Q1 2025 Waters Corp Earnings Call
Yeah.
Good morning.
Speaker Change: Corporation, First Quarter, 2025, Financial Result Conference Call. All participants will be in listen only mode until the question and answer session begins. This call is being recorded. If you have any objections, please disconnect at this time.
Speaker Change: Welcome to waters Corporation's first quarter earnings call. Joining me today are Dr. <unk> Entre, our president and Chief Executive Officer, and a more travel all senior Vice President and Chief Financial Officer.
Speaker Change: Before we begin I will cover the cautionary language.
Speaker Change: In this conference call, we will make 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 second quarter of 2025 and full year 2025.
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 form 10, Qs and the cautionary language included in this morning's earnings release during.
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 first quarter of fiscal year 2024. In addition, unless stated otherwise all year over year revenue growth rates and ranges given on today's call are on a comparable constant currency basis.
Speaker Change: Finally, we do not intend to update our guidance predictions or projections, except as part of our regularly scheduled earnings release or as otherwise required by law.
Speaker Change: Now as we begin thank you all for joining us today restructured todays call to highlight how Walters resilient growth profile operational agility and innovation are driving strong results as we navigate a dynamic global environment, including recently announced tariffs.
Speaker Change: We'll start by framing our key messages and cover how we are well positioned to deliver against our 2025 objectives. A mall will then walk you through a detailed review of our first quarter performance updated guidance and the actions. We've taken to stay ahead of evolving external conditions. After their remarks, we will open the lines for questions.
Speaker Change: With that let me turn it over to them. Thank.
Speaker Change: Thank you Kasper and good morning, everyone.
Speaker Change: Fantastic start to the year.
Speaker Change: Legit instrument growth drove our performance as customer spending, especially in pharma exceeded expectations.
Speaker Change: <unk> remained solid across all our end markets and geographies.
Speaker Change: These results are driven by our strong commercial execution and our steadfast commitment to operational excellence I wanted to take a moment to thank all my colleagues for their dedication and outstanding performance their focus and agility enabled us to accelerate the benefits of pioneering science and deliver solid financial outcome.
Speaker Change: Especially in dynamic market conditions.
Speaker Change: Consistently shown leadership through turbulent times, just look at the last five years, where we have successfully navigated the pandemic the global chip shortage supply chain disruptions and inflationary pressures to at all what has become a stronger company by focusing on three guiding principles first we stay close to our.
Speaker Change: Customers and worked tirelessly and with urgency to support their evolving needs as conditions shift.
Speaker Change: Second while mitigating risks, we never lose sight of opportunities to enhance our competitive position, we remain focused on launching differentiated new products and investing in our capabilities.
Speaker Change: Third we redouble support and communication with our colleagues who are dedicated to the mission of the company and lead with an indomitable spirit.
Speaker Change: Staying true to these principles has enabled us to consistently deliver robust results over the past five years today, we continue to navigate the dynamic macro environment. However, our resilient downstream weighted revenue profile and Swift operational excellence actions position us to deliver high single digit earnings growth to this.
Speaker Change: Year.
Speaker Change: Even after accounting for newly announced status.
Speaker Change: Our mall and I will discuss these points in greater detail later in the call.
Speaker Change: Turning now to our results in.
Speaker Change: In the first quarter sales grew 4% as reported and 7% in constant currency landing at the high end of our guidance <unk>.
Speaker Change: Instruments grew 11% led by mid teens sales growth in both liquid chromatography and mass spectrometry with strength driven by pharma and industrial end markets.
Speaker Change: Recurring revenue increased mid single digits, which is in line with our expectations for the quarter with two fewer days.
Speaker Change: In China sales grew 5% led by double digit growth in both industrial and academic and government applications.
Speaker Change: Earnings per share were also at the high end of guidance supported by strong sales volume and an improvement in FX non.
Speaker Change: non-GAAP earnings per share were $2.25, reflecting low single digit growth and high single digit growth in constant currency terms.
Speaker Change: On a GAAP basis, EPS was $2 <unk>.
Speaker Change: Our 11% instrument growth was led by mid teens growth in pharma and.
Speaker Change: Additionally, auto growth exceeded sales growth highlighting continued momentum in our business.
Speaker Change: These results underscore our strong position in attractive secular markets, particularly as customer Capex spending has continued its recovery.
Speaker Change: As I highlight the drivers behind our strength our message remains consistent first our team is executing well in an analytical instruments market still.
Speaker Change: Early in its recovery.
Speaker Change: Second our revitalized portfolio closely aligns with customer needs at the time when instruments are ripe for replacement.
Speaker Change: Innovation remains highly differentiated in markets that we serve commanding premium pricing.
Speaker Change: And thirdly, our leadership position in downstream high volume applications enables us to capture growth across an exciting mix of fast growing testing opportunities such as those of DLP, one be fast and genetics testing.
Speaker Change: Innovation played a key role this quarter, reflecting an excellent customer adoption of our new products.
Speaker Change: In liquid chromatography sales of our alliance is HPLC system more than tripled.
Speaker Change: Year over year.
Speaker Change: Driven by growth across the placement and greenfield opportunities within replacement customers are upgrading to leverage its smart features flexibility and productivity advantages.
Speaker Change: At the same time adoption at new and expanding manufacturing facilities within pharma is particularly strong notably among large U S capex investments.
Speaker Change: We recently expanded the alliance I S bio HPLC product line by adding the photodiode ray detector to enhance spectral insights for Biopharma development and QC.
Speaker Change: <unk> now has four configurations of alliance Ias HPLC platform to support routine quantitative tests quantitative analysis and expanded spectral analysis of small and large molecules in development and in QC.
Speaker Change: Mass spectrometry growth was led by vivo tissue biopsy with EQ absolute system, our top selling our top selling mass spec again this quarter achieving sales growth of over 50%.
Speaker Change: At superior sensitivity and sustainable design continue to drive demand, particularly in high volume testing areas, such as food and environmental analysis and pharma quantitation.
