Q2 2024 Waters Corp Earnings Call

Good morning. Welcome to the Waters Corporation second quarter 2024 financial results conference call.

Operator: Rysoul's Conference Call. All participants will be in a listen-only mode until the question-and-answer session begins. This call is being recorded.

Operator: All participants will be in a listen-only mode until the question and answer session begins. This call is being recorded. If anyone has 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.

Speaker Change: All participants will be in a listen-only mode until the question and answer session begins.

Operator: If anyone has objections, please disconnect at this time.

Caspar Tudor: This call is being recorded. If anyone has 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: 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, Brad. Good morning, everyone, and welcome to the Waters Corporation Second Quarter Earnings Call. Today, I'm joined by Dr. Udit Batra, Waters President and Chief Executive Officer, and Amol Chaubal, Waters Senior Vice President and Chief Financial Officer. Before we begin, I will cover some cautionary language. In this conference call, we will make various 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 third quarter of 2024 and full year 2024. These statements are only our present expectations, and actual events or results may differ materially.

Caspar Tudor: Thank you, Brad.

Caspar Tudor: Good morning, everyone, and welcome to the Walters Corporation's second quarter earnings call. Today I'm joined by Dr. Udit Batra, Waters President and Chief Executive Officer, and Amol Chaubal, Waters Senior Vice President and Chief Financial Officer.

Caspar Tudor: Thank You Brad. Good morning everyone and welcome to the Waters Corporation second quarter earnings call. Today I'm joined by Dr. Udit Batra, Waters President and Chief Executive Officer, and Amol Chaubal, Waters Senior Vice President and Chief Financial Officer.

Caspar Tudor: Before we begin, I will cover the cautionary language. In this conference call, we will make various 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 third quarter of 2024 and full year 2024. These statements are only our present expectations, and actual events or results may discern materially.

Caspar Tudor: Please see the risk factors included in 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 second quarter of fiscal year 2023.

Speaker Change: Before we begin, I will cover the cautionary language.

Speaker Change: In this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company.

Speaker Change: 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 third quarter of 2024 and full year 2024.

Caspar Tudor: 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. In addition, unless stated otherwise, all year-over-year revenue growth rates and ranges given on today's call are on a comparable, organic, constant currency basis.

Speaker Change: 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-Q s, and the cautionary language included in this morning's earnings release.

Speaker Change: 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.

Speaker Change: Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the second quarter of fiscal year 2023.

Caspar Tudor: In addition, unless stated otherwise, all year-over-year revenue growth rates and ranges given on today's call are on a comparable organic, 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, I'll hand it over to Udit to deliver our key remarks, and following that, Amol will present a more detailed overview of our results and guidance. After that, we'll open up the phone lines for questions. Over to you, Udit. Thank you, Caspar.

Speaker Change: In addition, unless stated otherwise, all year-over-year revenue growth rates and ranges given on today's call are on a comparable, organic, constant-currency basis.

Caspar Tudor: Finally, we do not intend to update our guidance, predictions, or projections, except as part of a regularly scheduled earnings release or otherwise required by law.

Speaker Change: 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.

Caspar Tudor: Now, I'll hand over to UDIT to deliver our key remarks. Following that, a more will present a more detailed overview of our results and guidance. After, we'll open up the phone lines for questions.

Speaker Change: Now, I'll hand it over to Udit to deliver our key remarks. Following that, Amol will present a more detailed overview of our results and guidance. After, we'll open up the phone lines for questions. Over to you, Udit. Thank you, Caspar, and good morning, everyone.

Udit Batra: Over to you, UDIT.

Udit Batra: Thank you, Caspar, and good morning, everyone. We achieved strong results in the second quarter that exceeded both our top line and bottom line reported guidance. I want to begin today's call by thanking my colleagues for their dedication to commercial execution, operational management, and innovation. This enables us to deliver differentiated performance and accelerate the benefits of pioneering science. In the quarter, year-over-year organic constant currency sales were 500 basis points better than the Q1 level; we saw a steady improvement in customer spending throughout the quarter with a strong finish in June. Orders outpaced sales for the quarter as we built good momentum for the second half of the year.

Udit Batra: Thank you, Casper, and good morning, everyone. We achieved strong results in the second quarter that exceeded both our top line and bottom line reported guidance. I want to begin today's call by thanking my colleagues for their dedication to commercial execution, operational management, and innovation. This enables us to deliver differentiated performance and accelerate the benefits of pioneering science. In the quarter, year-over-year organic, constant currency sales were 500 basis points better than Q1 levels. We saw a steady improvement in customer spending throughout the quarter with a strong finish in June. Orders outpaced sales for the quarter as we built good momentum for the second half of the year.

Udit: We achieved strong results in the second quarter that exceeded both our top-line and bottom-line reported guidance.

Udit: I want to begin today's call by thanking my colleagues for their dedication to commercial execution, operational management, and innovation. This enables us to deliver differentiated performance and accelerate the benefits of pioneering science.

Udit: In the quarter, year-over-year organic constant currency sales were 500 basis points better than Q1 levels.

Udit: We saw a steady improvement in customer spending throughout the quarter, with a strong finish in June . Orders outpaced sales for the quarter as we built good momentum for the second half of the year.

Udit Batra: We again deliver resilient operational results with earnings exceeding our expectations. This reflects the strength of our downstream business model, progress on our strategic and operational initiatives, and our indomitable spirit. We have also continued our steady stream of new product launches, releasing further innovations that address key customer needs. Waters now has a highly competitive portfolio serving attractive end markets. We expect this to benefit us as the market recovers and the instrument replacement cycle picks up pace. As we continue to build the waters of the future, I would like to welcome Rob Carpio, who has joined us as the new head of the Waters Division.

Udit Batra: We again delivered resilient operational results with earnings surpassing our expectations. This reflects the strength of our downstream business model, progress, progress on our strategic and operational initiatives, and our indomitable spirit. We also continued our steady stream of new product launches, releasing further innovations that address key customer needs. Waters now has a highly competitive portfolio serving attractive end markets. We expect this benefit; we expect this to benefit us as the market recovers and the instrument replacement cycle picks up pace.

Udit: We again delivered resilient operational results, with earnings surpassing our expectations. This reflects the strength of our downstream business model, progress on our strategic and operational initiatives, and our indomitable spirit.

Udit: We also continued our steady stream of new product launches, releasing further innovations that address key customer needs.

Udit: Waters now has a highly competitive portfolio serving attractive end markets. We expect this benefit this we expect this to benefit us as the market recovers and the instrument replacement cycle picks up pace.

Udit Batra: As we continue to build the waters of the future, I would like to welcome Rob Carpio, who has joined us as the new head of the Waters division. Rob is a talented leader and a seasoned operator with a record of delivering strong financial results and transformation in life sciences. With his appointment, he will further enhance water's performance and long-term growth strategy. Turning now to our results, in the second quarter, sales declined 4% as reported and 4% in organic, organic, constant currency. Our non-gap earnings per share was $2.63 on a gap basis, EPS was $2.40. Excluding China, sales declined in low single digits.

Rob Carpio: As we continue to build the waters of the future, I would like to welcome Rob Carpio who has joined us as the new head of the Waters Division.

Udit Batra: Rob is a talented leader and a seasoned operator with a record of delivering strong financial results and transformation in life sciences. With his appointment, he will further enhance Waters' performance and long-term growth strategy.

Speaker Change: Rob is a talented leader and a seasoned operator with a record of delivering strong financial results and transformation in life sciences. With his appointment, he will further enhance Waters' performance and long-term growth strategy.

Udit Batra: In the second quarter, sales declined 4% as reported and 4% in organic constant currency. Our non-GAAP earnings per share was $2.63. On a GAAP basis, EPS was $2.40. Including China, sales declined in low single digits.

Speaker Change: Turning now to our results. In the second quarter, sales declined 4% as reported and 4% in organic constant currency. Our non-GAAP earnings per share was $2.63. On a GAAP basis, EPS was $2.40.

Udit Batra: Growth was consistent with our expectations across each of our end markets. Customer cap expanding is showing early signs of improvement. In China, sales declined in the low teams, which was better than expected. Growth rates improved in all end markets compared to the previous quarter, especially in farmer and in industrial. While the stimulus measures announced by the Chinese government this year are still in the early stages of implementation, we are having active conversations with customers who stand to benefit from these initiatives. So far, this has led to improved quoting and funnel trends in the region. These opportunities are expected to begin converting to orders in 2025.

Udit Batra: Growth was consistent with our expectations across each of our end markets, and customer capex is showing early signs of improvement. In China, sales declined in the low teens, which was better than expected.

Speaker Change: Excluding China, sales declined in low single digits. Growth was consistent with our expectations across each of our end markets. Customer cap expanding is showing early signs of improvement.

Speaker Change: In China, sales declined in the low teens, which was better than expected. Growth rates improved in all end markets compared to the previous quarter, especially in pharma and in industrial.

Udit Batra: Growth rates improved in all end markets compared to the previous quarter, especially in pharma and in industry. While the stimulus measures announced by the Chinese government this year are still in the early stages of implementation, we are having active conversations with customers who stand to benefit from these initiatives. So far, this has led to improved quoting and funnel trends in the region. These opportunities are expected to begin converting to orders in 2025. Overall, instruments declined 17%, and recurring revenue grew 5%.

Speaker Change: While the stimulus measures announced by the Chinese government this year are still in the early stages of implementation, we are having active conversations with customers who stand to benefit from these initiatives.

Speaker Change: So far, this has led to improved quoting and funnel trends in the region. These opportunities are expected to begin converting to orders in 2025. Overall, instruments declined 17% and recurring revenue grew 5%.

Udit Batra: Overall, instruments declined 17%, and recurring revenue grew 5%. Viad delivered a 2% M&A contribution to sales, which was better than expected. It marks a strong close to the first year following the acquisition, where synergies were delivered well ahead of schedule. Viad operates in high growth markets serving large molecule applications, especially across cell, gene, and RNA therapies. Altogether, it should deliver 40 basis points of annualized accretion to the total company growth in the near to mid-term.

Udit Batra: Wyatt delivered a 2% M&A contribution to sales, which was better than expected. It marks a strong close to the first year following the acquisition where synergies were delivered well ahead of schedule. WIAT operates in high-growth markets, serving large molecule applications, especially across cell, gene, and RNA therapies. Altogether, it should deliver 40 basis points of annualized accretion to total company growth in the near to midterm. Now, I will talk about our operational performance. Margins remained resilient as we again successfully counteracted volume effects and inflationary headwinds with solid operational management. Our gross margin for the quarter was flat at 59.3%, and our adjusted operating margin was solid at 29.2%.

Speaker Change: Wyatt delivered a 2% M&A contribution to sales, which was better than expected.

Speaker Change: It marks a strong close to the first year following the acquisition, where synergies were delivered well ahead of schedule.

Speaker Change: WIAT operates in high growth markets, serving large molecule applications, especially across cell, gene, and RNA therapies. Altogether, it should deliver 40 basis points of annualized accretion to the total company growth in the near to midterm. Now, I will talk about our operational performance.

Udit Batra: Now I will talk about our operational performance. Margin's remained resilient as we again successfully counteracted volume, FX, and inflationary headwinds with solid operational management. A growth margin for the quarter was flat at 59.3%, and our adjusted operating margin was solid at 29.2%. Even with recent progress, our work is far from over. We have run way towards further long-term margin expansion driven by our strategic and operational initiatives. This includes areas such as productivity enhancement, where we have various programs that are still in the early stages. At the same time, our focus on pricing continues to yield contribution that is well ahead of historical levels.

Speaker Change: Margins remained resilient as we again successfully counteracted volume, FX, and inflationary headwinds with solid operational management. Our gross margin for the quarter was flat at 59.3% and our adjusted operating margin was solid at 29.2%.

Udit Batra: Even with recent progress, our work is far from over. We have a runway towards further long-term margin expansion driven by our strategic and operational initiatives. This includes areas such as productivity enhancement, where we have various programs that are still in the early stages.

Speaker Change: Even with recent progress, our work is far from over. We have a runway towards further long-term margin expansion driven by our strategic and operational initiatives.

Speaker Change: This includes areas such as productivity enhancement, where we have various programs that are still in the early stages. At the same time, our focus on pricing continues to yield contributions that is well ahead of historical levels.

Udit Batra: At the same time, our focus on pricing continues to yield contributions that are well ahead of historical levels. Looking forward, we feel very good about our future margin opportunities, given our recent success in preserving and expanding our margin during challenging business conditions. Beyond 2024, we expect to deliver a more pronounced impact on our long-term margin performance, particularly when more typical volume leverage returns. In the second quarter, we launched a steady stream of new products, solving the unmet needs of our customers.

Udit Batra: Looking forward, we feel very good about our future margin opportunity given our recent success in preserving and expanding our margin during challenging business conditions. Beyond 2024 levels, we expect to deliver a more pronounced impact on our long-term margin performance, particularly when more typical volume leverage returns.

Speaker Change: Looking forward, we feel very good about our future margin opportunity, given our recent success in preserving.

Speaker Change: and expanding our margins during challenging business conditions. Beyond 2024 levels, we expect to deliver a more pronounced impact on our long-term margin performance, particularly when more typical volume leverage returns.

