker 2: Last month, we extended our next-generation informatics platform, WatersConnect, to our tandem quad mass spectrometers for core quantitation, starting with food tests.
Last month, we extended our next generation informatics platform, what is connect to our tandem quad mass spectrometers for core quantitation, starting the food testing.
Speaker 2: As any scientist who works in mass spec will tell you, current software across the industry is powerful, but designed to fit all purposes, and as a result, can be complicated and difficult to use.
As any scientist who works in mass spec with value current software across the industry is powerful are designed to fit all purposes.
As a result can be complicated and difficult to use.
Speaker 2: Our new software is built around the purpose and end market application for which it is being used, delivering on a few principles of providing advanced technology that is fast, robust, and easy to use. Our new software is being built around the purpose and end market application for which it is being used.
Our new software is built around the purpose and end market application for which it is being used delivering on our key principle of providing advanced technology that is fast robust and easy to use.
It produces.
Speaker 2: review times by up to 50% compared to the current market-leading platform by allowing labs to meet their compliance and data integrity requirements.
The new times by distributors.
<unk> times by up to 50% compared to the current market, leading platform by allowing labs to meet their compliance and data integrity requirements.
Speaker 2: The overriding benefit here is that analysts can reduce the view time to a minimum, which is one of the largest bottlenecks in the lab, improving workflows for quantitative LCMS and much better review. It's critical for our customers as it helps improve the throughput.
The overriding benefit here is that analyst and reduce the new time to a minimum which is one of the largest bottlenecks in the lab improving workflows for quantitative LC Ms and mass spec data review is critical for our customers as it helps improve the throughput and efficacy.
Speaker 2: I spent time with our launch team last week and the rollout has begun with food testing applications and we plan to extend it to other applications in the near future.
Same time with our launched in last week and the rollout has begun with food testing applications and we plan to extend it to other applications in the near future.
Now turning to slide 10.
Speaker 2: Let me turn to the critical problems in higher growth adjacencies that we identified this year and believe we can solve over time.
Let me turn to the critical problems and higher growth Adjacencies that we identified this year and believe we can solve overtime.
Speaker 2: First, in dial separations, we see an opportunity to take our chemistry expertise from small molecule separation and apply to novel modalities and large molecule separation.
And bio separations, we see an opportunity to take our MSP expertise from small molecule separation and applied novel modalities in large molecule separation.
Speaker 2: Despite their rapid growth, there are significant challenges in characterizing and confirming the quality of these large, complex molecules. Take mRNA as an example. The industry has a key unmet need of sustaining analytical control when measuring molecular integrity.
Fight their rapid growth.
Significant challenges in characterizing and confirming the quality of these large complex molecules take.
Take <unk> as an example, the industry has a key unmet need of sustaining analytical control when measuring molecular integrity.
Speaker 2: Current practices for newer modalities like this are not as reproducible as desired because there is not enough precision. So by advancing our biologic capabilities, we can unleash our chemistry expertise and our engineering expertise to better characterize and separate these molecules, and then identify items such as process-related impurities and degradation that are critical in later stage development of high-volume manufacturing.
Current practices for newer modalities like this are not as they produce as desired because there is not enough precision.
By advancing our biologic capabilities, we can unleash our MSC expertise and our engineering expertise to better characterize and separated these molecules and then identify identify items such as process related impurities and degradation that are critical in later stage development and high volume manufacturing.
Speaker 2: In this area specifically, we're looking at bio-separation solutions for mRNA and other nucleic acids, proteins, and lipid nanoparticles, as well as viral vector gene therapies and vaccines and adeno-associated viruses. Second, in bio-separation,
In this area specifically, we're looking at bio separation solutions for another knee and other nucleic acids proteins and lipid nanoparticles as well as viral vector gene therapies, and vaccines and <unk> associated viruses.
And bioprocess characterization.
Speaker 2: One of the key differences in bioprocessing versus small molecule processing is that once you define the manufacturing process, you expect to be stuck with it and cannot optimize it without completely revaluating the process because it is tied to the drug master.
One of the key differences in bio processing versus small molecule processing is that once we define the manufacturing process, where effectively stuck with it and cannot optimize it without completely validating the process because the decided for the drug master file at.
Speaker 2: By providing analytical techniques that are powerful enough to characterize the product sufficiently, we believe that we can overcome this barrier and separate the process from the product.
By providing analytical techniques that are powerful enough to characterize the products sufficiently we believe that we can overcome that barrier and separate the process from the product.
Speaker 2: This is a significant need in the industry and has the potential to be a very attractive
Is a significant need in the industry and has the potential to be a very attractive market.