Speaker Change: In our chemistry consumables business Mac sneak premier columns, again significantly exceeded expectations growing more than 30%.
Speaker Change: These products provide excellent solutions for separating complex molecule, such as biologics and novel therapeutic modalities.
Speaker Change: Our differentiated portfolio continues to command strong pricing as we look as we look ahead. This combination serves us well as a mechanism to provide offsets and capitalize on new demand opportunities in a dynamic global environment.
Speaker Change: Our unique a unique exposure to emerging high volume testing drivers also contributed meaningfully to our growth this quarter.
Speaker Change: For <unk> testing, we saw continued demand of our patrol you plc system.
Speaker Change: This advanced analytical tool has become indispensable for in process testing of these peptides during manufacturing Adil.
Speaker Change: Additionally, our chemistry and HPLC offerings saw continued momentum in Postville finished quality testing supported by solid capex investment and production volumes.
Speaker Change: While we have a leading position in the analytical testing of current GOP one injectables on the market. Today. We are also very well positioned for future auto the introductions.
Speaker Change: Beef as related testing sales grew over 90% in the first quarter, continuing the 40% plus growth trend seen both in 2023 and 2024.
Speaker Change: CMS has become the dominant workhorse technique for regulated analysis of these compounds, including drinking water soil and wastewater compliance monitoring.
Speaker Change: This is because most regulated compounds are polar and non volatile making them best suited for liquid chromatography.
Speaker Change: We expect emerging regulations governing P fast to drive testing in areas like food packaging and consumer products, which is an attractive opportunity for water.
Speaker Change: Given the need to detect the same nonvolatile compounds as CMS is also the method of choice in these areas.
Speaker Change: Our India team again delivered revenue growth close to 20% in constant currency driven by strong demand from generics manufacturers and CDM OS.
Speaker Change: Looking ahead as outlined at our recent Investor Day, we expect approximately 30 basis points of annual growth accretion from both <unk> and <unk> testing and an additional 70 to 100 basis points from growth in India.
Speaker Change: These volume growth drivers combined with the instrument replacement cycle and our strong pricing performance present, a compelling high single digit plus growth profile for our company in the near to midterm.
Speaker Change: Turning now to new products in the first quarter, we launched two new products in the Ta Division the.
Speaker Change: The electro fourth apex, one for precise mechanical testing of high performance polymers <unk> composites.
Speaker Change: And PGA smart seen bands, which support analysis of Atmos atmosphere sensitive materials in battery polymer and drug development testing.
Speaker Change: Today, we also announced the launch of empower for multi angle light scattering detectors, which is an important milestone and commitment from our integration of Wyatt.
Speaker Change: This advancement expands the scope of critical quality attributes that the biopharmaceutical laboratory can manage and submit to regulators using our empower Suffolk.
Speaker Change: Our steady stream of innovation continues to strengthen our core business and support our expansion into higher growth Adjacencies I will now cover our updated 2025 full year guidance.
Speaker Change: Waters has a unique and resilient revenue profile anchored by a focused exposure to downstream high volume applications.
Speaker Change: This includes pharma QA QC the growth is closely tied to manufacturing output and capex spending trends.
Speaker Change: Within these segments customer spending has remained robust.
Speaker Change: <unk> ahead customer manufacturing needs continue to evolve with potential for additional investment driven by tariff related capacity shifts and U S pharma re shoring initiatives.
Our team continues to execute well with our revitalized portfolio, particularly as the instrument replacement cycle continues to ramp.
Speaker Change: We also expect sustained contribution from our idiosyncratic growth drivers and continued achievement of strong like for like pricing gains.
Speaker Change: Given our better than expected first quarter performance, we are raising our full year constant currency sales growth guidance to 5% to 7%, while adequately accounting for U S policy developments in the academic and government end market.
Speaker Change: Our adjustment to AMG growth expectation represents a 50 basis point impact on our full year growth outlook.
Speaker Change: But incremental price accretion from <unk> related actions separately expected to contribute an equivalent 50 basis point tailwind as such our growth assumptions for the rest of the year remain unchanged.
Speaker Change: I'll now talk about the current tariff situation and how waters is positioned to meet the challenges from recent global trade policy changes are.
Speaker Change: Our manufacturing footprint is highly globalized and it includes a strong existing U S presence a significant portion of our ex U S. Manufacturing also takes place in jurisdictions subject only to the lower baseline tariff rate.
Speaker Change: We also do not have a significant tariff exposure the goods entering the U S from China or vice versa.
Speaker Change: After the tariffs were announced we quickly stood up a cross functional task force to assess static exposure and implement mitigation plans, we rapidly assess the impact of that tariff exposure and implemented supply chain adjustments selective judge surcharges for tariffs and limits for discretionary spending.
Speaker Change: Thanks to our Swift and decisive actions, we are well positioned to limit the net impact of the newly announced status to a modest $10 million on our 2025 adjusted operating margin effectively offsetting the majority of a $45 million gross impact.
Speaker Change: Within our EPS, the combined resulting effect of that is in U S. Policy changes is fully offset by favorable foreign exchange movements.
Speaker Change: As a result that has no net impact to our original earnings per share guidance.
Speaker Change: Reflecting our first quarter outperformance, we are raising our full year 2025 of adjusted EPS guidance to a range of $12 75 to $13 five.
Speaker Change: This translates to approximately 8% to 10% EPS growth or 10% to 12% on a constant currency basis now I will pass the call over to AMOLED to cover our financial results in more detail and provide further details on our guidance.
AMOLED: Thank you Luke and good morning, everyone.
AMOLED: For the first quarter, we delivered sales of $662 million up 4% on a reported basis and 7% in constant currency, placing us at the high end of our guidance range.
AMOLED: Orders growth exceeded sales growth underscoring our strong momentum.
AMOLED: By end market pharma grew 8% industrial grew 6% and academic and government grew 3%.
AMOLED: While most of our double digit growth in Asia, and the Americas and 3% growth in Europe.