Udit Batra: In the second quarter, we launched a steady stream of new products solving the unmet needs of our customers. At ASMS in June, we unveiled the Zivo MRT, which is now our highest performing benchtop mass spectrometer. It builds on the multi-reflecting time-of-flight technology pioneered by the select series MRT, which has greater throughput and a more compact form factor. In addition, in two times better mass accuracy than competitive systems, the Zivo MRT sets new industry standards for high resolution at blazingly fast speeds. So far, our customers have been impressed by its capabilities. It will serve discovery and other upstream pharma workflows, where it will accelerate R&D times for new drugs.

Speaker Change: In the second quarter, we launched a steady stream of new products, solving the unmet needs of our customers.

Udit Batra: At ASMS in June, we unveiled the Xevo MRT, which is now our highest performing benchtop mass spectrometer. It builds on the multi-reflecting time-of-flight technology pioneered by the Select Series MRT, which has greater throughput and a more compact form factor, with up to six times greater resolution and two times better mass accuracy than competitive systems. The Xevo MRT sets new industry standards for high resolution at blazingly fast rates. So far, our customers have been impressed by its capabilities. It will serve discovery and other upstream pharma workflows where it will accelerate R&D times for new drugs. This includes areas such as metabolite identification where resolution, accuracy, and speed are all critical value drivers.

Speaker Change: At ASMS in June , we unveiled the Zevo MRT, which is now our highest performing benchtop mass spectrometer.

Speaker Change: It builds on the multi-reflecting time-of-flight technology pioneered by the Select Series MRT, which has greater throughput and a more compact form factor.

Speaker Change: With up to six times greater resolution and two times better mass accuracy than competitive systems, the Zevo MRT sets new industry standards for high resolution at blazingly fast speeds.

Speaker Change: So far, our customers have been impressed by its capabilities. It will serve discovery and other upstream pharma workflows, where it will accelerate R&D times for new drugs.

Udit Batra: This includes areas such as metabolite identification, resolution, accuracy, and speed are all critical value drivers. We also launched the latest evolution of our Acuity QDA mass detector, one of our all-time best-selling analytical instruments. The QDA2 provides a 20% enhancement in mass range, which benefits routine identification and analysis of large molecules. It also has excellent green credentials, consuming up to 70% less energy than competing products. This is a benefit of increased importance to our customers. Most importantly, the QDA2 runs on Empower, which allows for seamless regulatory submission of compliance-related data for large molecules.

Speaker Change: This includes areas such as metabolite identification, where resolution, accuracy, and speed are all critical value drivers. We also launched the latest evolution of our ACQUITY QDA Mass Detector, one of our all-time best-selling analytical instruments.

Udit Batra: We also launched the latest evolution of our ACQUITY QDA mass detector, one of our all-time best-selling analytical instruments. The QDA-2 provides a 20% enhancement in its mass range, which benefits routine identification and analysis of large molecules. It also has excellent green credentials, consuming up to 70% less energy than competing products.

Speaker Change: The QDA-2 provides a 20% enhancement in mass range.

Speaker Change: which benefits routine identification and analysis of large molecules. It also has excellent green credentials consuming up to 70% less energy than competing products.

Udit Batra: This is a benefit of increased importance to our customers. Most importantly, QDA II runs on Empower, which allows for seamless regulatory submission of compliance-related data for large molecules. As we look ahead, Waters is well-positioned in attractive markets with secular growth drivers where testing volume plays a pivotal role in driving long-term growth. Our full ecosystem of instruments, informatics, advanced chemistry, and leading services positions us very well to help ensure the safety of medicine, food, and water, and batteries in electric vehicles. Along with our business model, the regulated and recurring nature of these applications results in excellent profitability and free cash flow generation. In recent years, we've made meaningful progress in aligning waters with faster-growing, large-molecule applications.

Speaker Change: This is a benefit of increased importance to our customers, most importantly.

Speaker Change: The QDA-2 runs on Empower, which allows for seamless regulatory submission of compliance-related data for large molecules.

Udit Batra: As we look ahead, water is well positioned in attractive markets with secular growth drivers where testing volume plays a pivotal role in driving long-term growth. Our full ecosystem of instruments, informatics, advanced chemistry, and leading service positions are very well to help ensure the safety of medicine, food, and water, and batteries in electric vehicles. Along with our business model, the regulated and recurring nature of these applications results in excellent profitability and free cash flow generation. In recent years, we made meaningful progress in aligning waters with faster growing large molecule applications. Now, over a third of our farmer revenues comes from large molecules and novel modalities.

Speaker Change: As we look ahead, Waters is well-positioned in attractive markets with secular growth drivers where testing volume plays a pivotal role in driving long-term growth.

Speaker Change: Our full ecosystem of instruments, informatics, advanced chemistry, and leading service positions us very well to help ensure the safety of medicine, food, and water, and batteries in electric vehicles. Along with our business model, the regulated and recurring nature of these applications results in excellent profitability and free cash flow generation.

Speaker Change: In recent years, we've made meaningful progress in aligning waters with faster-growing large-molecule applications.

Udit Batra: Now, over a third of our pharma revenues come from large molecules and novel modalities. At the same time, future testing volume is expected to grow faster than historical levels with increased prescription volumes, including GLP-1s in areas such as PFAS testing. With our revitalized portfolio, we are in an excellent position to capitalize on these growth opportunities. Over the past several years, we've launched multiple innovative new products that have enhanced our competitive edge and created better pricing levels, serving our core.

Speaker Change: Now, over a third of our pharma revenues comes from large molecules and novel modalities. At the same time, future testing volume is expected to grow faster than historical levels with increased prescription volumes, including GLP-1s and areas such as PFAS testing.

Udit Batra: At the same time, future testing volume is expected to grow faster than historical levels, with increased prescription volumes including GLP1s and areas such as PFAS testing. With our revitalized portfolio, we are in an excellent position to capitalize on these growth opportunities. Over the past several years, we have launched multiple innovative new products that have enhanced our competitive edge and created better pricing levels. Serving our core, our next generation LC platform Alliance IS serves routine QAQC analysis for both large and small molecule workflows where innovation helps to drive instrument replacement. It also includes our ZVOTQ absolute mass spectrometer, which is seeing rapid growth in areas such as PFAS testing.

Speaker Change: With our revitalized portfolio, we are in an excellent position to capitalize on these growth opportunities.

Speaker Change: Over the past several years, we've launched multiple innovative new products that have enhanced our competitive edge and created better pricing levers.

Udit Batra: Our next-generation LC platform, Alliance IS, serves routine QA-QC analysis for both large and small molecule workflows, where innovation helps to drive instrument replacement. It also includes our Xevo TQ absolute mass spectrometer, which is seeing rapid growth in areas such as PFAS. Within our high-growth adjacencies, we've launched new products for bioanalytical characterization, battery testing, and clinical applications, all of which are gaining traction given the critical unmet needs that they solve.

Speaker Change: Serving our core, our next-generation LC platform, Alliance IS, serves routine QA-QC analysis for both large and small molecule workflows, where innovation helps to drive instrument replacement.

Speaker Change: It also includes our Zevo TQ absolute mass spectrometer which is seeing rapid growth in areas such as PFAS testing.

Udit Batra: Within our high growth adjacencies, we have launched new products into bioanalytical characterization, battery testing, and clinical applications, all of which are gaining traction given the critical unmet needs that they solve. Finally, recent deferral of routine instrument replacement has created a catch-up opportunity that lies ahead of us. WEEK macroeconomic conditions have put temporary constraints on customer caps spending for downstream instrumentation. Historically, this dynamic has lasted for four to seven quarters and has been followed by a catch-up. Looking at the facts, while no two macro environments are the same, Q2 marks the seventh consecutive quarter of LC instrument decline.

Speaker Change: Within our high-growth adjacencies, we've launched new products into bioanalytical characterization, battery testing, and clinical applications, all of which are gaining traction given the critical unmet needs that they solve.

Udit Batra: Finally, recent deferral of routine instrument replacement has created a catch-up opportunity that lies ahead of us. Weak macroeconomic conditions have put temporary constraints on customer capex spending for downstream instrumentation. Historically, this dynamic has lasted for four to seven quarters and has been followed by a rebound.

Speaker Change: Finally, recent deferral of routine instrument replacement has created a catch-up opportunity that lies ahead of us. Weak macroeconomic conditions have put temporary constraints on customer capex spending for downstream instrumentation.

Speaker Change: Historically, this dynamic has lasted for four to seven quarters and has been followed by a catch-up. Looking at the facts, while no two macro environments are the same, Q2 marks the seventh consecutive quarter of ELSI instrument decline.

Udit Batra: Looking at the facts, while no two macro environments are the same, Q2 marks the seventh consecutive quarter of LC instrument decline. Expected instrument growth for 2024 equates to a 1% CAGR versus 2019 levels, significantly below the 5% long-term average growth rate.

Udit Batra: Spectred instrument growth for 2024 equates to a 1% keg versus 2019 levels. This is significantly below the 5% long-term average growth rate. Improving funnel trends are a positive leading indicator that we are approaching the early innings of a recovery and initiation of a new replacement cycle.

Speaker Change: Expected instrument growth for 2024 equates to a 1% CAGR versus 2019 levels. This is significantly below the 5% long-term average growth rate.

Udit Batra: Improving funnel trends are a positive leading indicator that we are approaching the early innings of a recovery and the initiation of a new replacement cycle. I will now cover our 2024 full-year guidance. While customer activity is showing signs of recovery, we're adding caution to our guidance. Accordingly, we are revising our full year 2024 sales guidance to assume a more gradual pace of improvement in the second half of the year. As a result, our revised fully organic growth constant currency sales guidance is negative 2 percent to negative 0.5 percent.

Speaker Change: Improving funnel trends are a positive leading indicator that we are approaching the early innings of a recovery and initiation of a new replacement cycle.

Udit Batra: I will now cover our 2024 full-year guidance. While customer activity is showing signs of recovery, we're adding caution to our guide. Accordingly, we are revising our full-year 2024 sales guidance to assume a more gradual pace of improvement in the second half of the year. As a result, our revised full-year organic growth in constant currency sales guidance is negative 2% to negative 0.5%. With our commitment to excellent operational performance, we expect to build leverage in our P&L and deliver an adjusted operating margin of around 31%. Therefore, our updated adjusted EPS guidance is in the range of $11.55 to $11.65.

Speaker Change: I will now cover our 2024 full year guidance.

Speaker Change: while customer activity is showing signs of recovery.

Speaker Change: we're adding caution to our guide. Accordingly, we are revising our full year 2024 sales guidance to assume a more gradual pace of improvement in the second half of the year. As a result, our revised fully organic growth constant currency sales guidance is negative 2% to negative 0.5%.

Udit Batra: With our commitment to excellent operational performance, we expect to build leverage in our P&L and deliver an adjusted operating margin of around 31%. Therefore, our updated adjusted EPS guidance is in the range of $11.55 to $11.65. Now, I will pass the call over to Amol to continue covering our financial results in more detail and to provide further guidance, further details on our guidance. Amol. Thank you.

Speaker Change: With our commitment to excellent operational performance, we expect to build leverage in our P&L and deliver an adjusted operating margin of around 31%. Therefore, our updated adjusted EPS guidance is in the range of $11.55 to $11.65.

Amol Chaubal: Now, I will pass the call over to Amul to continue covering our financial results in more detail and to provide further guidance for the details on our guidance. Thank you, Udeith, and good morning everyone. In the second quarter, sales exceeded our guidance range on a reported basis, declining 4%. Organic constant currency sales also declined 4%, which was a 5% improvement in growth compared with Q1 levels. We saw a steady improvement in customer spending throughout the quarter, with orders outpacing sales. M&A contributed 2% to sales, covering why the results in the first month and a half of the quarter.

Speaker Change: Now, I will pass the call over to Amol to continue covering our financial results in more detail and to provide further guidance, further details on our guidance. Amol. Thank you, Udit, and good morning, everyone. In the second quarter, sales exceeded our guidance range on a reported basis, declining 4 percent.

Amol Chaubal: Thank you, Udit, and good morning, everyone. In the second quarter, sales exceeded our guidance range on a reported basis, declining 4%. Organic constant currency sales also declined 4%, which was a 5% improvement in growth compared with Q1. We saw a steady improvement in customer spending throughout the quarter with orders outpacing. M&A contributed 2% to sales, covering WIAT results in the first month and a half of the quarter. This was better than expected, as we were able to accelerate revenue synergies as part of our integration.

Amol: Organic constant currency sales also declined 4% which was a 5% improvement in growth compared with Q1 levels. We saw a steady improvement in customer spending throughout the quarter with orders outpacing sales.

Amol: M&A contributed 2% to sales covering Yath results in the first month and a half of the quarter. This was better than expected as we were able to accelerate revenue synergies as part of our integration.

Amol Chaubal: This was better than expected, as we were able to accelerate revenue synergies as part of our integration. We are pleased that within the first year of the acquisition, why it is already EPS and margin accretive and our M&A execution remains well on track. Overall, FX was a 2% headwind to the second quarter sales. In organic constant currency terms, by end market, pharma declined 4%, industrial declined 4%, and academic and government declined 16%. In pharma, sales excluding China declined low single digits, while in China sales declined low double digits. In both cases, this reflects an improvement in growth rates compared to the previous quarter.

Amol Chaubal: We are pleased that within the first year of the acquisition, Wyeth is already EPS and margin accretive, and our M&A execution remains well on track. Overall, FX was a 2% headwind in the second quarter. In organic constant currency terms, by end market, pharma declined 4%, industrial declined 4%, and academic and government declined 16%. For pharma, sales excluding China declined low single digits, while in China, sales declined low double digits. In both cases, this reflects an improvement in growth rates compared to the previous one. In industrial, sales declined 1% outside of China, led by low single-digit growth in the Americas. We again saw strong growth globally for PFAS-related applications, which has been a consistent tailwind for environmental testing.