Speaker 2: Our partnership with Sartorius is a key step in this journey, and as we bring the processing power of LC-MS at line with BioAccord in a workflow that is simple, powerful, and fast, and can be easily used on-site by bioprocessors.
Our partnership with <unk> is a key step in this journey and as we bring the processing power of LC Ms. At the <unk> and a workflow that is simple powerful and fast and can be easily used onsite by bioprocess engineers.
Speaker 2: The third application is of LC-MS and diagnostics, where we need a fast.
The third application.
Is it because of SMS in diagnostics, where we need a fast.
Speaker 2: and bias detection of multiple biomarkers to enable early disease detectives.
Unbiased detection of multiple biomarkers to enable early disease detection.
Speaker 2: We believe MassTax has a significant role to play here and we have already demonstrated a proof of concept with the UK government in characterising the SARS-CoV-2 virus with excellent sensitivity and selectivity, leading to a lower false positive rate than many other
We believe <unk> has a significant role to play here and we have already demonstrated a proof of concept with the UK government and characterizing the hospital were to wireless with excellent sensitivity and selectivity, leading to a lower false positive rate and many other techniques.
Speaker 2: In review, our strong fourth quarter results capped a very successful year for waters with broad base growth across our end markets and geographies.
And review our strong fourth quarter results capped a very successful year for waters with broad based growth across our end markets and geographies.
Speaker 2: We sustained our momentum with strong two-year stacked revenue growth throughout the year with our transformation now embedded in how we operate.
We sustained our momentum with strong two year stack revenue growth throughout the year with our transformational embedded in how we operate.
Speaker 2: Our core business has been revitalized with growing contributions from innovative new products and initiatives.
Our core business has been revitalized with growing contributions from innovative new products and initiatives.
Speaker 2: We are laser-focused on our commercial execution, the markets we serve remain in a healthy state, and our regions have rebounded solidly from pandemic lows.
Laser focused on our commercial execution the markets. We serve remain in a healthy state in our regions have rebounded solidly component of close.
Speaker 2: Meanwhile, we see opportunities in higher growth adjacencies that will raise our exposure to faster-growing market segments as we start to solve the critical problems we have identified over time.
Meanwhile, we see opportunities in higher growth Adjacencies.
That will raise our exposure to faster growing market segments as we start to solve critical problems, we've identified over time with that.
<unk>.
Speaker 2: I'd like to pass the call over to Amol for a deeper review of the fourth quarter and full-year financials, as well as our outlook for the first quarter and the full year of 2022. Amol. Thank you, Diffin.
I'd like to pass the call over to a mall for a deeper review of the fourth quarter and full year financials as well as our outlook for the first quarter and the full year of 2022.
Thank you and good morning, everyone.
Speaker 2: As Udit outlined, we recorded net sales of $836 million in the fourth quarter, an increase of 8% in constant currency, and an increase of 6% as reported.
Can you just outline we recorded net sales of $836 million in the fourth quarter, an increase of 8% in constant currency.
<unk> were up 6% as reported.
Speaker 2: We had a record instrument sales this quarter, which increased 12 percent versus prior year and 8 percent on a two-year strike.
Record instrument sales this quarter, which increased 12%.
The prior year.
And 8% on a two year stack basis.
Speaker 3: Despite six fewer calendar days, our recurring revenue, which represents the combination of chemistry and service revenue, increased by 3% for the court.
<unk> six fewer calendar days.
Recurring revenue, which represents the combination of chemistry and service revenue increased by 3% for the quarter.
Speaker 3: Chemistry revenues were up 5% and service revenues were up 2%, both of which had tough comparisons in the prior year.
Chemistry revenues were up 5% and service revenues were up 2% both of which had tough comparisons in the prior year.
Speaker 3: The six fewer calendar days in the quarter translated to a growth headwind of approximately 6% for recurring revenue and approximately 3% for total revenue.
The six fewer calendar days in the quarter translated to a growth headwind of approximately 6% for recurring revenue.
Approximately 3% for total revenue.
Speaker 3: For the full year, sales grew by about 16% in constant currency and 18% in fixed currency.
For the full year sales grew by about 16% in constant currency.
18% as reported.
Speaker 3: Recording revenues grew 11% with chemistry up 15% and service up 9% while instrument sales grew 23%. Driven by strong customer demand and new product introduction.
Recurring revenues grew 11%.
History up 15%.
Lease up 9%, while instrument sales grew 23% driven by strong customer demand and new product introductions.
Speaker 3: Our two year stacked constant currency sales growth was 7.5 percent for Q4 and 7 percent for the second half of 2021 versus 6.5 percent for the first half.
Our two year stacked constant currency sales growth was seven 5% for Q4.
And 7% for the second half of 2021 .
Six 5% for the first half.