AMOLED: Industrial was led by Waters' Division, which grew high single digits, driven by <unk> applications growing more than 90%.
AMOLED: The instruments continued to benefit from battery testing demand.
AMOLED: We do not get moved from Goldman as well Rick highlighted China grew double digits as we continue to leverage our local market presence.
AMOLED: Regionally Asia grew 13% with China growing 5%.
AMOLED: <unk> grew 6% and Europe grew low single digits.
AMOLED: By product line instrument sales grew 11% driven by mid teens growth in both liquid chromatography and mass spectrometry.
AMOLED: Recurring revenues grew mid single digits as expected given the two fewer days in the quarter.
AMOLED: Customer activity remains strong and install base utilization remains high.
AMOLED: Our consistent results supported by our commercial initiatives in service plan with Dutchman E Commerce adoption and the launch of new bio separations columns.
AMOLED: Overall, the first quarter of execution was strong across markets regions and product lines.
AMOLED: Resilient growth exposure positions us well for the remainder of the year.
AMOLED: Now I will comment on our first quarter non-GAAP financial performance.
AMOLED: Earnings per share reached $2 25 since coming in at the high end of guidance supported by robust sales volume and an improvement in FX rates.
AMOLED: This represents 2% reported growth and.
AMOLED: 7% growth in constant currency.
AMOLED: GAAP earnings per share were $2 <unk>.
AMOLED: Gross margin came in at 58, 2% and adjusted operating margin came in at 25, 5% consistent with our expectations.
AMOLED: Our operating tax rate for the quarter was 16% and our.
AMOLED: Average diluted share count was $59 7 million trips.
AMOLED: Turning now to free cash flow capital deployment and our balance sheet.
AMOLED: First quarter free cash flow was $234 million after funding $26 million of capital expenditures.
AMOLED: This represents 35% of first quarter sales and our free cash flow to adjusted net income ratio of 174%.
AMOLED: Our strong free cash flow generation allowed us to rapidly delever our balance sheet.
AMOLED: In the first quarter, we reduced debt by approximately $170 million.
AMOLED: Net debt position is now approximately $1 1 billion returning to pre wire acquisition levels.
AMOLED: This resulted in a net debt to EBITDA ratio of roughly one times.
AMOLED: We maintain a strong balance sheet access to liquidity and well structured debt maturity profile with strength allows us to prioritize investing in growth.
AMOLED: We continue to actively evaluate M&A opportunities that will enhance long term shareholder value.
AMOLED: Additionally, we will assess the potential resumption of our share repurchase program during the course of 2025.
AMOLED: Now I will share further commentary on our full year outlook and provide you with our second quarter guidance.
AMOLED: While this is a unique and resilient revenue profile anchored by our focused exposure to downstream high volume applications.
AMOLED: Within these segments, we're recovering somewhat capex spending has remained robust.
AMOLED: Additionally, customer manufacturing needs continue to evolve with potential for additional investments in new capacity driven by tariff related capacity shifts and U S. Walmart re shoring initiatives, which is not included in our guidance.
AMOLED: We continue to execute well with our revitalized portfolio, particularly as instrument replacement gained further momentum.
AMOLED: We also expect to sustain contributions from idiosyncratic growth drivers and strong like for like pricing gains.
AMOLED: We are raising our full year constant currency sales growth guidance to 5% to 7%, reflecting our better than expected first quarter performance, while adequately accounting for our recent U S policy developments in the academic and government end market.
AMOLED: U S LNG customers account for approximately 3% of our total revenue, making it a relatively modest part of our business as part of our disciplined approach to forecasting.
AMOLED: <unk> adjusted our outlook for this segment by $50 million to reflect recent market developments.
AMOLED: While this adjustment represents 50 basis points to our full year growth outlook incremental pricing accretion from tariff related actions.
AMOLED: Separately expected to contribute 50 basis points of tailwind.
AMOLED: As a result, our growth assumption for the remainder of Breo remains unchanged.
AMOLED: We are also raising our reported sales growth guidance to a range of 4% to 6%.
AMOLED: Selecting a strong momentum in the first quarter plus recent tailwind from FX rate assumptions.
AMOLED: Turning now to the current impact of status.
AMOLED: You did outline.
AMOLED: Swiftly to limit the net impact of the announced startups to a modest $10 million on our adjusted operating margin for 'twenty to 'twenty five.
AMOLED: Approximately 80% of our gross $45 million exposure relates to finished products manufactured in the U K, Singapore, and Ireland for U S operations as well as raw materials imported to support U S manufacturing.
AMOLED: Remaining 20% despite to the trade between the U S and China.
AMOLED: Approximately $8 million of automated exposure and $39 million of our bras exposure relates to the second half of 'twenty to 'twenty five.
AMOLED: To respond quickly and decisively we established a cross functional task force that immediately mobilized to assess risk implement mitigation strategies and safe Golar financial objectives.
AMOLED: Thanks to the teams that are productions, including targeted supply chain adjustments select new surcharges and disciplined discretionary spend management, we have substantially mitigated this impact.
AMOLED: While incremental pricing actions related to Brazil.
AMOLED: Brazil's profit very impact on the reported margin percentage differs.
AMOLED: Accounting for the modest impact of Paris, together with the incremental favorable benefit of foreign exchange rates remodel, we expect our full year to MP 25, gross margin to be approximately 59% and our adjusted operating margin to be approximately 31% in both cases this reflects a margin.
AMOLED: Percentage that is roughly in line with our 'twenty 'twenty four levels.
AMOLED: Below the line, we now expect full year net interest expense to be approximately $40 million, reflecting better than expected debt paydown in the first quarter.
AMOLED: Our guidance assumes average diluted share count remains at approximately $59 7 million chips.
AMOLED: We continue to anticipate full year tax rate of around 16, 5% in line with last year.
AMOLED: Consequently, we are raising our full year 'twenty 25, EPS guidance to account for better than expected first quarter performance, while absorbing the full impact of tariffs on U S policy changes without any degradation to our.
AMOLED: Iron ore mix expectations.