Amol: We are pleased that within the first year of the acquisition, Wyeth is already EPS and margin accretive, and our M&A execution remains well on track. Overall, FX was a 2% headwind to the second quarter sales.

Amol: In organic constant currency terms, by end market, pharma declined 4%, industrial declined 4%, and academic and government declined 16%.

Amol: In pharma, sales excluding China declined low single digits, while in China sales declined low double digits.

Amol: In both cases, this reflects an improvement in growth rates compared to the previous quarter.

Amol Chaubal: In industrial sales declined 1% outside of China, led by low single-digit growth in the Americas. We against our strong growth globally for PFAS-related applications, which has been a consistent tailwind for environmental testing. In China, sales declined low double digits, which was also an improvement. In our TA division, sales were flat, driven by improvement in segments such as electronics, advance materials, and chemicals. In academic and government, growth remained weak as stimulus in China and elevated global funding, grow lumpy spending patterns, and a tough 21% comparison in the prior year's quarter. Biography sales in Asia declined 3%, while sales in the Americas and Europe both declined 7%.

Amol: In industrial, sales declined 1% outside of China, led by low single-digit growth in the Americas. We again saw strong growth globally for PFAS-related applications, which has been a consistent tailwind for environmental testing.

Amol Chaubal: In China, sales declined by low double digits, which was also an improvement in growth rates compared to the previous quarter. For our TA division, sales were flat, driven by improvements in segments such as electronics, advanced materials, and chemistry. In academic and government, growth remained weak as stimulus in China and elevated global funding drove lumpy spending patterns and a tough 21% comparison with the prior year score. By geography, sales in Asia declined 3%, while sales in America and Europe both declined 7%. While products and services instruments declined 17%. Chemistry and Service, both Crew 5.

Amol: In China, sales declined low double digits, which was also an improvement in growth rates compared to the previous quarter.

Amol: For our TA division, sales were flat, driven by improvement in segments such as electronics, advanced materials, and chemicals.

Amol: In academic and government growth remain weak as stimulus in China and elevated global funding grow lumpy spending patterns and a tough 21% comparison in the prior year's quarter.

Amol: By geography, sales in Asia declined 3% while sales in America and Europe both declined 7%.

Amol Chaubal: My products and services instruments declined 17%; chemistry and service both grew 5%. There was no change in the number of days versus the prior year quarter. Our commercial initiatives continued to support robust recurring revenue growth, despite ongoing headwinds from China. Within our service business, we have already achieved our goal of increasing service plan attachment by a further 100 basis points this year, with service plan revenue growing high single digits in the quarter. We are now targeting an additional 5,200 basis points of service plan attachment over the remainder of the year.

Amol: While products and services instruments declined 17%, chemistry and service both grew 5%.

Amol Chaubal: There was no change in the number of days versus the prior year cost. Our commercial initiatives continue to support robust recurring revenue growth despite ongoing headwinds from China. Within our service business, we have already achieved our goal of increasing service plan attachment by a further 100 basis points this year, with service plan revenue growing by high single digits in the quarter. We are now targeting an additional 50 to 100 basis points of service plan attachment over the remainder of the year.

Amol: There was no change in the number of days versus the prior year quarter.

Amol: Our commercial initiatives continue to support robust recurring revenue growth despite ongoing headwinds from China.

Amol: Within our service business, we have already achieved our goal of increasing service plan attachment by a further 100 basis points this year, with service plan revenue growing high single digits in the quarter.

Amol: We are now targeting an additional 50 to 100 basis points of service plan attachment over the remainder of the year.

Amol Chaubal: Now I will comment on our second quarter non-GAAP financial performance versus the prior year. Despite headwinds from lower sales volume, FX, and inflation, our team continued to respond to these challenges with resilience and commitment. Our focus on operational excellence with pricing, productivity, and prudent spend management allowed us to deliver a resilient margin performance in the quarter. Gross margin was flat at 59.3%, and our second quarter adjusted operating margin was 29.2% as expected. Excluding FX, both gross margin and adjusted operating margin expanded 40 basis points year over year. Our effective operating tax rate for the quarter was 16.5%, and our average share count was 59.5 million shares.

Amol Chaubal: Now I will comment on our second quarter non-GAAP financial performance versus the prior year. Despite headwinds from lower sales volume, FX, and inflation, our team continues to respond to these challenges with resilience and commitment.

Amol: Now I will comment on our second quarter non-GAAP financial performance versus the prior year.

Amol: Despite headwinds from lower sales volume, FX, and inflation, our team continued to respond to these challenges with resilience and commitment.

Amol Chaubal: Our focus on operational excellence with pricing, productivity, and prudent spend management allowed us to deliver a resilient margin performance in the quarter. Gross margin was flat at 59.3%, and our second quarter adjusted operating margin was 29.2%, as expected. Excluding FX, both gross margin and adjusted operating margin expanded 40 basis points year-over-year. Our effective operating tax rate for the quarter was 16.5%, and our average share count was 59.5 million shares. Our non-gap earnings per fully diluted share was $2.63. On a gap basis, earnings per fully diluted share were $2.40.

Amol: Our focus on operational excellence with pricing, productivity, and prudent spend management allowed us to deliver a resilient margin performance in the quarter.

Amol: Gross margin was flat at 59.3% and our second quarter adjusted operating margin was 29.2% as expected. Excluding FX, both gross margin and adjusted operating margin expanded 40 basis points year over year.

Amol: Our effective operating tax rate for the quarter was 16.5% and our average share count was 59.5 million shares.

Amol Chaubal: Our non-GAAP earnings per fully diluted share was $2.63. On a gap basis, earnings per fully diluted share was $2.40. A reconciliation of our gap to non-gap earnings is attached in this morning's press release and in the appendix of our earnings call presentation. Turning now to free cash flow capital deployment and our balance sheet, we define free cash flow as cash from operations, less capital expenditures, and excludes special items. In the second quarter of 2024, free cash flow was $143 million after funding $36 million of capital expenditures. On a year-to-date basis, free cash flow is $377 million or 28% of sales, resulting in a free cash flow to adjusted net income conversion ratio of 131%.

Amol: Our non-gap earnings per fully diluted share was $2.63.

Amol: On a gap basis, earnings per fully diluted share was $2.40.

Amol Chaubal: A reconciliation of our GAAP to non-GAAP earnings is attached in this morning's press release and in the appendix of our earnings call presentation. Turning now to free cash flow, capital deployment, and our balance. We define free cash flow as cash from operations, less capital expenditures, and excludes special items.

Amol: A reconciliation of our GAAP to non-GAAP earnings is attached in this morning's press release and in the appendix of our earnings call presentation.

Speaker Change: Turning now to Free Cash Flow Capital Deployment and our Balance Sheet. We define free cash flow as cash from operations, less capital expenditures, and excludes special items.

Amol Chaubal: In the second quarter of 2024, free cash flow was $143 million after funding $36 million of capital expenditures. On a year-to-date basis, free cash flow is $377 million, or 28% of sales, resulting in a free cash flow to adjusted net income conversion ratio of 131%. We maintain a strong balance sheet, access to liquidity, and a well-structured debt maturity profile. This strength allows us to prioritize investing in growth.

Speaker Change: In the second quarter of 2024, free cash flow was $143 million after funding $36 million of capital expenditures.

Speaker Change: On a year-to-date basis, free cash flow is $377 million, or 28% of sales, resulting in free cash flow to adjusted net income conversion ratio of 131%.

Amol Chaubal: We maintain a strong balance sheet, access to liquidity, and a well-structured debt maturity profile. This trend allows us to prioritize investing in growth. We continue to evaluate M&A opportunities that will enhance value creation for our shareholders. In the second quarter, we continue to deliver while paying out this year's tax reform payment of $96 million and other items totaling $30 million. As expected, at the end of the quarter, a net debt position was approximately $1.7 million, which is a net debt to EBITDA ratio of about $1.7. As we continue to deliver our balance sheet, we will evaluate the resumption of our share repurchase program throughout the remainder of the year.

Speaker Change: We maintain a strong balance sheet, access to liquidity, and a well-structured debt maturity profile. This strength allows us to prioritize investing in growth. We continue to evaluate M&A opportunities that will enhance value creation for our shareholders.

Amol Chaubal: We continue to evaluate M&A opportunities that will enhance value creation for our shareholders. In the second quarter, we continued to deliver while paying out this year's tax reform payment of $96 million and other items totaling $30 million. As expected, at the end of the quarter, our net debt position was approximately $1.7 billion, which is a net debt to EBITDA ratio of about 1.7 times. As we continue to improve our balance sheet, we will evaluate the resumption of our share repurchase program throughout the remainder of the year.

Speaker Change: In the second quarter, we continue to deliver while paying out this year's tax reform payment of $96 million and other items totaling $30 million.

Speaker Change: As expected, at the end of the quarter, our net debt position was approximately $1.7 billion, which is a net debt to EBITDA ratio of about 1.7 times.

Speaker Change: As we continue to deliver our balance sheet, we will evaluate the resumption of our share repurchase program throughout the remainder of the year.

Amol Chaubal: Now I would like to share further commentary on our full-year outlook and provide you with our guidance for the third quarter. While business conditions showed signs of recovery in the second quarter, we are adding caution to our guide. As a result, we are revising our full year 2024 sales guidance to assume a more gradual pace of improvement in the second half of the year. Our updated guidance assumes relatively flat quarter-over-quarter revenue progression in Q3 versus Q2. It also implies a weaker than typical budget flush dynamics in the fourth quarter. Despite the added caution, we are still expecting the business to return to growth in the second half of the year.

Amol Chaubal: Now, I would like to share further commentary on our full-year outlook and provide you with our guidance for the third quarter. While business conditions showed signs of recovery in the second quarter, we are adding caution to our guidance.

Speaker Change: Now, I would like to share further commentary on our full year outlook and provide you with our guidance for the third quarter.

Speaker Change: While business conditions showed signs of recovery in the second quarter, we are adding caution to our guide. As a result, we are revising our full year 2024 sales guidance to assume a more gradual pace of improvement in the second half of the year.

Amol Chaubal: As a result, we are revising our full-year 2024 sales guidance to assume a more gradual pace of improvement in the second half of the year. Our updated guidance assumes relatively flat quarter-over-quarter revenue progression in Q3 versus Q2. It also implies a weaker-than-typical budget flush dynamics in the fourth quarter.

Speaker Change: Our updated guidance assumes relatively flat quarter-over-quarter revenue progression in Q3 versus Q2. It also implies a weaker-than-typical budget-flush dynamics in the fourth quarter.

Amol Chaubal: Despite the added caution, we are still expecting the business to return to growth in the second half of 2020. Given these dynamics, our revised full year 2024 guidance is for organic constant currency sales growth between negative 2% and negative 0.5. At current exchange rates, we anticipate the currency translation will negatively impact full-year sales by approximately 1.5%. Meanwhile, M&A contribution from wire transactions has added 1.3% to our full year from inorganic sales incurred in the first four and a half months of the year.

Speaker Change: Despite the added caution, we are still expecting the business to return to growth in the second half of the year.

Amol Chaubal: Given these dynamics, our revised full year 2024 guidance is for organic constant currency sales growth between negative 2% and negative 0.5%. At current exchange rates, we anticipate the currency translation will negatively impact full year sales by approximately 1.5%. Meanwhile, M&A contribution from wire transaction has added 1.3% to our full year from inorganic sales incurred in the first 4 and a half months of the year. Therefore, our total full year 2024 reported sales growth guidance is in the range of negative 2.2% to negative 0.7%. With our commitment to excellent operational performance, we expect to build leverage in our P&L, even with the reduction in our guide.

Speaker Change: Given these dynamics, our revised full year 2024 guidance is for organic constant currency sales growth between negative 2% and negative 0.5%.

Speaker Change: At current exchange rates, we anticipate the currency translation will negatively impact full-year sales by approximately 1.5%.

Amol Chaubal: Therefore, our total full year 2024 reported sales growth guidance is in the range of negative 2.2% to negative 0.7%. With our commitment to excellent operational performance, we expect to build leverage in our P&L, even with the reduction in our costs. Consistent with our previous guidance, gross margin for the full year is expected to be approximately 59.8%, which is 20 basis points of expansion versus 2020. Adjusted operating margin is expected to be around 31%. Below the line, we expect the full-year net interest expense to be approximately $77 million.

Speaker Change: from inorganic sales incurred in the first four and a half months of the year.

Speaker Change: Therefore, our total full year 2024 reported sales growth guidance is in the range of negative 2.2 percent to negative 0.7 percent.

Speaker Change: With our commitment to excellent operational performance, we expect to build leverage in our P&L, even with the reduction in our guide.

Amol Chaubal: Consistent with our previous guidance, gloss margin for the full year is expected to be approximately 59.8%, which is 20 basis points of expansion versus 2023. Our adjusted operating margin is expected to be around 31%. Below the line, we expect full year net interest expense to be approximately $77 million. Our full year tax rate is expected to be 16.3%, and our average diluted 2024 share count is expected to be approximately 59.4 million. Rolling all this together on a non-GAB basis, our full year revised 2024 earnings per fully diluted share guidance is projected in the range of $11.55 to $11.65, and includes an estimated headwind of approximately 3% due to unfavorable foreign exchange.