Speaker 3: This acceleration underscores our good commercial momentum heading into 2020.
This acceleration underscores our good commercial momentum heading into 2020 group.
Looking ahead, comparing 'twenty to 'twenty two 2021 there is one fewer day in the first quarter no change in the second or third quarters.
One additional day in the fourth quarter.
Speaker 3: Now I would like to comment on our fourth quarter and full year non-GAAP financial performance versus the prior year.
Now I would like to comment on our fourth quarter and full year of non-GAAP financial performance versus the prior year.
Speaker 3: Gross Margin for the quarter came in as expected at 58%. On a full year basis, Gross Margin was 58.5% compared to 57.4% in the prior year with improvements driven primarily by volume leverage and a 30 basis points tailwind from inflation.
Gross margin for the quarter came in as expected at 58%.
On a full year basis gross margin was 58, 5%.
57, 4% in the prior year with improvements driven primarily by volume leverage.
30 basis points tailwind from FX.
Speaker 3: Moving down the P&L, for Q4, operating expenses increased by approximately 12% on a constant currency basis.
Moving down the P&L.
Q4 operating expenses increased by approximately 12% on a constant currency basis.
Speaker 3: and include an increase of approximately 7% due to the normalization of our prior year COVID related cost action.
<unk> include an increase of approximately 7% due to the normalization of our prior year COVID-19 related cost actions.
Speaker 3: For the year, operating expenses were approximately 18% higher in constant currency and include an increase of 15% due to the normalization of prior year COVID-related costs.
For the year operating expenses were approximately 18% higher in constant currency.
Include an increase of 15% due to the normalization of variety of Covid related cost reductions.
Speaker 3: in the quarter and for the full year, our effective operating tax rate was 14.4 percent and 13.8 percent respectively.
In the quarter and for the full year.
Our effective operating tax rate was 14, 4% and current pinpoint and 8% respectively.
Speaker 3: For the full year, our effective tax rate decreased by 100 basis points due to a favorable change in our income mix by jurisdiction.
The full year, our effective tax rate decreased by 100 basis points due to a favorable change in our income mix by jurisdiction.
Speaker 3: Our average share count came in at 61.4 million shares, which is about 1.1 million less than the fourth quarter of last year.
Our average share count came in at 61 4 million shares, which is about $1 1 million less than the fourth quarter of last year.
Speaker 3: Our non-gap earnings per fully diluted share for the fourth quarter increased 1% to $3.67 in comparison to $3.65 last quarter.
Our non-GAAP earnings per fully diluted share for the fourth quarter increased 1% to $3 67.
In comparison to $3 65 since last year.
Speaker 3: excluding the impact of foreign exchange and the normalization of prior year COVID-related cost actions, non-gap EPS increased 8%.
Excluding the impact of foreign exchange and the normalization of prior year Covid related cost actions non-GAAP EPS increased 8%.
Speaker 3: On a gap basis, our earnings for fully diluted share increased to $3.52 compared to $3.49 last month.
On a GAAP basis.
<unk> per fully diluted share increased to $3.52.
$3.49 last year.
Speaker 3: For the full year, our non-gap earnings for fully diluted share was up 24% at $11.20 versus $9.05 in the prior year.
For the full year.
non-GAAP earnings per fully diluted share was up 24%.
$11 20.
What just $9.05 in the prior year.
Speaker 3: On a gap basis, full-year earnings per share was $11.17 versus $8.36 a year ago. The increase was driven primarily by sales volume, partially offsetted by the normalization of our COVID-related cost action.
On a GAAP basis full year earnings per share was $11.17.
$8.36 a year ago.
Greece was driven primarily by sales volume, partially offset by the normalization of our COVID-19 related cost action.
Speaker 3: Reconciliation of our GAAP to non-GAAP earnings is attached to the press release issued this morning and in the appendix of this presentation.
A reconciliation of our GAAP to non-GAAP earnings is attached to the press release issued this morning.
The appendix of this presentation.
Speaker 3: Turning to free cash flow capital deployment and our balance sheet. We define free cash flow as cash from our patients.
Turning to free cash flow capital deployment, and our balance sheet redefine free cash flow as cash from operations less capital expenditures.
Speaker 3: less capital expenditures and excludes special items.
Excluding special items.
Speaker 3: In the fourth quarter of 2021, free cash flow was $187 million, after funding $45 million of capital expenditure.
In the fourth quarter of 2021 free cash flow was 187 million after funding $45 million of capital expenditures.
Speaker 3: Exploded from the pre-cash flow was 9 million related to the investments in our taunt and precision chemistry operations and 5 million in cost related to one-time litigation settled.
Excluded from the free cash flow was $9 million related to the investments.