We now expect full year 2020, adjusted earnings per fully diluted share to be in the range of $12 75.
AMOLED: To $13 <unk> includes.
AMOLED: Inclusive of all tariff impacts.
AMOLED: This is approximately 8% to 10% growth and 10% to 12% on a constant currency basis.
AMOLED: Our guidance accounts for announced out of seller currently enacted in dose schedule for after the 90 day parts.
AMOLED: Turning to the second quarter of 2025, we expect constant currency sales growth of 5% to 7%.
AMOLED: Net of currency translation reported sales growth is expected to be in the range of 4% to 6%.
AMOLED: For EPS, we anticipate our second quarter non-GAAP earnings per fully diluted share to be in the range of $2 88.
AMOLED: And $2 98 sets. This represents approximately 10% 13% reported EPS growth.
AMOLED: 12% to 15% growth on a constant currency basis.
AMOLED: With that I will hand, the call back to Dave for closing comments. Thank.
Speaker Change: Thank you so in summary, our first quarter results reflect excellent momentum and reinforce our confidence in both the recovery of the instrument market and the steady growth of our recurring revenues.
Speaker Change: <unk> from a position of strength anchored by resilient sources of growth and a revitalized portfolio that continues to come on strong pricing. We remain firmly on track to achieve our 2025 objectives. Despite the currently that the recently announced status and no expected impact to our original EPS expectations for the year.
Speaker Change: Our commitment to operational excellence financial discipline, and rapid execution continues to deliver solid outcomes and create value for our shareholders. We're energized by our progress confident in our positioning and immensely proud of our team who have been instrumental in achieving these strong outcomes. So with that I will turn the call back the castle.
Speaker Change: That concludes our prepared remarks, we are now happy to open the lines and take your questions.
Speaker Change: We will now begin Q&A, if you'd like to ask a question. Please use the raise your hand feature at the bottom of your screen.
Speaker Change: Dialed in by phone press star nine to raise their hand and star six ton mute. Please accept the pump and then your audio when called upon as.
Speaker Change: As a reminder, we are allowing one question and one follow up so we will wait a moment to allow the key to form.
Speaker Change: Our first question will come from Jack Meehan with Nephron. Your line is open. Please go ahead.
Jack Meehan: Thank you good morning.
Jack Meehan: Good morning, Josh.
Jack Meehan: Wanted to start talk a little bit more about the replacement cycle dynamics that youre seeing called out in the script that it's still ramping.
Jack Meehan: Can you just talk about the different customer classes within pharma biotech.
Jack Meehan: What youre seeing there and then for a mall.
Jack Meehan: Within the 2025 guide now.
Jack Meehan: Is there any update to what your forecast was for instruments.
Jack Meehan: So Jack good morning, and thank you look.
Jack Meehan: Instruments performed extremely strongly in Q1 came in ahead of expectations right, so double digit growth drill.
Jack Meehan: Driven by both LC and mass spec.
Jack Meehan: Rowing in the mid teens now your question is around the replacement cycle in pharma in particular.
Jack Meehan: LC and pharma also grew in the mid teens really really strong growth.
Jack Meehan: The growth was led by large pharma very I'll remind you that our focus is on late stage.
Jack Meehan: The late stage resilient applications, and QC and manufacturing in the genetics segment, so large pharma Jeanette.
Jack Meehan: Genetics, and <unk>, which is about 75% of our pharma business all grew in double digits. So the replacement cycle as well and truly underway. The funnel is quite strong.
Jack Meehan: And our customers are really responding well.
Jack Meehan: Both in Greenfield and brownfield opportunities to the alliance I S.
Jack Meehan: Making making a state building.
Jack Meehan: Building, a state that as well.
Jack Meehan: On the 2025 guide.
Jack Meehan: The only change for the remainder of the year. The amount of guide is mainly around the U S. <unk> business, it's a very small portion of our business like 3%.
Jack Meehan: What we've done is we've proactively meaningfully derisk started U S. LNG forecast. So we've prudently assumed 20% decline for U S. LNG for the rest of the year, which brings our overall <unk> for the full year to a mid single digit decline for the full year.
Jack Meehan: And that creates a 50 basis points topline headwind now separately, our selective surcharge actions on barriers added about 50 basis points on the top line and so for rest of the year metals too there is more impact.
Jack Meehan: That's roughly the guide change.
Jack Meehan: Alright.
Jack Meehan: One follow up in the pharma biotech customer class.
Jack Meehan: Have you seen any change in behavior related to tariffs like specifically from what you can tell was there any pull forward in the first quarter or have you seen any increase in ordering in the second quarter just around.
Jack Meehan: Customers positioning around tariffs any color on that would be great.
Jack Meehan: So really no change in behavior, Jack at all right. The funnels are quite strong I mean, we've seen momentum through the quarter.
Jack Meehan: So really no change in behavior in terms of the tariff impact on pharma itself look.
Jack Meehan: Just like us the pharma customers are spending time thinking through what actions. They would take if tariffs were implemented on their products and just like us they are thinking through supply chain modifications.
Jack Meehan: And you must have read sort of the over 160 billion commitment that many of the large pharma players have made to <unk> in the U S. We're very well positioned with all of them and if and then if and when that comes we are sure to benefit from it. It's not included in our guide, but seeing absolutely no change on the replacement.
Jack Meehan: The replacement dynamics.
Jack Meehan: In in large pharma in particular now I just wanted to take the opportunity also to take a step back we're getting caught up in sort of the small the changes that are occurring every single day.
Jack Meehan: The pharma industry remains one of the most attractive end markets look I've spent close to 30 years of my career at half of it in pharma and half of it.
Jack Meehan: Serving pharma to the life science tools into stream.
Jack Meehan: And I can tell you.
Jack Meehan: Innovation has never been stronger.
Jack Meehan: Is there to meet the needs of an aging population both in both on the acute and chronic side.
Jack Meehan: So we feel very good about our position in India.