Speaker Change: Consistent with our previous guidance, gross margin for the full year is expected to be approximately 59.8%, which is 20 basis points of expansion versus 2023.

Speaker Change: Adjusted operating margin is expected to be around 31%.

Speaker Change: Below the line, we expect full-year net interest expense to be approximately $77 million. Our full-year tax rate is expected to be 16.3%, and our average diluted 2024 share count is expected to be approximately $59.4 million.

Amol Chaubal: Our full-year tax rate is expected to be 16.3%, and our average diluted 2024 share count is expected to be approximately 59.4 million. Rolling all this together on a non-gap basis, our full-year revised 2024 earnings per fully diluted share guidance is projected in the range of $11.55, to $11.65 and includes an estimated headwind of approximately 3% due to unfavorable foreign exchange. Looking to the third quarter of 2024, we anticipate that customer spending will remain cautious but show further signs of recovery.

Speaker Change: Rolling all this together, on a non-GAAP basis, our full-year revised 2024 Earnings per Fully Diluted Share Guidance is projected in the range of $11.55

Speaker Change: to $11.65 and includes an estimated headwind of approximately 3% due to unfavorable foreign exchange.

Amol Chaubal: Looking to the third quarter of 2024, we anticipate that customer spending will remain cautious but show further signs of recovery. We expect an improvement in year-over-year growth compared to that in the second quarter as previous year comparisons, particularly in China, become easier, and has continued improvement in funnel activity translates to orders. Given these dynamics, our third quarter organic constant currency sales growth guidance is projected in the range of positive 1% to positive 3%. At current rates, currency translation is expected to subtract approximately 1.5%.

Speaker Change: Looking to the third quarter of 2024, we anticipate that customer spending will remain cautious, but show further signs of recovery.

Amol Chaubal: We expect an improvement in year-over-year growth compared to that in the second quarter as previous year comparisons, particularly in China, become easier and as continued improvement in funnel activity translates to orders. Given these dynamics, our third quarter Organic Constant Currency Sales Growth Guidance is projected in the range of positive 1% to positive 3%. At current rates, currency translation is expected to subtract approximately 1.5%. Therefore, our third quarter reported sales growth guidance is negative 0.5% to positive 1.5%.

Speaker Change: We expect an improvement in year-over-year growth compared to that in the second quarter as previous year comparisons, particularly in China, become easier, and as continued improvement in funnel activity translates to orders.

Speaker Change: Given these dynamics, our third quarter organic constant currency sales growth guidance is projected in the range of positive 1% to positive 3%.

Speaker Change: At current rates, currency translation is expected to subtract approximately 1.5%. Therefore, our third quarter reported sales growth guidance is negative 0.5% to positive 1.5%.

Amol Chaubal: Debt. Therefore, our third quarter reported sales growth guidance is negative 0.5% to positive 1.5%. Based on these revenue expectations, third quarter non-GAAP earnings per fully diluted share are estimated to be in the range of $2.60 to $2.70, which includes a negative currency impact of approximately two percentage points at current effects rates.

Amol Chaubal: Based on these revenue expectations, third quarter non-GAAP earnings per fully diluted share are estimated to be in the range of $2.60 to $2.70, which includes a negative currency impact of approximately 2 percentage points at current FX rates. Now, I would like to turn the call back to Udit for our closing comments. Thank you.

Speaker Change: Based on these revenue expectations, third quarter non-GAAP earnings per fully diluted share are estimated to be in the range of $2.60 to $2.70.

Speaker Change: which includes a negative currency impact of approximately 2 percentage points at current FX rates.

Udit Batra: Now, I would like to turn the call back to Udit for our closing comments. Udit. Thank you, Amol. So, now to summarize, with our strong commercial execution and continued resilient operational performance, our second quarter results demonstrate Waters' ability to deliver solid results in various market conditions.

Udit Batra: Thank you, Amol. Now to summarize, with our strong commercial execution and continued resilient operational performance, our second quarter results demonstrate Waters' ability to deliver solid results in various market conditions. We're positioned well for the future with a long-term outlook that is above our historical growth rate of 6% as global testing volume growth remains on track and customer capex spending continues to recover. I am also proud of what our team has continued to accomplish on ESG and sustainability.

Udit: Now, I would like to turn the call back to Udit for our closing comments. Udit? Thank you, Amol. So, now to summarize, with our strong commercial execution and continued resilient operational performance, our second quarter results demonstrate Waters' ability to deliver solid results in various market conditions.

Udit: We are positioned well for the future, with a long-term outlook that is above our historical growth rate of 6%, as global testing volume growth remains on track and customer CAPEX spending continues to recover.

Udit: I am also proud of what our team has continued to accomplish on ESG and sustainability.

Udit Batra: Last month, we announced that Waters has become the first liquid chromatography column provider to receive the ACT Ecolabel certification from My Green Lab. This designation applies to more than 40 of our LC columns and makes it easier for scientists and procurement professionals to choose more sustainable lab products. So, with that... I will now turn the call back over to Caspar.

Udit: We announce that Waters has become the first liquid chromatography column provider to receive the ACT Ecolabel certification from My Green Lab.

Udit Batra: the ACT Eco-label certification from my Green Lab. This designation applies to more than 40 of our LC columns and makes it easier for scientists and procurement professionals to choose more sustainable laptops.

Udit: This designation applies to more than 40 of our LC columns and makes it easier for scientists and procurement professionals to choose more sustainable lab products. So with that, I will now turn the call back over to Caspar.

Caspar Tudor: So, with that, I will now turn the call back over to Casper.

Caspar Tudor: Thanks, Udit. That concludes our formal comments. We are now ready to open the phone lines for questions.

Caspar Tudor: Thanks, Udit.

Operator: That concludes our formal comment. We are now ready to open the phone lines for questions. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star, then one. Please record your name at the prompt. If at any time your question has been answered, you can remove your request by pressing star two. Please note that each person will get the opportunity for one question and one follow-up.

Caspar Tudor: Thanks, Udit. That concludes our formal comments. We are now ready to open the phone lines for questions.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star and then 1. Please record your name at the prompt. If at any time your question has been answered, you can remove your request by pressing star 2. Please note that each person will get the opportunity for one question and one follow-up. Your first question for today will come from Vijay Kumar of Ibercore ISI.

Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then 1. Please record your name at the prompt.

Speaker Change: If at any time your question has been answered, you can remove your request by pressing star 2. Please note that each person will get the opportunity for one question and one follow-up. Your first question for today will come from Vijay Kumar of Ibercore ISI.

Vijay Kumar: Your first question for today will come from Vijay Kumar of Evercore ISI. Good morning, Udit. Thanks for taking my question. One may be high level on your comments about the progression in the quarter strong-finished June orders above revenues. You know, help us square that with the guidance change, right? I don't think the guide change was a surprise.

Vijay Muniyappa Kumar: Good morning, Udit, and thanks for taking my question.

Vijay Muniyappa Kumar: One maybe high level on your comments about the progression, the quarter, strong finish to June , orders above revenues.

Speaker Change: Help us with the guidance change, right? I don't think the guide change was a surprise. Is this just a conservatism in light of the strong June finish order momentum commentary or how should we interpret that in light of the guide change?

Udit Batra: Is it just a conservatism in light of the realm, the strong June-finished order momentum commentary, or in a house fee in a bird bed in light of the guide change? Firstly, good morning, Vijay. And thank you for the question. I think you sort of answered your own question.

Udit Batra: Firstly, good morning Vijay, and thank you for the question. I think you sort of answered your own question. We just sort of take Especially LC, if you just look at the LC business, when it goes through troughs, it is usually between four to seven quarters of negative growth. And Q2 was the seventh consecutive quarter of negative growth. So we are poised for a recovery, and we're operating at, if you just look at Q2 on a five-year CAGR basis, it's minus 2%, and we're seeing signs of recovery in LC.

Speaker Change: Firstly, good morning Vijay and thank you for the question. I think you sort of answered your your own question. We just sort of taking

Udit Batra: We just sort of taking first just a step back and a 10,000 foot view. I mean, our approach to guidance, Vijay, has not changed as we progress through the quarter on quarter. So we look at three different things. We, of course, look at the facts from the funnel, how the quarter is progressing, how it's ending. Then we spend a lot of time looking at history. I mean, there's not that many businesses that have 20 years of data on instruments, quarter on quarter. So we look at that. And the third thing we do is we talk to our customers and see what the sentiment is, how the orders are progressing, and how the sales are progressing.

Speaker Change: First, just a step back and a 10,000-foot view. I mean, our approach to guidance, Vijay, has not changed as we've progressed through quarter-on-quarter, right? So we look at three different things. We, of course, look at

Speaker Change: The facts from the funnel, how the quarter is progressing, how it's ending.

Speaker Change: Then we spend a lot of time looking at history. I mean, there's not that many businesses that have 20 years of data on instruments, quarter on quarter. So we look at that. And the third thing we do is we talk to our customers.

Udit Batra: So just to take you through that, and sorry for the long answer, but it will give you context on our philosophy and the guide. So, on the facts, you're totally right. We saw; we've seen progressive improvement from Q1 to Q2; sales have declined less in Q2 versus Q1. And as Q2 progressed, I mean, as you will know, June is a big month for us. We saw significant momentum in June. You'll remember in March, we talked about orders and quality of orders. And we said we'll start to see them convert into sales towards the end of Q2, exactly.

Speaker Change: and see what the sentiment is, how the orders are progressing, how the sales are progressing. So just to take you through that, and sorry for the long answer, but it will give you context on our philosophy and the guide.

Speaker Change: So, on the facts, you're totally right. We saw, we've seen progressive improvement from Q1 to Q2. Sales have declined less in Q2 versus Q1. And as Q2 progressed, I mean, as you will know, June is a big month for us.

Speaker Change: We saw significant momentum in June . You'll remember in March, we talked about orders and quality of orders, and we said we'll start to see them convert into sales towards the end of Q2. Exactly.

Udit Batra: Well, that's exactly what happened. A lot of sales momentum at the end of the quarter in June and then equally orders growing even faster than sales. So we feel very good about where we see the funnels and what we see with the facts.

Speaker Change: Well, that's exactly what happened. A lot of sales momentum at the end of the quarter in June , and equally, orders growing even faster than sales. So we feel very good about where we see the funnels and what we see with the facts. Now historically, when you look at...

Udit Batra: Now, historically, when you look at what this business is, we have the benefit of, as I said, 20 years of data, especially LC. If you just look at the LC business, when it goes through trough, it is usually between 4 to 7 quarters of negative growth. And we Q2 was the seventh quarter of negative growth. So we are poised for a recovery, and we're operating at, if you just look at Q2 on a five-year-care basis, it's minus 2%. And we're seeing signs of recovery in LC. So we've factored that into our thinking.

Speaker Change: Waters is business. We have the benefit of, as I said, 20 years of data.

Speaker Change: especially at sea.

Speaker Change: If you just look at the LC business, when it goes through trough, it is usually between four to seven quarters of negative growth, and Q2 was the seventh quarter.

Speaker Change: of negative growth. So we are poised for a recovery and we're operating at, if you just look at Q2 on a five-year CAGR basis, it's minus 2% and we're seeing signs of recovery in LC. So we've factored that into our thinking.

Udit Batra: So we've factored that into our thinking. And then, finally, talking to customers, both of those factual pieces of evidence are verified. I spent a lot of time in the quarter in Europe and in the U.S. with large pharma customers, in particular, and China is improving.

Udit Batra: And then finally, talking to customers, both of those factual pieces of evidence are verified. I spent a lot of time in the quarter in Europe and in the US with large farmer customers in particular, and China is improving. So as we look at the second half of the year, we're expecting to see improvement quarter on quarter as we go from one quarter to the other. The second half will see growth, as you rightly pointed out. We've just taken our guidance down, especially in the fourth quarter, to assume a slightly lower ramp than we would see historically.

Speaker Change: And then finally, talking to customers.

Speaker Change: Both of those factual pieces of evidence are verified. I spent a lot of time in the quarter in Europe and in the U.S. with Lodge.

Udit Batra: So as we look at the second half of the year, we're expecting to see improvement quarter on quarter as we go from one quarter to the next. The second half will see growth, as you rightly pointed out. We've just taken our guidance down, especially in the fourth quarter, to assume a slightly lower ramp than we would see historically. So just a little bit of caution built into it. I think on a constant currency basis, it's not more than 50 million. So there's a bit of caution built into what we're seeing. And as more data emerges, you'll see us correct. Sorry for the long answer, but I'm sure many people have the same question.

Speaker Change: pharma customers in particular and China is improving. So as we look at the second half of the year

Speaker Change: We're expecting to see improvement quarter on quarter as we go from one quarter to the other. The second half will see growth, as you rightly pointed out.

Speaker Change: We've just taken our guidance down, especially in the fourth quarter, to assume a slightly lower ramp than we would see historically. So just a little bit of caution built into it.

Udit Batra: So just a little bit of caution built into it. I think on a constant currency basis, it's not more than 50 million. So there's a bit of caution built into what we're seeing.

Speaker Change: I think on a constant currency basis, it's not more than $50 million. So there's a bit of caution built into what we're seeing. And as more data emerges, you'll see us correct that.

Udit Batra: And as more data emerges, you'll see us correct. That.

Udit Batra: Sorry for the long answer, but I know I'm sure many people have the same question. No, no, that, that, I hope a lot. If I understand you, which you're saying is like, we're not seeing anything in the quarter; it's positive. It's a trend in the right direction, but from a guidance perspective, you just be risking it and it's more, from, from, from the perspective of being conserved versus, versus having seen anything in the quarter, is that a fair summary? Yes.