Rondon precision chemistry operations, and 5 million in costs related to onetime litigation settlement.
Speaker 3: For the full year, free cash flow was $675 million with approximately 24 cents of each dollar of sales converted into free cash flow. In the fourth quarter, accounts receivable DSOs came in at 66 days. Down four days compared to the fourth quarter of last year. And down five days compared to the last quarter.
For the full year free cash flow was $675 million with approximately 24% of each dollar of sales converted into free cash flow.
In the fourth quarter accounts receivable Dsos came in at 66 days down four days compared to the fourth quarter of last year and down five days compared to the last quarter.
Speaker 3: Inventory DIO decreased by 9 days compared to the fourth quarter of last year.
Inventory.
Kris by nine days compared to the fourth quarter of last year.
Higher sales volumes.
Speaker 3: and our proactive measures to secure supply, inventory increased by 52 million in comparison to the prior.
Our proactive measures to secure supply inventory increased by 52 million in comparison to the prior year.
Speaker 3: We maintain a strong balance sheet, access to liquidity, and a well-structured debt maturity profile. In terms of returning capital to shareholders, we repurchased approximately 448,000 shares of our common stock for $156 million in Q4.
We maintain a strong balance sheet access to liquidity.
Well structured debt maturity profile.
In terms of returning capital to shareholders really purchased approximately 448000 shifts.
Common stock for $156 million in Q4.
Speaker 3: At the end of the quarter, our net debt position was $945 million with a net debt to EBITDA ratio of about 1.
At the end of the cadre of net debt position was 945 million with a net debt to EBITDA ratio of about one.
Our capital deployment priorities are investing for growth maintaining balance sheet strength and flexibility and returning capital to shareholders.
Along with focus on deploying capital to really pop out.
Collective and adjacent growth opportunities.
Now as we look.
Towards but you go ahead.
I would like to provide you with our thoughts for 2022 riches on slide 11.
In 2021 our momentum has been progressing really accelerated.
By a robust end market demand and strong commercial execution across all geographies.
As we head into 'twenty to 'twenty, two we expect our momentum to continue and that we will be able to.
Address supply chain constraints, and inflationary pressures and believe that our near term growth initiatives will continue to contribute to our performance.
These dynamics support full year, 2022 guidance of 5% to 7% constant currency sales growth.
At current rates.
Currency translation is expected to subtract approximately one percentage point, resulting in full year reported sales growth guidance.
4% to 6%.
Gross margin for the full year is expected to be approximately 58% and operating margin is expected to be approximately 30% 35%.
We expect our full year net interest expense to be approximately $35 million.
Full year tax rate to be approximately 15, 5%.
Average diluted 2022 share count is expected to be approximately $61 million.
Our share repurchase program will continue into 'twenty to 'twenty, two and we will provide quarterly updates as appropriate.
Rolling all this together and on a non-GAAP basis full year 2022 earnings per fully diluted share are now.
Now projected in the range of $11 75 range.
<unk> dollars.
Includes a negative currency impact of approximately two percentage points.
Today's rates.
Looking at the first quarter of 2020, do we expect constant currency sales growth to be 6% to 8%.
At today's rates currency translation is expected to subtract approximately three percentage points, resulting in first quarter reported sales growth guidance.
3% to 5%.
First quarter non-GAAP .
Earnings per fully diluted share are estimated to be in the range $2 25.
To $2 35.
This includes a negative currency impact of approximately four percentage points.
Right now I would like to turn it back to <unk> for some summary comments.
Thank you Rommel in summary, we are pleased with our performance. This year, our core business has re energized our transformation is on track and with.
Really good commercial momentum going into 2022.
Our laser focus on our commercial execution and accelerating innovation to our portfolio, while reaching higher growth close adjacent markets with a new leadership team in place and our transformation well under labor also expanding our focus on environmental social and governance.
The governance topics, we've initiated a complete materiality assessment, which will allow us to look at areas, where waters and contribute and ensuring we do our part to leave the world better than we found it and I look forward to sharing an update on this later this year with that we will now begin the Q&A session.
Later.
Thank you Sir at this time, we'll begin our Q&A session. We do ask that you limit yourself to one question and one follow up our first question is from Vijay Kumar with Evercore ISI. Your line is open.
Hey, guys. Thanks for taking my question.
One on the queue, we're not one on guidance and maybe it will start with Makena.
If I look at the interim drove the fact, 12%.
It came in well above expectations.
Was there any year end budget flush or Rob this is a continuation of that.
Execution momentum you've seen.
Throughout the course of <unk> 21, and be comparable to what happened in Q4 why instruments came in so strong.
Yeah. So vijay thank you for the question and good morning.