Jack Meehan: In serving the pharma industry as we together work to getting the benefits of this pioneering science to many many many customers in need so very very positive about the long term prospects of pharma, but in the short term really no change in dynamics on the replacement cycle.
Speaker Change: Our next question will come from Tycho Peterson with Jefferies. Your line is open. Please go ahead.
Tycho Peterson: Hey, thanks.
Speaker Change: Congrats on a corner wanted to probe into price I don't think I've ever heard you guys used pricing so much on an earnings call. So maybe talk a little bit about what.
Speaker Change: Youre expecting on pricing this year, where youre seeing the greatest ability to push price.
Speaker Change: And you are not at all concerned about pharma pushing back.
Speaker Change: On pricing that does seem to be one of the things we're talking about in response to tariffs is leading on their own suppliers.
Speaker Change: Yes, so look I mean.
Speaker Change: Q1, we did 200 basis points of like for like price as you know we don't include upsell in our price.
Speaker Change: Embedded in our previous guide and also in this guidance excluding.
Speaker Change: 200 basis points of like for like pricing gains.
Speaker Change: Doing selective.
Speaker Change: Surcharges associated with tariffs and they are going to contribute about 15 million or 50 basis points incremental to this 200 basis points of like for like pricing gains.
Speaker Change: And what is embedded in other lifestyle.
Speaker Change: In terms of your second part the second part of your question on pushback from pharma look I mean, we've.
Speaker Change: We've had very close collaboration with our customers as far as a 200 basis points on innovative products is concerned I mean, thats always sort of welcome if you're introducing new products as far as the data surcharges concern that's been conversation that's been conversations with one by one with customers and we track the stick right on a daily basis and I will.
Speaker Change: Say between $80 to 90% customers have fully understood. What we're trying to do with 10% you have to have a debate and explain the reasons why and what box, but we're very confident on both the 200 on the on the driven by the product differentiation and the addition of 50 basis points that is a surcharge due to the tariffs.
Speaker Change: Okay, and then a follow up on India. This is acumen, a nice growth driver you've got some tailwind heading into 2006.
Speaker Change: We've seen a good time moving over there how do you think about maybe longer term risks around that business with manufacturing moves more onshoring.
Speaker Change: Do you think thats, what youre seeing there is sustainable.
Tycho Peterson: Yes, it's a good question Tycho look I mean, just like the innovative pharma industry genetics have a strong role to play in relieving funding for reinvestment and innovation in India has played a strong role in supplying genetics to the rest of the world like our large pharma customers customers Indian genetics companies also have.
Speaker Change: <unk> global footprint right and they're in.
Speaker Change: In a very straightforward way able to resolve it in other geographies none of them have initiated any of those discussions, but I think if if if at all that our data is they will again look at it the same levers that we have our large pharma companies.
Speaker Change: <unk> supply chain adjustments and we're we're ready and we have the best relationships with them to help them navigate through it now that said results in India again, we're close to 20% 20.
Speaker Change: 20% constant currency growth and we're extremely proud of the team in India that is taking.
Speaker Change: New innovative products and really embedding them in the genetics value chain.
Speaker Change: Our next question will come from Puneet <unk> with Leerink. Please go ahead.
puneet: Yes, hi.
Speaker Change: More cost for thanks for taking my questions here.
puneet: First one on the <unk>.
Speaker Change: Tariffs and supply chain realignment side.
Speaker Change: Can you elaborate on what's already completed and what remains to be in terms of supply chain realignment in terms of wilmslow, Singapore versus U S and what remains to be optimized and then.
Speaker Change: Is are the LC and mass specs affected by the IP domicile ing and transfer pricing issues that affect the API for the drugs are you largely not impacted from that and a follow up thank you.
Speaker Change: We also appointed a couple of things I'd like to look at the gross impact is 45 million.
Speaker Change: Most of that shows up in the second half of the year, primarily because in Q2, you have some inventory, but our teams did an excellent job of spring.
Speaker Change: Bringing more inventory and stockpiling before the deadlines and that partly is also the reason why the costs associated with that was the drug on our Q2 gross margins.
Speaker Change: But then sort of second half is pretty clean and can be extrapolated into the future within that if you say you're within the 45 roughly $15 million is offset with surcharges roughly $14 million is manufacturing cost actions.
Speaker Change: Bella largely.
Speaker Change: On the lending mode I mean, the auctions that we have embedded in our guidance pretty much on the lending more at this point, so we feel pretty comfortable there and roughly $6 million is discretionary spend management.
Speaker Change: In terms of your other question on IP and so it does affect ride because at the end of the day, where you are manufacturing.
Speaker Change: How will it be there. So you are bringing the product into another domicile other certain transfer price you can change those transfer prices really easily without sort of moving.
Speaker Change: The IP in the first place so the $45 million exposure on that can you outline includes all of that impact in it.
Speaker Change: Again automotive moves sort of planned that will go live at the beginning of next year, which will allow us to completely offset the impact as we go into 'twenty six symphony just one embellishment toward them all as said look.
Speaker Change: None of this stuff happens automatically.
Speaker Change: And I think you are used to us reacting rather rapidly to chantal to a changing and challenging environment and many of you had the chance to meet our team at our Investor Day. I mean, these are folks who are extremely dedicated.
Speaker Change: To assessing the problems on a daily basis, we meet daily <unk>.
Speaker Change: Developing solutions and implementing them implementing them rapidly.
Speaker Change: And we continue that cadence on a daily basis, and I am extremely thankful for the dedication of the team to be able to offset.
Speaker Change: 35 out of the 45, gross and gross and $35 million impact 45 million impact that we saw for the full year.
Speaker Change: That's great. Thanks for all the details.
Speaker Change: My follow up.
Speaker Change: You're indeed outperforming significantly versus the peers.
Speaker Change: And that comes to the differentiation of what water says its products to quality and where it's situated in the pharma.
Speaker Change: <unk> the pharma.
Speaker Change: Customers.
Speaker Change: I'm wondering can you talk to them.
Speaker Change: Take a minute and talk about how the pharma customers in the U S.