Speaker Change: Sorry for the long answer but I know I'm sure many people have the same question.

Speaker Change: Now that that's helpful, Udit, and if I understand you, what you're saying is, look, we're not seeing anything in the quarter. It's a positive trend in the right direction, but...

Udit: From a guidance perspective, you're just de-risking it, and it's more from the perspective of being conservative versus having seen anything in the quarter. Is that a fair summary?

Vijay Kumar: Fantastic. You know, revenues, I think we're cut maybe 3% below street; they implied Q4 dollar revenues, EPS roughly in line with the street.

Udit: Yes.

Udit Batra: Um, you know, revenues, I think, were cut maybe 3% below street rate, the implied Q4 dollar revenues, and EPS roughly in line with the street. So what are the implied operating margins coming in better? Is there any below-the-line contribution that's driving Q4 EPS?

Speaker Change: You know, revenues I think were cut maybe 3% below street rate, the implied Q4 dollar revenues. EPS, roughly in line with the street, so what change, is the implied operating margins coming in better? Is there any below the line contribution that's driving Q4 EPS?

Udit Batra: So what, what is the implied operating margins coming in better? Is there any below-the-line contribution that's driving Q4 EPS? Yeah, look, I mean, as you've seen us through last year and this year, also back in 22 against inflationary pressures. Our team is super resilient, and we are able to defend margin, and even during down volume cycles, we're able to expand margin. As we've discussed before, we have a set of productivity initiatives that have a very long runway, and we're able to accelerate some of them, and that reflects in sort of how we've been able to expand margin even last year.

Udit Batra: Yeah, look, I mean, as you've seen us through last year and this year, also back in 22 against inflationary pressures, our team is super resilient, and we are able to defend margin, and even during down volume cycles, we're able to expand margin.

Speaker Change: Yeah, look, I mean, as you've seen us through last year and this year, also back in 22 against inflationary pressures, our team is super resilient and we are able to defend margin and even during down volume cycles, we're able to expand margin.

Speaker Change: As we have discussed before, we have a set of productivity initiatives that have a very long runway and we are able to accelerate some of them.

Udit Batra: If you look at the embedded implied margin profile in our guide, our second half margin is relatively flat versus last year. So there is not any meaningful step up in the second half versus prior year. The only thing is, as we've sort of taken a more cautionary view on the guide, we will see some of the actions that we've put in place already show up in Q4, and that will help us a little bit in Q4. But other than that, the second half is relatively flat versus last year.

Speaker Change: and that reflects in sort of how we've been able to expand margin even last year. If you look at the embedded implied margin profile in our guide, our second half margin is relatively flat versus last year.

Speaker Change: So, there is not...

Speaker Change: any meaningful step up in the second half versus prior year.

Speaker Change: The only thing is, as we've sort of taken a more cautionary view on the guide, we will see some of the actions that we've put in place already show up in Q4, and that will help us a little bit in Q4. But other than that, second half is relatively flat versus last year.

Daniel Brennan: The next question will come from Dan Brennan of TD Cowan. Your line is open. Great, thanks. Thanks for digging the questions, guys.

Speaker Change: The next question will come from Dan Brennan of TD Cowen. Your line is open.

Udit Batra: Maybe just on instruments Q2 was about in line right with what your guide expected, down 17 to make you a down mid teens. Can you just flush out a little bit LC versus MS and how are we thinking about the updated instrument outlook for the back half of the year and kind of what's the math. So let me start, and a more can jump in, Dan. So instruments declined about 17% in a quarter. LC was a bit modest than that. Mid teens, MS spec declined a bit more, and TA was around minus 2%. So minus 17% in a quarter.

Daniel Gregory Brennan: Great, thanks for taking the questions guys. Maybe just on instruments, Q2 was about in line right with what your guide expected down 17, I think you were down mid-teens. Can you just flush out a little bit LC versus MS and how are we thinking about the updated instrument outlook?

Udit Batra: So let me start, and Amol can jump in, Dan. So instruments declined about 17% in the quarter. LC was a bit modest than that. Mid-teens, mass spec declined a bit more, and TA was around minus 2%, so minus 17% in the quarter. As I mentioned earlier, we're seeing steady improvement as we go through the quarter, and the funnels look extremely strong, especially on the LC front. So for the back half of the year, we're assuming that the instrument growth rate will be flat versus the previous year. So overall, the second half is flat.

Speaker Change: for the back half of the year and kind of what's the math to support that.

Speaker Change: Yeah, so let me start and Amol can jump in. Dan, so instruments declined about 17% in a quarter. LC was a bit modest than that, mid-teens.

Speaker Change: The mass spec declined a bit more and TA was around minus 2%, so minus 17% in the quarter. As I mentioned earlier, we're seeing steady improvement as we went through the quarter and the funnels look extremely strong, especially on the LC front. So for the back half of the year,

Udit Batra: As I mentioned earlier, we're seeing steady improvement as we went through the quarter, and the funnels look extremely strong, especially on the LC front.

Udit Batra: So for the back half of the year, we are assuming that the instrument growth rate will be flat versus the previous year. So overall, second half is flat and just to sort of go a bit beyond the numbers. Now, as I mentioned earlier, the LC replacement cycle now is in the seventh quarter of its decline. We're starting to see we're starting to see across the globe customers initiating their replacement cycle. So we expect that to we expect a little bit of decline of flat growth in Q3 for LC, but in Q4 we expect the replacement cycle to start to kick in, which is consistent with what we see with the funnels.

Speaker Change: We are assuming that the instrument growth rate will be flat versus the previous year. So overall, second half is flat.

Udit Batra: And just to sort of go a bit beyond the numbers, now, as I mentioned earlier, the LC replacement cycle is now in the seventh quarter of its decline, and we're starting to see customers initiating their replacement cycle across the globe. So we expect a little bit of decline or flat growth in Q3 for LC, but in Q4, we expect the replacement cycle to start to kick in, which is consistent with what we see with the funnels. So quite an exciting time, just given the renewed portfolio across all the instruments. As the replacement cycle begins, we feel very good about where we are sitting today.

Speaker Change: And just to sort of go a bit beyond the numbers, now, as I mentioned earlier, the LC replacement cycle...

Speaker Change: Now it's in the seventh quarter of its decline. We're starting to see across the globe customers initiating their replacement cycle. So we expect a little bit of decline or flat growth in Q3 for LC, but in Q4 we expect...

Speaker Change: The replacement cycle starts to kick in, which is consistent with what we see with the funnels.

Udit Batra: So quite an exciting time, just given the renewed portfolio across all the instruments. As the replacement cycle begins, we feel very good about where we are sitting today. Great.

Speaker Change: So quite an exciting time, just given the renewed portfolio across all the instruments. As the replacement cycle begins, we feel very good about where we are sitting today.

Udit Batra: Thanks, Udit.

Udit Batra: And then just China, anything changed with the guy there? You were down. I think Newteens, kind of in the quarter around what the guy was. So now what are you assuming for the full year? And is the commentary that orders on the stimulus will start in 25? Is that a bit of a push? I think I thought I heard you guys say previously maybe orders come back after, and then they kind of kicked in in 25. Any color on back up your China? And then how we think about stimulus impact? Sure. Firstly, I mean China came in the head of expectations, right?

Speaker Change: Great. Thanks, Udit. And then just China, anything change with the guy there, you were down?

Speaker Change: I think new teams kind of in the quarter

Speaker Change: around what the guide was. So now what are you assuming for the full year and is the commentary that orders on the

Speaker Change: Any kind of stimulus will start in 2025. Is that a bit of a push? Like I think, I thought I heard you guys say previously maybe orders come back half, and then it kind of kicks in in 2025. So any color on back half-year China and then how we think about stimulus impact.

Udit Batra: I mean, that's part of the driver for the beat. I mean, just to give you a bit of a bit of the facts, I mean Q1 China declined 26% in Q2. It was around 10% decline. And I mean, in the largest end market farmer, we went again from about a 25% to 26% decline to what a 10% decline in Q2. So steady improvement in China and the second half of the year has a lower base.

Speaker Change: Sure. Firstly, I mean, China came in ahead of expectations, right? I mean, that's part of the driver for the beat. I mean, just to give you a bit of the facts, I mean, in Q1, China declined 26%. In Q2, it was around 10% decline.

Speaker Change: And, I mean, in the largest end-market pharma, we went again from about a 25, 26 percent decline to about a 10 percent decline in Q2. So steady improvement in China in the second half of the year has a lower base.

Udit Batra: But we've kept the full year guide at a low double-digit decline for China, just to sort of watch and see more data. So good things happening in China. And again, when you compare LC growth rate, and this is sort of an interesting fact. For the first time in a very long time, China's LC decline was less than the rest of the world, right? So China declined in the high single digits, whereas the overall decline for LC was a bit higher than that.

Speaker Change: But we've kept...

Speaker Change: The Fourier Guide at a Low Double-Digit Decline for China, just to sort of watch and see more data.

Speaker Change: So, good things happening in China, and again, when you compare...

Speaker Change: L.C. growth rate, and this is sort of an interesting fact.

Speaker Change: For the first time in a very long time, China's LC decline was less than the rest of the world. So China declined in the high single digits, whereas the overall decline for LC was a bit higher than that. Now, as you think of the stimulus...

Udit Batra: Now, as you think of the stimulus, nothing has really changed versus previous commentary. We're spending a lot of time with customers doing three things. One, helping them identify the age of instruments. You recall this particular stimulus is targeted towards instrument replacement, the age of the instruments, the eligibility for the stimulus, and helping them do the paperwork as they start to submit applications for funding. We think this is going to impact growth only in 2025. Maybe a modest impact over the end of the year, but we're not factoring that in.

Speaker Change: Nothing has really changed versus this previous commentary. We're spending a lot of time with...

Speaker Change: with customers doing three things. One, helping them identify the age of instruments. You recall this particular stimulus is targeted towards instrument replacements, the age of the instruments, their eligibility for the stimulus.

Tycho Peterson: The next question will come from Tyco Peterson of Jeffries. Your line is open. Hey, thanks.

Speaker Change: The next question will come from Tycho Peterson of Jefferies. Your line is open.

Tycho Peterson: Maybe just the diving in a little bit into the guy in the back half of the year. So you're three here. You're getting the revenues up to clinch. There's some Q that you know kind of out of line with normal fees nowadays, so maybe just touch on visibility. And then for the fourth quarter, you're, I think, in flat operating margins are, you know, mid to high 30.

Tycho W. Peterson: Touched on visibility, and then for the fourth quarter, you're, I think, in flat operating margins are, you know, mid to high 30s to hit DPS guide. I know you said, you know, operating margins are flat in the back half of the year, but what drives that fourth quarter ramp in particular? That seems out of line with normal seasonality.

Udit Batra: I know you said you know, operating margins are flat in the back half of the year, but what drives that fourth quarter ramp in particular. That seems to have a line with normal fees now. Yeah, so I mean, look, Q on Q, Q to 2, Q 3 is relatively flat. If you look at the last 10 years, it has sort of oscillated between plus and minus 3% right. So it's sort of within the range, and what gives us comfort and confidence on that is what we have in our funnel and the activity that is progressing, as well as the fact that, you know, we build some backlog in Q2.

Udit Batra: Q1-Q, Q2-Q3 is relatively flat if you look at the last 10 years.

Speaker Change: Yeah, so I mean, look.

Speaker Change: Q1-Q, Q2-Q3 is relatively flat

Speaker Change: If you look at the last 10 years...

Speaker Change: So it's sort of within the range and what gives us comfort and confidence on that is what we have in our funnel and the activity that is progressing as well as the fact that you know we build some backlog in Q2 so that also helps.

Udit Batra: So that also helps going to your other question around second half margins. As I said, second half margins are relatively flat versus last year. There's a small difference between Q3 and Q4. One is the prudence in Q3; the second piece is, as we sort of take on a more cautionary view on the guide.

Udit Batra: Going to your other question around second-half margins, as I said, second-half margins are relatively flat versus last year. There's a small difference between Q3 and Q4. One is the prudence in Q3. The second piece is, as we've sort of taken a more cautionary view on the guide, we've put in place certain cost measures that are already playing out, particularly around outside services spend, particularly around how we resource certain growth initiatives, and you will start to see some of that impact flow through more in Q4 than in Q3. So there's some plus-minus between Q3 and Q4, but overall second-half operating margins are relatively flat versus last year.

Speaker Change: Going to your other question around second-half margins, as I said, second-half margins are...

Speaker Change: Relatively flat versus last year. There's a small difference between Q3 and Q4. One is the prudence in Q3. The second piece is, as we've sort of taken a more cautionary view on the guide, we've put in place...

Udit Batra: We've put in place certain cost measures that are already playing out, particularly around outside services spend, particularly around how we resource certain growth initiatives, and you will start to see some of that impact flow through more in Q4 than in Q3. So they sum plus minus between Q3, Q4, but overall second half operating margins are relatively flat.

Speaker Change: in Q4 than in Q3, so there is some plus minus between Q3 and Q4, but overall second half operating margins are relatively flat versus last year.

Tycho Peterson: and then the follow-up, you know, academics are only 10% of the mix. I know, but you know, it was down 16%. Can you maybe just talk on, you know, how much of that was US versus Europe? And, you know, what are you thinking back half of the years as the companies there for academics? I think no change in assumption on the academic side. It's such a small portion of our business, Tycho, so really no change from the previous assumptions. Yeah, I mean, you look at it this way, right?