We've seen strong instrument momentum instrument growth momentum throughout the year in Q4, there is no exception and this is largely attributed to commercial.
Our commercial.
Initiatives, especially the replacement initiative and the successful launch of new products.
Especially the arc HPLC, the acuity premiere and more recently the high res mass spec platform the full year numbers from an instrument perspective.
I would say even more even more interesting.
There.
Instruments had really led the growth with mid mid twenties sort of growth rate at LTE coming around that range mass spec, a little bit slower and DAA really endearing in the high <unk>.
<unk>. So instruments have really led the charge in terms of a recovery and that bodes very well for the future for our service and.
Cutting businesses so.
To summarize really it's commercial momentum new product that we.
<unk> seen throughout the year and nothing sort of dramatic that was taking place at the end of the year that was very different from what we've seen throughout the year.
That's helpful and maybe one for you.
On the guidance.
It looks like Q4 gross margin came in at a very rich right now I thought I heard you say it was in line with expectations is there anything on the gross margin line for.
Quintin too because I look at your revenue growth reported revenue growth of from.
For the six.
Earnings.
Five to seven.
You do have some share repurchase going on so that implies maybe perhaps margins.
We're flat to down.
What would cause our margins to be down is that a gross margin issue.
Good morning, and thanks for the question so look I mean.
Gross margin for Q4 came in.
As we had guided.
If you compare to commercial supply.
Gross margin is lower because of three factors there is a 50 50.
50 basis points headwind from exchange rate, but then we'll also prior year COVID-19 cost actions that normalize this year and then.
The quarter was heavier on instruments.
On instruments on lower margin compared to other elements of our portfolio. So when you put those three things together and you sort of reconcile this with the gross margin last year.
Where we are guiding for 20 to access approximately 58% is in line with what we did this year.
And on the operating margin side, we are seeing about.
75%.
So it sort of <unk>.
Likely better than.
32% on the top end of the range.
What is in there is also the tax rate we are sitting back saying, we are expecting 15, 5%.
Higher than the taxes, we have DCM, primarily because.
2017 regs have.
Provision in place, which requires the capitalization of R&D expenses.
Our ex U S. R&D expenses when capitalized will have an impact on the duty provisions. So that has added about a little over one percentage point to the tax rate. That's included in our guidance.
Thank you so much for your question. Our next question is from Dan Brennan with Cowen Your line is open.
Great. Thanks.
Excuse me thanks for the questions guys congrats on the quarter.
Maybe just to start off just on the overall biopharma market just could you give us a sense in terms of.
What the addressable market is growing at today.
How what are you doing from a sharing perspective, particularly across your LCM aspect portfolios.
Sure.
Good morning, Good morning down look overall, the best way to look at this is to look at stacked growth rates right. If you just look at the stacked growth rate. We finished the year around 7% overall in the business where pharma.
Came in came in higher at <unk>.
Digit site and what you've seen what we've seen on the pharma side is really strong.
Date, not just not just the demand not just increasing demand in the market that's slightly higher than historical averages, but also water specific execution first from a commercial perspective.
Across our across our five commercial initiatives as well as new product introductions, which has which has had very good uptake, especially in pharma Archeage vse has done very well, especially in China.
And then increasing in the U S and Europe , the acuity Premier with the Max Peak technology has.
Really hit.
Our real sweet spot with novel modalities, which have higher affinity to mega surfaces, So new products, especially on the instrument side.
Now we have introduced introduced are.
Our next.
Of informatics platform for mass spec, we said, we expect new products to continue to do well so to summarize the pharma end market has been a bit more robust than historical averages, but in that robust market. We have been executing extremely well from a commercial perspective, as well as with new product introductions, so that bodes well for us.
What we think about in the future for this.
Our largest end market.
Great. Thank you for that and then maybe.
If I can ask a two parter just one on China, Obviously Q4 was a really nice stack acceleration.
Some color in the prepared remarks, just wondering what's assumed for 2002 in China and then.
Marine basis, just by production.
The deal today.
We have made a small tuck in and you have the Super Ace deal, but how do we think about organic and inorganic investments going forward over the next year. The non production. Thank you.
So then I mean.
In China. Thanks for the question really excited I mean, it all starts with leadership, we have a new leader in China, who is really executing what I've talked about at a global level from a commercial perspective.
Overall as the overall business grew 16% for the year, China was in the mid twenties, given again by very very strong instrument.
<unk> growth rate well in excess of 30%, 30% growth rate as he is doing very well.
From an end market perspective in China, pharma, and especially our focus on CDN holes there.
The business in excess of 40% so excited about what we're seeing in China new.
New products are doing doing extremely well and theres no reason to believe that that should slowdown going into the new year. If anything we expect newer products to gain even more traction and theres a lot more to do in China by the way increasing penetration across the board.