Speaker Change: In Europe versus the pharma customers in India are thinking about in this macro environment I think the questions are still about the second half and the confidence of these pharma customers and your positioning there.
Speaker Change: That helps you gives it gives you the confidence to raise the guide and see outperformance in the second half as well.
Speaker Change: Could you elaborate a bit on that because obviously, we're not seeing this from the rest of the industry.
Speaker Change: Thank you for the question and the opportunity to comment on this rather important topic look waters.
Speaker Change: As you as you know it positioned extremely well downstream in high volume applications, where regulations are key and we've made that are home, we've been executing that executing in that domain extremely well.
Speaker Change: Now we are at the beginning of the replacement cycle, which helps our instrument growth and you saw double digit instrument growth already in Q1, we're not seeing any slowdown in replacement discussions with our large pharma customers are genetics customers at our CMO customers all of which are continuing to grow in in mid teens right. So.
Speaker Change: We grew in pharma high single digit. These three segments are growing in the double digits right. So driving the growth and they are a large part of the story is the replacement the replacement cycle now as you look at each of these different segments I commented earlier as well.
Speaker Change: Not only is the funnel is strong the conversations are extremely strong and as they think about navigating the complex macro environment, they're talking to us about changing of their manufacturing footprint different supply chain reconfiguration and given our relationships with these customers we stand to benefit from it and that gives us the confidence.
Speaker Change: To raise the full year guide given the outperformance in Q1 pharma is a large part of that story.
Speaker Change: Our downstream presence our innovation, which is meeting these unmet needs the focus on idiosyncratic growth drivers like <unk> testing.
Speaker Change: Like the India genetics outperformance like the focus on biologics is all helping so really excited about what we're seeing from our customers and their focus on ensuring that they play a strong role in getting safe medicines to people and we have a strong role to play there.
Yeah.
Speaker Change: Our next question will come from the line of Catherine Schulte with Baird. Your line is open. Please go ahead.
Speaker Change: Hey, guys. Thanks for the questions and maybe just what are your expectations for China for the balance of the year are you seeing any hesitation in customer spend there and then what are your latest assumptions for 10 years.
Speaker Change: Good morning, Katherine and thank you for the question look China came in ahead of expectations around 5% growth for the for the first quarter.
Speaker Change: And this was driven by a strong performance in stimulus related stimulus related opportunities in the academic and government segment, where we're benefiting from our wider distribution as well as localized footprint and equally benefiting from RTA portfolio, which did extremely well in the back.
Speaker Change: <unk> testing arena so.
Speaker Change: So <unk> actually came in came in double digits for <unk>.
Speaker Change: For China for the start of the year now as we look at the balance of the year, we've assumed that China basically remains stable at a low single digit growth. So we've just taken it down from the 5% growth in Q1, we've assumed that it is low single digit growth and any wins in the balance of the stimulus will be considered upside right.
Speaker Change: So basically low single digit for the balance of the year, even with a strong start.
Speaker Change: For the year, so a bit of prudence built in there.
Speaker Change: Q1 was consistent right, even if you exclude the stimulus we were relatively flat and we have a strong local presence that is executing really well on not just the stimulus, but the broader business, which reflects in our overall number.
Speaker Change: Great and then maybe a follow up on re shoring is how do you think about that as a potential tailwind and how long. After some of these capacity announcements do you typically see the demand coming for you.
Speaker Change: Products and he said it is in 2025 guidance, but just curious how you think that falls out from a cadence perspective.
Speaker Change: But got to and it's early days I mean, these are just being announced we are in close conversation with all our customers nobody yet has.
Speaker Change: Detailed plans on exactly what theyre going to do and as they emerge we expect to clear play a strong role given.
Speaker Change: Our focus is and it remains on late stage or marketed marketed compounds, which is where a lot of these capacity expansions will come to support existing products.
Speaker Change: Feel very confident about our position, but it's early days, there's not a lot of detail on exactly where these manufacturing facilities and they put up across the U S.
Speaker Change: Having a service organization with the best NPS scores really puts us similar drivers trade because they are part of <unk>.
Speaker Change: All of these conversations around tech transfers and slight movements, but as Rick alluded like Marc This is converted into orders none of this isn't a guy with a multipoint is an excellent one look I mean the service team is the first wanted to find out when you were opening up a new manufacturing site customers wanted to be sure that.
Speaker Change: The software is transferred appropriately the methods of our transport appropriately and the new products that the new instruments at their purchases.
Speaker Change: Really sync up with the software as well as with their other sites. So when if and when it starts we will be one of the first to find out.
Speaker Change: Okay.
Sung Nam: Our next question will come from sung <unk> Nam with Deutsche Bank. Please go ahead.
Sung Nam: Hi, Thanks for taking the questions I'll just ask one at a multi parter on academic, especially U S academic.
Sung Nam: Obviously, it's a very small percent of the revenue, but could you remind us kind of what is the latest number for that in terms of your exposure.
Sung Nam: And then also curious kind of what Youre seeing on the ground. Currently are you are you actually seeing meaningful weakness.
Sung Nam: On your customer base, and then lastly, with all of the structural changes structural changes that are being proposed are there opportunities for water on to kind of actually take advantage in terms of.
Speaker Change: Future opportunities as an academic I ethylene.
Speaker Change: I'll start and then I'll pass it onto a mall look.
Speaker Change: Youre right in academia and government is the smallest end market for us.
Speaker Change: So we are not really reflective of exactly what's going on in that segment as many of our peers might be.
Speaker Change: The U S portion of that is roughly three ish percent now ironically the start to the year was was excellent site that segment grew double digits, driven by DFAST testing and department of defense orders site, so starting to here with a double digit growth.
Speaker Change: As a mall pointed out in the prepared remarks, we've assumed a significant decline for the balance of the year like the year started with double digit growth, but for the rest of the year. We've said, it's going to go down by 20% I'm already on a build and look Q1 was double digit growth for the rest of the year I mean, it's a full year $90 million of rest of the year of $70 million business for us.