Speaker Change: Okay, and then to follow up, you know, Udit, academics are only 10% of the mix, I know, but, you know, it was down 16%. Can you maybe just talk on, you know, how much of that was U.S. versus Europe , and, you know, what are you thinking back half of the year as the comps ease there for academics?

Udit: I think no change in assumption on the academic side. It's such a small portion of our business, Tycho. So really no change from the previous assumptions. Yeah, and I mean, look at it this way, right? Like, first half of last year.

Udit Batra: Like, first half of last year was super well funded between the China stimulus and what was happening in the US and Europe. If you look at it on a two-year stack basis, pretty much every quarter you will see is like 0.1% growth.

Udit Batra: was super well-funded between the Chinese stimulus and what was happening in the US and Europe. If you look at it on a two-year stack basis, pretty much every quarter you will see is like 0.1% growth.

Udit: was super well-funded between the China stimulus and what was happening in the US and Europe . If you look at it on a two-year stack basis, pretty much every quarter you will see is like 0.1% growth.

Matthew Sykes: The next question comes from Matt Sykes of Goldman Sachs; your line is open, sir. Tycho, good morning. Thanks for taking my question. Maybe just first, you guys have leaned into the CDMO channel in China over the past couple of years, and that's been an area of weakness recently due to overcapacity. Could you maybe kind of talk about what you're seeing in the CDMO channel in China and is it part of sort of some of the inflection that you see maybe towards the back half of this year into next year, or is that going to remain fairly subdued for the balance of this year and into 25?

Speaker Change: Hi, good morning. Thanks for taking my question. Maybe just first, um, you guys have leaned into the CDMO channel in China over the past couple of years, and that's been an area of...

Udit Batra: Matt, thank you for the question. I think we will give a lot of details around this time and probably even earlier than that last year on CDMOs in China in particular. So really no change from what we saw last quarter, steady improvement on the recurring size as activities start to pick up a bit from a very low base. You'll recall it's an extremely low base now, but CAPEX is still subdued, and we've not assumed any improvement in CAPEX in the CDMO segment. Now overall, the genetics market in China is starting to get a bit better.

Speaker Change: Matt, thank you for the question. I think we gave a lot of details around this time and probably even earlier than that last year on CDMOs.

Speaker Change: in China in particular.

Speaker Change: But CAPEX is still subdued, and we have not assumed any improvement in CAPEX in the CDMO segment.

Udit Batra: I mean, this is why we exceeded our growth in growth expectations in Q1 and now in Q2. So steady improvement in China as you go through the year, especially on the LC side. We're starting to see some replacement cycles get initiated there. So at CDMO less, but genetics a bit more starting to see life there.

Speaker Change: The genetics market in China is starting to get a bit better. I mean, this is why we exceeded our growth expectations in Q1 and now in Q2. So steady improvement in China as you go through the year.

Speaker Change: Especially on the LC side, we're starting to see some replacement cycles get initiated there. So CDMO less, but genetics a bit more starting to see life there.

Matthew Sykes: Got it, thanks. Thanks, Judith.

Amol Chaubal: And then I'm all just on margins. You've discussed sort of back half in your expectations. I'm just wondering on a longer-term basis; you made some pretty positive commentary about some longer-term margin drivers going forward. How should we think about operating margin cadence over the longer term for the business and where some of the levers to kind of continue to expand those margins as we move through 25 or maybe on a longer-term framework?

Speaker Change: to kind of continue to expand those margins as we move through 25 or maybe on a longer term framework. Thanks.

Amol Chaubal: Thanks. Thanks, Mark, for the question. And look, I mean, there are sort of three to four broad levers here. One is our business is structured such that if we grow more than 5%, it produces 50 basis points of volume leverage. And that volume leverage largely shows up on the STNA line versus on the grass margin line. Two, we have benefit from mix as we move to more recurring, as well as with the discipline that we've put in pricing. We feel comfortable, like we've seen, even in these challenging market situations, that we're able to do a little more than 100 basis points better than what we've historically done on pricing.

Udit Batra: There are sort of three to four broad levers here. One is that our business is structured such that if we grow more than 5%, it produces 50 basis points of volume leverage. And that volume leverage largely shows up on the SG&A line versus the gross margin line.

Speaker Change: Thanks, Matt, for the question and Luke, I mean.

Speaker Change: There are sort of three to four broad levers here.

Speaker Change: One is our business is structured such that if we grow more than 5% it produces

Speaker Change: benefit from MEECS as we move to more recurring, as well as with the discipline that we've put in pricing, we feel comfortable, like we've seen even in these challenging market situations, that we are able to do a little more than 100 basis points better than what we've historically done on pricing.

Amol Chaubal: And so mix and pricing sort of is a creative to our margin profile. And then a couple of years ago, we started various productivity and operational excellence initiatives that have started bearing fruit, right? Things like procurement excellence, operational excellence in manufacturing, setting up GCC in India. And these initiatives have a long runway. I mean, between these initiatives, we expect to cover approximately 300 basis points over a course of about eight years, right? So they added to the profile. So overall, our goal is between the three vectors to put about 100 basis points of margin expansion on the board.

Speaker Change: A couple of years ago, we started various productivity and operational excellence initiatives.

Speaker Change: that have started bearing fruit, right? Things like...

Speaker Change: Procurement Excellence, Operational Excellence in Manufacturing, setting up GCC in India. And these initiatives have a long runway, I mean, between these initiatives, we expect to cover approximately 300 basis points over a course of...

Speaker Change: about eight years, right? So they add up to the profile. So overall, our goal is between the three vectors to put about 100 basis points of margin expansion on the board and use about 70 to 80 basis points from these gains to fund higher growth adjacencies.

Amol Chaubal: And so mix and pricing. and use about 72-80 basis points from these gains to fund higher growth adjacencies. And then, as we get into 6-7-8th year, when some of these productivity initiatives will start to saturate, we expect these higher growth adjacencies to start to produce one revenue growth and two margin accretion, and that will then sort of take over the impact that productivity initiatives have saturated. Now, as we've gone through the last couple of years where the volume leverage was not there, in fact, it was a headwind. Our teams were able to accelerate some of the benefits on these productivity initiatives, as well as we took proactive cost actions and got benefit from pricing, which have allowed us to not just defend margin, but also expand margin during down-volume cycles.

Speaker Change: And then as we get into 6th, 7th, 8th year, when some of these productivity initiatives will start to saturate, we expect these higher growth adjacencies to start to produce, one, revenue growth, and two, margin accretion.

Speaker Change: And that will then sort of take over the impact that productivity initiatives have saturated. Now, as we've gone through the last couple of years where the volume leverage was not there, in fact, was a headwind, our teams were able to accelerate.

Speaker Change: some of the benefits on these productivity initiatives as well as we took proactive cost actions and

Speaker Change: got benefit from pricing which have allowed us to not just defend margin but also expand margin during down volume cycles.

Amol Chaubal: And that's where the difference lies, because people look at it and say, last 10 years, Waters' margin has been always sticky at 30%. And so, where was the volume leverage? And the answer to that is there was always a volume leverage, but we gave it up in a down cycle. And this time around, we're not giving it up in a down cycle, so that we come out much more stronger when the up cycle comes across.

Speaker Change: And that's where the difference lies, right, because people look at it and say last 10 years, you know, water's margin has been always sticky at 30%.

Speaker Change: And so, where was the volume leverage? And the answer to that is there was always a volume leverage, but we gave it up in a down cycle.

Speaker Change: And this time around, we're not giving up in a down cycle, so that we come out much more stronger when the up cycle comes across.

Amol Chaubal: I'm always given a comprehensive answer; just two points to summarize the whole thing. One, the teams have great muscle now to expand margins during a down cycle, number one. And number two, the pricing that we see is very resilient, and I'm excited about the prospects as we come out of this down cycle, given the product portfolio that we have. I mean, it's been totally renewed. We have leading products across the board that customers have had a chance to test during the down cycle.

Udit Batra: Amol's given a comprehensive answer. But just two points to summarize the whole thing. One, the teams now have great muscle power now to expand margins during a down cycle, number one. And number two, the pricing that we see is very resilient. And I'm excited about the prospects as we come out of this down cycle, given the product portfolio that we have. I mean, it's been totally renewed. We have leading products across the board that customers have had a chance to test during the down cycle. So, we're very excited about what we're about.

Amol: Amol has given a comprehensive answer, just two points to summarize the whole thing. One, the teams have great muscle now to expand margins during a down cycle, number one. And number two, the pricing that we see is very resilient, and I'm excited about the prospects as we come out of

Amol: this down cycle, given the product portfolio that we have. I mean, it's been totally renewed. We have leading products across the board that customers have had a chance to test during the down cycle. So very excited about what we're about to see.

Amol Chaubal: So very excited about what we're about to see.

Rachel Battenfell: The next question will come from Rachel Battenfell of JPMorgan. Your line is open. Great, good morning. Thank you for taking the questions, you guys. I wanted to follow up on Dan's questions again, Brennan's question around China here. It sounds like LC was a little bit better than expected in the quarter, but can you unpack the performance by end market within China there? And then also on this China stimulus dynamic, we've heard from a few of your peers that they've called out in the air pocket related to China stimulus as customers are really holding off and submitting orders.

Operator: The next question will come from Rachel Bottenfell of J.P. Morgan. Your line is open.

Udit Batra: Great, good morning. Thank you for taking the questions, you guys. I wanted to follow up on Dan Brennan's question around China here. It sounds like LCU was a little bit better than expected in the quarter, but can you unpack the performance by end market within China here? And then also on this China stimulus dynamic, we've heard from a few of your peers that they've called out an air pocket related to the Chinese stimulus as customers are really holding off on submitting orders. So can you clarify for us? Have you seen any positive orders from customers in the region? And if not, why have you guys kind of been more immune to that scenario?

Udit Batra: Thanks.

Speaker Change: Great. Good morning. Thank you for taking the questions, you guys.

Speaker Change: I wanted to follow up on Dan Brennan's question around China here. It sounds like LC was a little bit better than expected in the quarter, but can you unpack the performance by end market within China there? And then also on this China stimulus dynamic, we've heard from a few of your peers that they've called out an air pocket related to China stimulus as customers are really holding off on submitting orders.

Rachel Battenfell: So can you clarify for us, have you seen any positive orders from customers in the region? And if not, why have you guys kind of more immune to that scenario? Thanks. Thank you.

Speaker Change: So, can you clarify for us, have you seen any positive orders from customers in the region? And if not, why have you guys kind of been more immune to that scenario? Thanks.

Udit Batra: Thank you, Rachel. Now coming, China overall, as I said earlier, declined less than what we had thought it would this quarter. So went from 26% decline in Q1 to about 10% in Q2. Across the different markets, there was improvement across the board. Farma went from about 26% decline in Q1 to 10% decline; same thing with industrial, which was at 28% decline, again, 11% decline in Q2. An academic and government which still has very high comps went from over 40% decline to slightly less than 30% decline. I mean, the most interesting thing here is that the replacement cycle is starting to show life in China already.

Speaker Change: Thank you. Thank you, Rachel.

Speaker Change: Look, I mean, China overall, as I said earlier, declined less than what we had thought.

Speaker Change: It was this quarter, so went from 26% decline in Q1 to about 10% in Q2. Across the different end markets, there was improvement across the board.

Speaker Change: Pharma went from about 26% decline in Q1 to 10% decline. Same thing with industrial, which was a 20-ish percent decline, again 11% decline in Q2. And academic and government, which still has very high comps.

Speaker Change: went from over 40% decline to slightly less than 30% decline. I mean, the most interesting thing here is that the replacement cycle is starting to show life in China already. We went from over a 40% decline in Q1 in LC, over 40%.

Udit Batra: We went from over a 40% decline in Q1 in LC, over 40% to now less than 10%, which is better than the rest of the world. So we're starting to see customer activity pick up in China and still negative growth versus previous years, but it's starting to get better quarter on quarter. And on your question on the stimulus, look, I mean, we are having a ton of conversations with our customers as the activity level remains consistent. So the activity level is remain consistent; it's actually improving quarter on quarter. From a stimulus perspective, as I said earlier, it's a broader stimulus.

Speaker Change: to now less than 10%, which is better than the rest of the world.

Udit Batra: It's over a longer period of time, and it's specifically targets instrument replacement. So we've been spending a lot of time with our customers identifying the age of their instruments, defining eligibility versus what the government has targeted, and helping them do the paperwork to submit proposals for funding that becomes available. We don't expect that to impact revenue this year, but surely it will impact what we've seen in 2025. So overall, improving conditions across all in markets, especially in Pharma, especially in LC, no real sign of what you're calling an air pocket. Activities continuing at a baseline level, getting better, and customers are getting prepared to get funding from the stimulus.

Speaker Change: It's over a longer period of time, and it specifically targets instrument replacement. So we've been spending a lot of time with our customers.

Speaker Change: identifying the age of their instruments, defining eligibility versus what the government has targeted, and helping them do the paperwork to submit proposals for funding that becomes available. We don't expect that to impact.

Speaker Change: revenue this year, but surely it will it will impact what we see in 2025. So overall improving conditions across all in markets.

Speaker Change: especially in pharma, especially in LC, no real sign of what you're calling an air pocket. Activity is continuing at a baseline level, getting better, and customers are getting prepared to get funding from the stimulus.