And then turning to your question on bio production look.
In general the two growth initiatives that we've highlighted that our focus on biologics and novel modalities are number one on bio separations and number two on bio production on bio separations.
A world leader in separating small molecules.
Without MSC and engineering expertise, we're simply turning back the larger molecules like commodities oligonucleotides.
And then from a bio production perspective, we've talked about the collaboration we have with sartorius.
We first focused on characterizing the process for a high volume application quite fluid collection, where we took the workflow from about six weeks to less than a week and that has a lot of traction with our customers. We are now adding on other attributes that we wanted to measure for the process.
Creating a seamless software bridge between the <unk> of Sartorius as well as the <unk> that we have and then looking at other applications be it scale up scale up to larger biotech actors or other modalities like again oligonucleotides and more complex proteins. So a lot of run.
They're on the bio production site and the deal that we announced a small tuck in as you know.
<unk>, thanks for asking about it its something thats getting dear to my heart and I must admit I started off as a skeptic when I first heard about the technology, but the incentive Nathan obligations and said hey.
It's a technology and I thought it's another hobby, but it's a really good fit right. So basically the CNS technology takes mass spec larger molecules where.
Where we can now separate.
And are there any.
As well as viral vectors, which are larger larger footings intact proteins mass spec reaches its limits.
And what excited us the most is a demonstration we did with our customers several months ago.
And roughly 20 customers to come in Kendall square, maybe highlighting less lab roughly 40 showed up I will say excited I asked them, all and our head of strategy.
Dan Rush to join me to listen to the customers and Thats in the deal. So we basically said look this is the technology that our customers really really want.
It is going to allow them to analyze more complex molecule is much more carefully and we have.
The development commercialization and manufacturing rights for the technology. So Super excited about what we what we are seeing in the bio production bias declaration date.
Thank you for your question. Our next question is from <unk> <unk>.
<unk> with SBB Leerink your line is open.
Question. So first of all congrats on the strong quarter here.
Really it's wrong in.
<unk> growth so have a bit of a question on the guide first.
5% to 7% full year guidance, how much are you expecting in terms of contribution from the replacement initiative here.
Is this still a $40 million or so replacement initiative for 2022 as you were expecting before is it more now and how much contribution in the full year guide from maybe new growth initiatives, the separation of the bioprocess, including selection for diagnostics.
Sure absolutely.
Around biologics revenue.
Okay.
I'm sorry.
Background noise.
No worries.
Yes. Please just those contribution overall from the in the guide from the replacement initiatives and these new initiatives that you have in place now because I mean, you joined us.
In 2020, it's being one full year of <unk>.
Lift that we're seeing in the replacement cycle.
Just wanting to get as to sort of how should we think about this year and maybe even into into next year for the replacement initiatives and these new new efforts that you have underway.
The way I would think about.
The contribution across the five initiatives instrument replacement.
Service attach E Commerce CMO is about 100 basis points of acceleration beyond what we see in the market right. So that's that's how I would look at that piece.
Sort of lump it altogether and it's about 100 basis points give or take.
On the new growth initiatives as I commented in the previous quarter as well as at a recent conference. This is something that we expect to meaningfully contribute in the mid to long term right.
We're very excited about the traction we have.
Bio processing with our collaboration with <unk>, where we're doing very well on the early stages of adapting.
For specialty.
Specialty applications and in diagnostics.
And we have a very good start on Viasat relations as well as some other initiatives. So but you should expect that to contribute in the mid in the midterm. So in the short term about 100 basis points from other initiatives that are already ongoing and in the midterm. These other initiatives or start to contribute meaningfully de stock, but I would say.
Mid term starting in 2000 322022 to 24 is when you should start seeing an impact of leases.
Got it and then.
The order book and overall demand just maybe could you update us where the backlog stands I think it was fairly strong in the fourth quarter, even though even in third quarter or is it just maybe just give us.
How do you see that conversion in the first quarter and through the year.
Just update us if you could on the supply chain, obviously thats impacting a number of companies, but how do you how should we balance that order conversion versus the supply chain and any other inflation.
Is that youre seeing in the market. Thank you.
So we need to ask two maybe three questions in one.
If you take them each in turn.
First in terms of the order book is extremely strong we don't give specific numbers on the backlog, but it's higher than it's been in the past you can safely assume that those are growing faster than sales now in terms of.
Challenges that they're facing on supply chain and pricing, let's take a step back.
They are not immune to those challenges like anybody else.
<unk>.
Specially on the material side, where there are material constraints, what I would what I would say on that front.
Having now extreme transparency into the primary secondary tertiary suppliers deep sort of discussions with those colleagues in different companies.