Speaker Change: So really small in grand scheme of things.
Speaker Change: We've got no meaningful head count of 15 million to it which is assuming the rest of the year is minus 20%.
Speaker Change: It's prudent.
Speaker Change: Just be risking and we'll see how it plays out.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Brandon Couillard with Wells Fargo. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: The PFS business.
Speaker Change: Accelerate quite a bit here in the quarter talking to a new high up 90% is there any timing benefit in that growth rate. What are you assuming for the year and maybe just unpack that acceleration both of course, yeah. So some really happy with the performance on P fast testing Brandon and thanks for the question look.
Speaker Change: We've gone from strength to strength I'll remind you that for the last two years that business has grown 40% each year. So it's not a one quarter phenomenon and this quarter. It grew 90% across the food and environmental segment, but also academia, especially in the United States.
Speaker Change: We did not see any semblance of a pull forward on that right as we brought the <unk> absolute remains.
Speaker Change: The.
Speaker Change: <unk> of choice and.
Speaker Change: The funnel is extremely strong on the food and environmental side in.
Speaker Change: And for the balance of the year not just in the U S. But in other geographies and recently the despite sort of moved towards deregulation across many different segments DFAST has the opposite.
Speaker Change: The trend going for it right. So on April 28, the EPA announced 21 measures to comeback be fast pollution. So this includes of.
Speaker Change: Of course, aligning PFS across many agencies, but in no small part limiting the effluent the effluent.
Speaker Change: Fashion effluents for metal finishers, and other and other customers and equally ramping up the development of testing methods to improve detection and strategies to address the fast rate. So this is not a one time event and we are seeing even more focus from the EPA on implementing.
Speaker Change: Degradations and asking for even better detection methods and the reason I went off went on that diatribe is to illustrate.
Speaker Change: The need for the more sensitive instrument in the industry and Thats, where the <unk> absolute continues to do extremely extremely well.
Speaker Change: Okay. That's helpful.
Speaker Change: Follow up.
Speaker Change: Balance sheet is in great shape, net debt's down to back where it was.
Speaker Change: Acquisition, what's your appetite for another $1 billion plus deal or maybe even something more transformative and do you expect the macro volatility to actually lead to more assets, becoming available perhaps a more attractive valuations.
Speaker Change: So Brandon Thanks for the question look why it is a poster child for an acquisition.
Speaker Change: Strategic fit has been excellent and it's played out exactly like we thought it has helped us build our bioanalytical business with which we wanted to continue to continue to build on second we committed to taking light scattering into QA QC as of this morning, we announced that light scattering is now compatible.
Speaker Change: That is the Wyatt instruments are compatible with empower which allows our customers and many of whom have been talking to us about this too.
Speaker Change: To take light scattering into QA QC.
Speaker Change: Basically posthaste.
Speaker Change: So this is a significant opportunity now don't ask me to quantify it I will not do it today and.
Speaker Change: And we will look at the facts.
Speaker Change: <unk> after they are after they are at.
Speaker Change: After the sales are consummated, but extremely excited about what we've seen with via and yes. If we find other acquisitions like why are there are several in the pipeline and valuations have have become a lot more reasonable.
Speaker Change: We would go for it but again.
Speaker Change: As <unk> said, many many times.
Speaker Change: The strategic fit and the financial financials don't make sense.
Speaker Change: We will resume our share buybacks.
Speaker Change: Okay.
Speaker Change: Our next question will come from Vijay Kumar with Evercore ISI. Please go ahead.
Vijay Kumar: Good morning, and thanks for taking my question and congrats on a nice sprint here.
Vijay Kumar: Maybe on instruments here.
Vijay Kumar: Q1.
Vijay Kumar: Very pleased with double digit growth.
Vijay Kumar: <unk> guidance I think this year.
Vijay Kumar: Something like.
45% to hit the midpoint of the guidance.
Vijay Kumar: Is your instrument outlook changing how should we think about <unk> and balance of the year on instrument growth.
Vijay Kumar: So the Jay good morning, and thank you for the question, Yes, I mean, great start to the year with instruments double digit growth, both LC and mass spec in the mid teens.
Vijay Kumar: And you look at the guidance for the balance of the year.
Vijay Kumar: We've raised it but it's basically 5% to seven 5% to 7% and our guidance philosophy has not really changed.
Vijay Kumar: Regarding revenues basically taken the high end of the guidance of 6% to 7% and for the balance of the year, we don't see any issues with the number of days in the quarter right search of land between six and 7%. In fact, there is an extra day in the fourth quarter, if I'm not wrong.
Vijay Kumar: So 6% to 7% on the high end, bringing into high end, which is 60% of the business instrument. We are still assuming roughly five ish percent right in such a dynamic environment. We think we will get constructive as the year goes along great start.
Vijay Kumar: Funnel, both LC and mass spec doing well with the replacement cycle fully underway new products, making a difference idiosyncratic growth drivers doing doing what theyre supposed to do and according to our predictions, but we still want to have sufficient level of prudence in the guide so we've assumed roughly 4% to 5% instrument growth for the balance.
Vijay Kumar: And largely unchanged for the rest of the year other than the.
Vijay Kumar: Meaningful downsizing of U S LNG.
Vijay Kumar: That's helpful and maybe one quick follow up on.
Speaker Change: I'm all for you share kind of assumptions went up a tad versus prior guidance.
Vijay Kumar: Curious why why.
Vijay Kumar: No buyback assumptions within the guide.
Vijay Kumar: Yes, I mean, its net neutral versus the previous guide we took down our interest expense assumptions. When we took up our share count assumptions, but when you net net.
Vijay Kumar: Neutral on EPS.
Vijay Kumar: Our next question will come from Mac Sykes with Goldman. Please go ahead.
Mac Sykes: Hi, good morning, Thanks, taking my questions.
Mac Sykes: Maybe just the first one sort of a high level question for you that when you look at sort of the commercial exposure you have is clearly where you want to be in this current market environment, but just given all the challenges, we're seeing sort of more upstream and research given your lower levels of exposure. There does this make you want to take advantage of the environment.