Rachel Battenfell: Great, thank you. And then I did want to follow up on 2025 quickly. So can you walk us through your exit rates at 4Q? You've kind of talked about some of this replacement cycles starting to heat up in the back half. If you learn some of the weaker comps and the China dynamics that you talked about as well, how are you really thinking about that exit rate underpinning 2025? It looks like the street is currently just shy of a 6% organic growth rate. So just at a really starting point, how comfortable are you at that?

Speaker Change: Great, thank you. And then I did want to follow up on 2025 quickly.

Speaker Change: So can you walk us through your exit rates at 4Q? You've kind of talked about some of this replacement cycle starting to heat up in the back half. If we layer in some of the weaker comps and the China dynamics that you talked about as well, how are you really thinking about that exit rate underpinning 2025? It looks like the street is currently just shy of a 6% organic growth rate. So just at an early starting point, how comfortable are you with that?

Udit Batra: Yeah, look, I mean, if we sort of extrapolate our guide and say where will Q4 and our 24 exit rates will be, will be a good, even for X China, for LCNMS, will be a good couple of hundred basis points below the historic average. And this is X China, right? So that gives us a lot of hope and comfort that we are at the bottom of this whole slowdown in the replacement cycle and the fleet out there has aged, meaningfully, beyond its life needing replacement, particularly for LCNMS. And then China is a twofold equation of one of the fleet is aged far more than that, but then the question is when do these generic companies feel comfortable with their status?

Speaker Change: Yeah, look, I mean, if we sort of extrapolate our guide and say where will Q4 and our 24 exit rates will be, we'll be a good, even for ex-China, for LC and MS, we'll be a good couple of hundred basis points below the historic average.

Speaker Change: And this is ex-China, right, so that gives us...

Speaker Change: A lot of hope and comfort that we are at the bottom of.

Speaker Change: This whole slowdown in the replacement cycle and the fleet out there has aged meaningfully beyond its life, needing...

Speaker Change: replacement, particularly for LC.

Speaker Change: And then China is a two-fold equation of one, the fleet is aged far more than that.

Speaker Change: But then the question is, when does these generic companies

Udit Batra: And then do they start replacing? And we're seeing signs of that, right? We've had few generic companies in China already starting to replace their fleet, and we think others will follow over the course of next few quarters. And before I embellish a little bit on what we're seeing at the end of Q2, that starts to give us confidence, right? June is one of the largest months of the year for us. And it has subsurpassed our expectations, both in sales and in order. So there's a lot of momentum that we've built going into Q3, so that gives us confidence, and it's a lot in the areas that we've just discussed, right?

Speaker Change: And when do they start replacing? And we're seeing signs of that, right? We've had few generic companies in China already starting to replace their fleet.

Speaker Change: And we think others will follow over the course of the next few quarters. I just want to embellish a little bit on what we're seeing at the end of Q2 that starts to give us confidence. June is one of the largest months of the year for us.

Speaker Change: and it has...

Speaker Change: surpassed our expectations, both in sales and in order.

Speaker Change: that we've built going into Q3. So that gives us confidence in it a lot in the areas that we've just discussed, right? So it's consistent with an improving trend in the industry. Second, as I said, I spent a fair amount of time with customers both in Europe and the US in this last quarter.

Udit Batra: So it's consistent with an improving trend in the industry. Second, as I said, I spent a fair amount of time with customers both in Europe and the US in this last quarter, especially in large pharma. Customers are now used to the additional steps in the procurement process. In fact, one of the largest pharma companies had introduced several steps in the process, which their internal teams were also learning, and we were also learning about, and that gave a little bit of pause to how fast the orders were converting to sales. This time around, when we said in March, order quality is high.

Speaker Change: Especially in large pharma, customers are now used to the additional steps in the procurement process. In fact, one of the largest pharma companies had introduced several steps in the process, which their internal teams were also learning, and we were also learning about, and that sort of...

Speaker Change: that

Speaker Change: It gave a little bit of pause to how fast the orders were converting to sales.

Udit Batra: Like clockwork, we've seen them converted to sales towards the end of June. So now the funnel predictability is way better than we've seen, especially in large pharma, and the funnel quality and the funnel strength is pretty good, as we said, looking into the back half of the year.

Speaker Change: This time around, when we said in March, order quality is high, like clockwork we've seen them convert into sales towards the end of June .

Speaker Change: Now the funnel predictability is way better than we've seen, especially in large pharma, and the order quality and the funnel strength is pretty good, as we said, looking into the back half of the year.

Daniel Arias: The next question will come from Dan Areas of Steeple. Your line is open. Good morning, guys. Thanks. Can you maybe just refresh us on the taking around the upgrades within this replacement cycle that we're talking about taking place here? And what I mean by this is obviously things are still shaky out there on the capex side. So, when these LC customers come back into the market, should we assume that there's maybe less HPLC to UPLC transitioning? And what you see during historical periods, or do you think these? You know, these upsell dynamics and the conversion to UPLC can be fairly typical.

Speaker Change: The next question will come from Dan Arias of Stiefel. Your line is open.

Daniel Gregory Brennan: Hey, good morning, guys. Thanks. Udit, can you maybe just refresh us on the picking around the upgrades within this replacement cycle?

Speaker Change: that we're talking about taking place here. And what I mean by this is obviously things are still shaky out there on the CapEx side. So

Speaker Change: When these LC customers come back into the market, should we assume that there's maybe less HPLC to UPLC transitioning than what you see during historical periods? Or do you think these...

Speaker Change: You know, these upsell dynamics and the conversion to UPLC can be fairly typical.

Udit Batra: It's a great question, Dan, right? And I would look at it two ways. One, the HPLC to HPLC conversion, right? And that's a robust trend, and we have line of sight on what the fleet is. And there we offer our customers two options: go to the RCHPLC, which is done really, really well even during the downturn. And then the Alliance IS, which is now also available for biologics with our premier technology, right? And that has been received extremely well. In a way, the slowdown in the market allowed many of our customers to sample the benefits of Alliance IS, which reduces errors in the QC environment by 40%, which is a significant advance.

Speaker Change: I think it's a great question, Dan, right? And I would look at it two ways. One.

Speaker Change: the HPLC to HPLC conversion.

Speaker Change: Right, and that's a robust trend, and we have line of sight on what the fleet is. And there we offer our customers two options, go to the ARK HPLC, which is done really, really well, even during the downturn.

Speaker Change: And then the Alliance IS, which is now also available for biologics with our premier technology, right? And that has been received extremely well. In a way, the slowdown in the market allowed many of our customers

Speaker Change: to sample the benefits of Alliance IS, which reduces errors in the QC environment by 40%, which is a significant advance, probably the most important advance in the last decade in the HPLC segment itself. So we feel very good on the like-for-like replacement already.

Udit Batra: Probably the most important advance in the last decade in the HPLC segment itself.

Udit Batra: So we feel very good on the like-for-like replacement already. Second, when you think of HPLC to UPLC transitions, we are seeing that as well. And GLP-1s are a case in point where we see that transition happening. And now on that, let me make two comments. One, you've seen that our biologics revenue as a fraction of overall farmer has gone from roughly 20% to over 35% in the last three to four years. So that has been a very deliberate effort, not just on the UPLC side, HPLC to UPLC side, but also in introducing what we call the Premier technology, which is tailor made for large molecule.

Speaker Change: Second, when you think of HPLC to UPLC transitions, we are seeing that as well, and GLP1s are a case in point where we see that transition happening. And now on that, let me make two comments. Thank you for having me.

Speaker Change: You've seen that our biologics revenue as a fraction of overall pharma has gone from roughly 20%

Speaker Change: to over 35% in the last three to four years.

Speaker Change: on the UPLC side, HPLC to UPLC side, but also in introducing what we call the Premier Technology, which is tailor-made for large molecules. That is now also available on the UPLC segment, which allows customers to transition.

Udit Batra: That is now also available on the UPLC segment, which allows customers to transition the larger part of the pipeline, which is biologics, from HPLC to UPLC very comfortably. Now the experimental time is reduced dramatically with the premier technology. So we're seeing both, and we are well prepared if the customer decides to remain with HPLC. And equally we're seeing the trend continue as more and more large molecules and novel modalities come through the pipeline from people transitioning to HPLC to UPLC. But they are again on the receiving end; UPLCs now have the premier technology, which basically reduces the experimental time dramatically.

Speaker Change: The larger part of the pipeline, which is biologics, from HPLC to UPLC, very comfortably where now the experimental time is reduced dramatically with the premier technology. So we're seeing both, and we are well prepared.

Speaker Change: If the customer decides to remain with HPLC, and equally we're seeing the trend continue as more and more large molecules and novel modalities come through the pipeline from people transitioning to HPLC to UPLC, but there again, on the receiving end, our UPLCs now have the premier technology.

Udit Batra: I hope that gives you color into the transition.

Speaker Change: which basically reduce experimental time dramatically. I hope that gives you color into the transition.

Amol Chaubal: And just to add to that, I mean, if you look at a historical instrument growth pattern, the 5% instrument growth has roughly about 50 to 70 basis points of price and 3% of volume. The remaining one and a half or so really comes from upsell, right? And when we code our price numbers, they're like-for-like skew and like-for-like geography. So that doesn't include when a customer chooses, say, RCHPLC over Alliance or Alliance IS over RCHPLC. And in order to achieve that 1.5%, we only need about 7% of these customers to choose and upgrade. Given the current innovation and the pricing that is out there.

Udit Batra: And just to add to that, right? I mean, if you look at a historical instrument growth pattern, the 5% instrument growth.

Speaker Change: And just to add to that, right, I mean, if you look at a historical instrument growth pattern, the 5% instrument growth.

Speaker Change: has roughly about 50 to 70 basis points of price and 3% of volume.

Speaker Change: The remaining one-and-a-half or so really comes from upsell, right? And when we quote our price numbers, they're like-for-like skew and like-for-like geography. So that doesn't include when a customer chooses, say, ARK HPLC over Alliance or Alliance IS over ARK HPLC.

Speaker Change: And in order to achieve that 1.5%, we only need about 7% of these customers.

Speaker Change: to choose and upgrade, given the current innovation and the pricing that is out there. And 7%, we feel super comfortable with the huge unmet needs that some of our newer launches are directly addressing, which customers are appreciating.

Puneet Fauda: And 7% we feel super comfortable with the huge unmet needs that some of our newer launches are directly addressing, which customers are appreciating. The next question is from Puneet Fauda of Learing Partners; your line.

Puneet Fauda: is open. Yeah, hi. Oh, thanks for taking my questions. If I could ask, the June order growth improvement, the significant momentum you talked about in June, has that continued into July as well? And could you elaborate if this momentum is mostly in pharma, North America, and Europe? It seems like, you know, some still some caution on China, some proving, just wanted to get some more details there. Great question.

Speaker Change: The next question is from Puneet Souda of Lering Partners. Your line is open.

Udit Batra: Yeah hi, Amol, thanks for taking my questions.

Udit Batra: Udit, for you, if I could ask, the June order growth improvement, the significant momentum you talked about in June , has that continued into July as well? And could you elaborate if this momentum is mostly in pharma, North America, and Europe ? It seems like there's still some caution on China that's improving, but just wanted to get some more details there.

Udit Batra: And as you know, and I think we've been through this before, we won't comment on July trends, but you can assume that June was very robust. Customer activity has been very, very good. And that gives us confidence on what we're seeing in what we've guided for in Q3. So June has a lot to do with the confidence that we've built in the replacement cycle, the confidence that we've built in Q3, the confidence we've built also built in the ramp towards ramp in Q4. Got it.

Speaker Change: Great question. And as you know, and I think we've been through this before, we won't comment on July trends.

Speaker Change: But you can assume that June was very robust. Customer activity has been very, very good. And that gives us confidence on what we're seeing in, what we've guided for in Q3. So June has a lot to do.

Udit Batra: with the confidence that we've built in the replacement cycle, the confidence that we've built in Q3, the confidence we've also built in the ramp in Q4.

Puneet Fauda: And then an Asia question for you, just thinking about China. First of all, I want to cover just Japan and India. China just wanted to understand in terms of retaliatory risks for tariffs. If you could elaborate where is your manufacturing position, how much of you the business is China for China, in case if there are tariffs and sort of retaliatory tariffs in 2025. And then on Japan, I believe you grew; sorry, Japan, you were down 11%, and India you grew about 11% in the quarter. Could you talk a little bit about what happened in those geographies?

Speaker Change: Got it. And then, you know, an Asia question for you. Just thinking about China, first of all, and then I want to cover just Japan and India. China, just wanted to understand, in terms of retaliatory risks for tariffs, if you could elaborate, where is your manufacturing position? How much of the business is China for China, in case if there are tariffs and sort of retaliatory tariffs in 2025?

Speaker Change: And then on Japan, I believe you grew, sorry, Japan, you were down 11%. In India, you grew about 11% in the quarter. Could you talk a little bit about what happened in those geographies? Thank you.

Udit Batra: Thank you. Sure. So three questions. First on China, I think we used, we were in an interesting way we used, we used the downturn to improve our manufacturing footprint in China, and that is going to help us as the stimulus comes through. We also increased our commercial presence across China. So we feel very good about what the future holds for China, both in terms of local manufacturing, where bulk of our instrument portfolio now is either finished or manufactured in China, and on the commercial side equally, equally good.