And the fact that we have a nimble organization and hit our size and our simple portfolio is a huge advantage, we're able to communicate any sort of changes rapidly through the organization through supply chain into commercial and be able to deal with it and we've done successfully with any sort of disruption in Q3, and Q4 Im not saying it was easy, but we've dealt with it.
Given our given the transparency and given the communication, we haven't done any and externally with stakeholders and by contrast, I think Q1 is like summer vacation versus Q4, so I'm not diminishing the topic, it's still with us, but we have developed develop that muscle and in terms of pricing and freight.
Look.
We've had about a 100 basis points or so of pricing in 2021, you should expect say, a 150 basis points give or take but what I would like to emphasize here that this is not that Willy nilly transfer of pricing to our customers.
As I said many times, a very very strong relationships with our customers. We have open discussions and wherever we see challenges, we discussed with them and Theres a lot of understanding as we as we pass on some of the pieces in pricing that we see so I think I've addressed several of your questions and I'm only because you want to add I mean, just to build on it as you know right.
Our products are differentiated.
Not just instruments.
We have very innovative chemistry portfolio that the customers like we have a great track record on a seamless salaries.
And our informatics platform that really valued by our customers. So that puts us in a great spot to have these discussions.
Retail customers walk them through what's happening in the market and then internally what rebound you're keeping a close eye on how prices are moving in the market, especially labor freight and electronic components, we are constantly planning and executing our sales teams.
Aware of what's happening on the operation side, so that they can have productive dialogues with our customers and through Q4, we've navigated that well and that gives us a lot of confidence going into trying to trying to do.
Thank you for your question. Our next question is from Jack Meehan with Nephron Research. Your line is open Sir.
Thank you good morning.
So strong end of the year on the chemistry front was hoping you could comment more on customer ordering trends do you think there was any stocking benefit in the quarter any quantifiable budget flush across the portfolio.
Good morning look now.
Not really didn't didn't see I would say what we saw of course, there is always a run up at the end of the year in this business, but I would say, it's nothing nothing unusual in the way. The reason I say that is we are seeing similar trends persist into into the into the year as well.
We're seeing really.
Generation of what we saw towards the year end and the orders.
As we commented earlier orders outpacing outpacing the sales so that gives us confidence that this is not sort of a big pull forward of any sort of any sort of products and then you look at waters specific reasons. So we can.
Again I'll draw your attention to the overall stack growth numbers.
We've basically ended the year with the.
In the second half being stronger than the first half of the overall for the year, it's roughly 7% stacked growth.
Yes.
Instruments are roughly 6% growth, which is well above our historical averages and again the same thing for consumables, which are close to double digit growth.
This is again above historical averages, but there are water specific reasons driving both of those right. So.
Both cases, we have commercial initiatives that have driven that and new products.
Okay. So nothing really that one should look at as a blip I mean this is something that we expect to continue both the commercial as well as the new product will make.
Great.
And then just was hoping either you or mark to comment on expectations for operating expenses in 2022, So gross margins of 58% will be down something like 50 bps year over year. The op margin is more like flat. So just talk about the investments in R&D and sales and marketing for 2022, what's the plan.
There.
Yeah. Thanks, that's a great question, so as we get into trying to trying to do.
Our focus is to drive productivity gains through various different initiatives that are in place.
Across service productivity operational excellence in manufacturing, both direct and indirect procurement programs as well as things like Digitization and building capability Center in India.
It does.
We will provide a great amount of space for us to fund the high growth Adjacencies that we've talked about right and so net of that we think as we've said at JP Morgan Conference allows us to deliver 20 to 30 basis points of year over year margin expansion.
And Thats what is embedded in our guidance. So we've got another 30% to 35%.
Versus liquidity point to for 2021 at the higher end of the guide you do get the 20 to 30.
At this point.
I mean, I think just to sort of conclude the formula is very simple I mean, we.
Drive the topline with our initiatives, there's a lot of leverage in the P&L.
And with the productivity initiatives, we make room, we're not skimping on the investments. We believe that these are really necessary and helpful for us to centers set up the future.
Hence we deliver it when you get to 30 basis points increase in margin.
It's very simple.
Thank you for your question. Our next question is from Josh Waldman with Cleveland Research. Your line is open Sir.
Okay.
Hi, guys. Thanks for taking my questions first of all wondering if you could comment on how youre thinking about growth across instruments consumables and service for.
For 2022 or within your 2022 guide.
Yes, so look I mean.
As we've traditionally seen you would see service growth at the midpoint.
Kind of.
Right.
<unk> growth is slightly lower than Boston chemistry, grocers slightly above.
About two percentage points, plus or minus and Josh not not much different than what you would have seen in and how we exited 2021 right. So.
1% stacked growth with consumables being closer to double digit.
When being slightly lower than 6% well above historical averages.
Thank you for your question. Our next question is from Derik de Bruin with Bank of America. Your line is open.
Thanks for taking the question. This is my question on for Derek Im going to ask two quick ones first on the academic and government markets.
Didn't really touch on that in the prepared remarks, you guys had a little bit of a bounce back in the year, but I know that can be super volatile in 2020, whether these comps. So could you give us an update on what youre seeing in that probably more on the mass spec portfolio, but still is that does that end market across geographies starting to come back to normal or is there still some choppiness there and then.
A quick follow on is on M&A.
The Mega Dalton deal.
Most technology tuck in.
Is that.
Something like that technology on underlying platform deal. So maybe you should expect going forward just given your <unk>.
Our leverage at the balance sheet are you willing to look at bigger assets.
Thanks, Mike on academic and government look.
We are pleased with how we ended the year with a 5% growth.
But it's still very choppy across the geographies and across the portfolio with a nice recovery in Europe .
Pretty much driven by our mass spec portfolio right. So in the businesses.
Lumpy, so that said what I'd, rather focus us on in that end market is what we are trying to do to establish a basis is reviving our kols relationships and recently I was with.
With Kols, who has been with waters for a very long time head of our Proteomics Institute at one of the top medical schools in the U S and his he basically said on certain terms that Korea has been sort of bid together with water is especially on the mass spec side. So we are very optimistic on what we will be able to do in that market, but it's.
Early days right on the on the academic and government market.
And then on M&A.
On the Mega Dalton deal. This is a very good fit right. So for large novel modalities to characterize and better with mass spec and vino mass spec really really well.
You would expect us to continue to look for such technology.
Raters, but also we're open to building our portfolio as I mentioned earlier, both in the core as well as the faster growth Adjacencies, where we find something relevant.
And I will remind you that look our core business is performing extremely well and that is the number one focus to continue the commercial momentum.
To continue delivering new products across our base portfolio.
I noticed.
DLC portfolio across the mass spec portfolio now informatics.
Being a drumbeat of new products that are adding on to the field. So the focus is on the call and we are very open to looking at M&A that accelerates our central acquisition Amo.
I just wanted to go out on the previous question on the academic and government.
China is one area of focus for us because if you look at China. We grew on a stack basis in pharma, 13% constant currency industrial stock, 16%, but one.
Got it down with academic and government.
Laser focused on revitalizing growth in that business. There are two parts of the problem part of it is our own commercial execution, which we are focused on but there's also a drag from the VIP reimbursement issue, which will progressively resolve over the course of 2022.
Thank you for your question. Our next question is from Patrick Donnelly with Citi. Your line is open Sir.
Great. Thanks for taking the questions.
Maybe just to follow up on Mikes question. There in terms of M&A you mentioned, the large mall strategy a few times obviously one.
Some enthusiasm about I guess, how do you think about balancing organic versus inorganic investments in that segment. I mean is the base business do you feel like the technology isn't good enough place to kind of go after some of those high growth areas or do you feel like it really needs to be supplemented inorganically with some deals just curious on the strategy on that front.
Patrick.
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It's a great question I mean, we don't have a dog Monday right, but it always starts with what we know how to do that until we know how to do analytical measurements and we've done that focus.
Towards larger molecules and more complex molecules both in the bio separations arena. There there are significant challenges, even if you take them out and add as an example in aggregation and separation of these molecules lipid nanoparticles plasmids in there.
We are perfectly capable of making a difference with our.
And the internal focus and collaborations with reagents companies and people, who know how to do sample prep for biologics right because I think that for me is the.
Is a perfect combination on the bio processing side, we started with a partnership with everyone wanted to our organization to learn the whole bio processing domain and now we as we get a better understanding we will surely be looking at augmenting our capabilities in.
India on the analytical front, so you will not see us going and buying a.
If I heard it.
A filtration company, but you will see us.
Looking at better analytical techniques to elucidate the structure and properties of these complex molecules, so, but it's a mix right.
It's a heavy focus on organic investments where relevant partnerships.
And where we see opportunities that feed up the separation of these molecules are help us characterize bio processing better we will be active in the M&A space.
Thank you for your question and that does conclude our Q&A portion of today's conference I will now turn our call back over to Mr. <unk> background.
Thank you all for your participation and your questions and on behalf of our entire management team I'd like to thank you for your continued support and interest in waters. We look forward to updating you on our progress during our first quarter 2022 call, which is currently anticipated on may 3rd 2022, Thank you and have a wonderful day.
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This does.
Today's conference call. We thank you all for participating you may now disconnect and have a great rest of your day.