Speaker Change: Three questions right first on China. I think we used we were we were in in in a in an interesting way we used

Udit Batra: We used the downturn to improve our manufacturing footprint in China, and that is going to help us as the stimulus comes through. We also increased our commercial presence across China, so we feel very good about what the future holds for China, both in terms of local manufacturing, where the bulk of our instrument portfolio now is either finished or manufactured in China, and on the commercial side, equally so. Now on your question about India. India has been a star performer for us for many, many quarters. This quarter was no different. We grew in excess of 20%, largely on the back of Pharma, and there in Pharma, LC grew close to 50%, and you heard that right, close to 50%.

Speaker Change: We use the downturn to improve our manufacturing footprint in China, and that is going to help us as the stimulus comes through.

Speaker Change: increased our commercial presence across China, so we feel very good about

Speaker Change: what the future holds for China, both in terms of local manufacturing where bulk of our instrument portfolio now is either finished or manufactured in China and on the commercial side equally good.

Udit Batra: Now, on your question on India, India has been a star performer for us for many, many quarters. This quarter was no different. We grew in excess of 20%. Largely on the back of Farmam, and there in Farmam, LC grew close to 50%. And you heard that right, close to close to 50%. And so that India goes from strength to strength, and the Indian government is giving stimulus to, like many other countries, to their academic and government segments. And there too, we're benefiting a lot. That segment grew quite rapidly where the funding is captured.

Speaker Change: Now, on your question on India, India has been a star performer for us for many, many quarters. This quarter was no different. We grew in excess of 20 percent.

Speaker Change: And so that, India goes from strength to strength, and the Indian government is giving stimulus to, like many other countries, to their academic and government segments.

Speaker Change: And there, too, we're benefiting a lot. That segment grew quite rapidly where the funding is captured. And then on Japan...

Udit Batra: And then on Japan, it was a 1% constant currency growth. Yeah, I mean, look, Japan, you're looking at the reported number, and you know where Japan has been over the last year. That's like a close to 11% headwind. So, at constant currency, we're more or less flat, and that's also the reason why the currency impact for us is somewhat higher, and we had to increase it to 1.5%, driven by Japan because we have a reasonable Japan footprint. And our team is doing relatively well, coming out of the March year end. So what you see progressing in Q2 and onwards is we see healthy demand, and we see good funnel activity in Japan.

Speaker Change: It was a 1% constant currency growth, I'll let you know.

Speaker Change: Japan, Punit, likely you are looking at the reported number, right? And you know where Japanese yen has been over the last year.

Punit: So at constant currency, we're more or less flat. And that's also sort of the reason why.

Punit: The currency impact for us is somewhat higher and we had to increase it to 1.5% driven by Japan because we have a reasonable Japan footprint.

Speaker Change: and our team is doing relatively well coming out of the March year-end so what you see progressing in Q2 and onwards is we see healthy demand and and we see good funnel activity in Japan.

Udit Batra: Yeah, and then just coming back, coming back to India, very excited about the process there as with China during a downturn, we've sort of figured out where to increase our commercial presence. In India, we go from strength to strength. The commercial presence has been increased across the board. We've increased our collaboration on the ground. And India has gone in the last two to three years, from less than 6% of our sales to close to 8% of our sales. So it's becoming a more significant part of our business, and it's growing really, really well.

Speaker Change: Yeah, and then just coming back coming back to India very excited about the prospects there we've as as with as with China during a downturn we've sort of

Speaker Change: figured out where to increase our commercial presence. In India, we go from strength to strength. The commercial presence has been increased across the board. We've increased our collaborations on the ground. And India has gone, in the last two to three years, from less than 6% of our sales to close to 8% of our sales.

Speaker Change: Right, so it's becoming a more significant part of our business and it's growing really, really well.

Jack Meehan: The next question will come from Jack Meehan of Nefron Research. Your line is open, sir. Thank you, good morning.

Operator: The next question will come from Jack Meehan of Nefron Research. Your line is open, sir.

Punit: The next question will come from Jack Meehan of Nefron Research. Your line is open, sir.

Amol Chaubal: Thank you. Good morning. So I wanted to ask about kind of this dynamic of instruments starting to recover, but more looking at it from a margin perspective. Amol was curious, like just how changing the mix dynamic in the second half of the year and into 2025, what that actually means for gross margin progression.

Jack Meehan: So, wanted to ask about kind of this dynamic of instruments starting to recover but more looking at it from a margin perspective. Amol was curious like just how a changing mix dynamic in the second half of the year and into 2025, what that actually, what that means for gross margin progression? Yeah, great question, Jack, as always. Look, I mean there is going to be some negative mixing back from more instruments when instruments start to come back, but as you look at our guide, that sort of factor in in the gross margin, 20 basis points of expansion that we have outlined for the year and as we go into next year, if the mix sort of returns back to college, say, 2019 levels, there'll be 10 niche basis points adverse impact, but that's largely covered with the productivity initiatives we have in place.

Jack Meehan: Thank you. Good morning.

Jack Meehan: So, I wanted to ask about kind of this dynamic of instruments starting to recover, but more looking at it from a margin perspective. Amol was curious, like, just how a changing mix dynamic in the second half of the year and into 2025

Amol: What that actually, what that means for gross margin progression.

Jack Meehan: Yeah, great question, Jack, as always. Look, I mean, there is going to be some negative mixed impact from more instruments when instruments start to come back.

Punit: but

Speaker Change: As you look at our guide, that sort of factored in.

Punit: in the Gross Margin 20 Basis Points of Expansion that we've outlined.

Punit: for the year.

Punit: And as we go into next year, if the mix sort of returns back to, call it, say,

Amol Chaubal: 2019 levels. There'll be a 10-ish basis points adverse impact, but that's largely covered with the productivity initiatives we have in place. So the margin algorithm of 20 to 30 basis points still remains in place.

Punit: 2019 levels. There'll be 10-ish basis points adverse impact but that's largely covered with the productivity initiatives we have in place so the margin algorithm of 20 to 30 basis points still remains intact.

Amol Chaubal: So the margin algorithm of 20 to 30 basis points still remains intact. Got it. Okay.

Amol Chaubal: And then to just housekeeping ones, the first is any updated thoughts on buyback with returning to that, and second, can you just remind us any selling day changes throughout the year and the third and the fourth quarter. Thanks. Yeah, so on the first one, right? I mean, we continue to pay down debt from the Wire acquisition. We are at 1.7 now. So we are at a point where we are actively considering the switch between paying down debt versus buying back shares. I mean, the intention is to gain strategic flexibility as much as possible. So we continue to review options.

Speaker Change: Got it. Okay. And then two just housekeeping ones. The first is any updated thoughts on buyback, returning to that. And second, can you just remind us any selling day changes throughout the year in the third and the fourth quarter? Thanks.

Speaker Change: Yeah, so on the first one, right, I mean we continue to pay down debt from the WIRED acquisition. We are at 1.7 now. So we are at a point where we are actively considering...

Speaker Change: The Switch Between Paying Down Debt Versus Buying Back Shares. I mean, the intention is to gain strategic flexibility as much as possible. So we continue to review options. And on the number of days, I mean, the key thing to note is...

Amol Chaubal: And on the number of days, I mean, the key thing to notice on Q4 this year, we have three more days than Q3 of this year. And that partly helps about 1.5% in the ramp from Q3 to Q4. And then, other than that, I mean, there are two more days in Q4 of this year versus Q4 of last year. Q3 is awfully the same.

Speaker Change: On Q4 this year, we have three more days than Q3 of this year. And that partly helps about 1.5% in the ramp from Q3 to Q4.

Speaker Change: And then other than that, I mean, there are two more days in Q4 of this year versus Q4 of last year. Q3 is roughly the same.

Catherine Schulte: The next question will come from Catherine Schulte of Baird. Hey guys, thanks for the questions. First, just maybe on why it's great to see that coming in ahead of expectations. Are you seeing any different trends in terms of market improvement in that business, just given its exposure to large molecule and so on gene therapy? Catherine, thank you for the question. Look, we're very happy with the way the integration has progressed. The synergies are being delivered well ahead of target. That's why you saw growth higher than what we had what we had guided for why it itself.

Operator: The next question will come from Catherine Schulte of Baird.

Speaker Change: The next question will come from Catherine Schulte of Baird.

Catherine Walden Ramsey Schulte: Hey guys, thanks for the questions. First, just maybe on WIAT, great to see that coming in ahead of expectations. Are you seeing any different trends in terms of market improvement in that business, just given its exposure to large molecule and cell and gene therapies?

Speaker Change: Yeah, Catherine, thank you for the question. Look, we're very happy with the way the integration has progressed. The synergies are being delivered well ahead of target.

Speaker Change: That's why you saw growth higher than what we had what we had guided for WIAT itself.

Udit Batra: And it's, as you know, focused in large molecule applications, which are growing faster than the small molecule applications. Be it RNA therapy, be it MADS, be it VIOL vectors, we're working closely with customers on increasing applications. What's most exciting is that now the teams are working to take multi-angle light scattering that is the wire technology into QAQC with basically our Empower software. And this is really exciting. Now you can imagine that large molecules don't have so many different analytical techniques that are in QAQC. It already has liquid chromatography to some extent, capillary rectiferesis, and now multi-angle light scattering.

Speaker Change: And it's, as you know, focused on large molecule applications, which are growing faster than the small molecule applications, be it RNA therapy, be it MABS, be it

Speaker Change: Viral Vectors. We're working closely with customers on increasing applications.

Speaker Change: Most exciting!

Speaker Change: is that now the teams are working to take multi-angle light scattering that is the wire technology

Speaker Change: into QAQC with basically our Empower software.

Speaker Change: Right, and this is really exciting how you can imagine that large molecules

Speaker Change: don't have so many different analytical techniques that are in QA-QC. It already has liquid chromatography, to some extent capillary electrophoresis, and now multi-angle light scattering. All of these now, if they are on, and now the QDA-2 gives us mass analysis.

Udit Batra: All of these now, if they are on and now the QDA2 gives us mass analysis. If all of these now, if they talk to empower, allows our customers to submit data to regulators. So very exciting, really good progress on that front.

Speaker Change: All of these now, if they talk to Empower, allow our customers to submit data to regulators. So very exciting, really good progress on that front. Even in a down market, we're seeing good demand for multi-analyte scattering.

Udit Batra: Even in a down market, we're seeing good demand for multi-angle light.

Udit Batra: Great, and then maybe just going back to the guidance update, can you just elaborate on if there were any specific areas of that conservatism that you added to your assumptions, whether I'm China, Pharma, or is it really broader than that? Any further color would be appreciated. Now, look, I mean, most of our guidance caution that we put in places around our ex-China business. We just caution for a slower than anticipated pace of recovery. China, if anything, if you look at the last two quarters, we've exceeded our expectations. We haven't just been bold enough to sort of then improve the guidance for the rest of the year, but we remain cautiously optimistic that our team will continue to positively surprise us like they've done in the first two quarters.

Speaker Change: Great, and then maybe just going back to the guidance update, can you just elaborate on if there were any specific areas of that conservatism that you added to your assumptions?

Speaker Change: Was it around China, pharma, or is it really broader than that? Any further color would be appreciated.

Udit Batra: Now look, I mean, most of our guidance and caution.

Speaker Change: Now, look, I mean, most of our guidance, caution...

Speaker Change: That we've put in place is around our ex-China business.

Speaker Change: Caution for a slower than anticipated pace of recovery. China, if anything, if you look at the last two quarters, we've exceeded our expectations.

Speaker Change: We haven't just been bold enough to sort of then...

Speaker Change: improve the guidance for the rest of the year, but we remain cautiously optimistic that

Catherine Schulte: It's a great setup for exceeding expectations as we go through the year, and it's just the guidance philosophy we talked about at the beginning of the call that we just started with, and it's a great place to sort of end the call. I mean, it's basically what we've done all along. We look at a lot of data from customers, from funnels. Second, we spend a lot of time looking at the history of LC replacement in particular, which both well. And third, talk to a lot of customers on how they're receiving our new products, how their spending is going, and all three point towards a more positive second half of the year than we've seen.

Speaker Change: Our team will continue to positively surprise us like they've done in the first two quarters. It's a great setup for exceeding expectations as we go through the year.

Speaker Change: And it's just the guidance philosophy we talked about at the beginning of the call that Vijay started with, and it's a great place to sort of end the call. I mean, it's basically what we've done all along. We look at a lot of data from customers, from funnels.

Speaker Change: Second, we spent a lot of time looking at history of LC replacement in particular, which bodes well. And third, talk to a lot of customers on how they're receiving our new products, how their spending is going.

Catherine Schulte: So that's all been factored in, Catherine.

Speaker Change: and all three point towards a more positive second half of the year than we've seen. So that's all been factored in, Catherine. Thank you for that question. Catherine.

Caspar Tudor: Thank you for that question.

Operator: Thank you for joining us today and for your support and interest in waters. A replay of this call will be available in the Investor Relations section of our website. This concludes our call, and we look forward to seeing you at future events and conferences. Thanks, have a great day. Thank you all for your participation on today's conference call. At this time, all parties may disconnect their lines. Thank you all for your time.

Operator: Thank you for joining us today and for your support and interest in Waters. A replay of this call will be available in the Investor Relations section of our website. This concludes our call, and we look forward to seeing you at future events and conferences. Thank you. Have a great day.

Speaker Change: Thank you for joining us today and for your support and interest in Waters. A replay of this call will be available in the investor relations section of our website. This concludes our call and we look forward to seeing you at future events and conferences. Thanks, have a great day.

Speaker Change: Thank you all for your participation.