Mac Sykes: Perhaps invest a little bit more on upstream either organically or inorganically or are you fairly content with remaining sort of commercial for this time being just given the macro uncertainty.
Mac Sykes: I think.
Speaker Change: Matt first good morning.
Speaker Change: We're really happy with our commercial exposure as you as you pointed out.
Speaker Change: And I think the fact that we have.
Speaker Change: High volume applications in a in a recurring setting which are regulated I mean plays to our strength and Theres a lot to do here right. I mean, there's a lot more to do with the hand that we have rather than thinking about the hand, we should have we should get.
Speaker Change: Many examples right I mean, this morning, we announced.
Speaker Change: And that we're taking light scattering into QA QC with empower I mean several of you ask that question.
Speaker Change: In the past and we are finally here there is a lot more to do this right. We want to we want to continue to develop new products that go and.
Speaker Change: <unk> with empower as our primary highway to do so.
Speaker Change: When you look at instruments right I mean, I think back when I joined the company five years ago people thought about LTE is a commoditized segments, especially for small molecules value introduce alliance.
Speaker Change: Customers respond to innovation look at EQ absolute right I mean, the most sensitive mass spec in the in the industry and that's benefiting from the PFS testing. So there is a lot to do where we are.
Speaker Change: And our focus remains squarely on high volume applications and equally not to lose focus on battery testing on clinical there is a lot lot to do here, Matt so not really getting distracted.
Speaker Change: With either other areas at this point.
Speaker Change: Thank you and then just a follow up just on services that came in a little bit later than what we were expecting is this just a.
Speaker Change: Natural output of just having a very high instrument placement growth.
Speaker Change: Yes, I mean look we have two less days, so that accounts for roughly 2% lower growth. But then we also had lower purchases of parts from third party service providers.
Speaker Change: People, who also serves as our instruments and that was a little bit of the drag on our service revenue for the quarter.
Speaker Change: Our next question will come from the line of Dan Arias with Stifel. Please go ahead.
Dan Arias: Thanks for the question.
Dan Arias: Can you just touch on Ta for the quarter, 1% growth was a bit lower than I think where the street was but industrial was awarded.
Dan Arias: But what are the moving parts there.
Dan Arias: Gets you from one to the other and then what's going on from a product and customer standpoint, and then along those lines, what's the outlook on the cyclical side of the business.
Dan Arias: Look sedan gender.
Dan Arias: Generally very pleased with with da overall right I mean, it's a heavy instrument business. So it can be quite lumpy.
Dan Arias: But that said, we did extremely well on battery testing, especially out of China, which grew double digits.
Dan Arias: The U S came in a bit lighter than we had than we had initially initially hoped but that is basically timing of different orders. So really pleased with where the da businesses and again this <unk>.
Dan Arias: This morning, we announced a couple of new launches in the VA business focused on polymer testing material testing and equally on helping our battery testing customers. So really happy in general would that business I think it is just lumpy and so youll see it go up and down quarter on quarter I wouldn't pay too much attention to it.
Speaker Change: Okay. Thanks for that.
Speaker Change: Just as a follow up and I realize it's getting pretty specific but is there anything that you can say about mass spec and biopharma and the reason I asked just because it's very clear that <unk> is helping healthy EMS pretty pretty significantly so.
Speaker Change: You just kind of curious what the market for instrumentation beyond LCA looks like if you look at your core Biopharma markets.
Speaker Change: Yes, it's a great question and thank you for the opportunity to comment on it.
Speaker Change: If you come up with a sensitive instrument that is easy to use and customers like it of course, there are benefits in other segments and then the drug metabolism segment is one such segment, where historically waters has not has had a strong presence and largely due to due to limitations in our software we've worked really hard on improving the waters.
Speaker Change: Connect software to make it simple to use.
Speaker Change: To make it reliable from a regulatory standpoint, and several customers are testing that and so we're starting to see some traction in the <unk> segment, both in large pharma, but equally in mid size zeros and I will stop there and not comment on it any more for competitive reasons, but that said.
Speaker Change: Very happy with what the team has been doing and taking a highly sensitive instrument not just to for DFAST testing into into drug metabolism for pharma and also into clinical where mass spec is starting to play an increasingly important role in diagnostic testing.
Speaker Change: Yeah.
Speaker Change: Our final question will come from Dan Brennan with TD Cowen. Please go ahead.
Speaker Change: Dan Your line is open please feel free to our needs.
Dan Brennan: Sorry about that can you hear me I apologize.
Speaker Change: Thank you guys. Good question earlier, but I just wanted to go back to that but if you could just split what what are you seeing from pharma now like as they contemplate possible tariff later in the year.
Speaker Change: They are trying to accelerate orders now is that the benefit may be in the first half of the year. I think you didn't see I think you said in Ginnie impact in the first quarter the Jack's questions.
Speaker Change: Just wondering if theres any kind of change in activity, what you're seeing from that customer base.
Speaker Change: <unk>.
Speaker Change: Same as I said, then earlier no no change at all right. I mean, this is basically driven by the replacement cycle. The growth is driven by the replacement cycle traction of alliance and they can go customer by customer.
Speaker Change: And seeing significant benefit the benefit of our downstream presence.
Speaker Change: And that of course gets compounded if you look at our focus on <unk> testing look at genetics look at the growth in <unk>. So.
Speaker Change: Customers that are downstream that have high volume applications are continuing to replace instruments. This is across genetics, <unk> and pharma, which is over 75% of our of our pharma sales. So no real no real pull forward that we can see.
Speaker Change: Yeah.
Speaker Change: Great and then just beyond the QA QC QA QC product portfolio excuse me can you talk about mid teens growth in the rest of the pharma a little bit slower just whats happening like in discovery and development, even though it's a smaller part of the business just wondering what you're seeing there. Thank you. So continued pressure then I mean like we also commented earlier continued pressure on biotech.
Speaker Change: On drug discovery and pharma research.
Speaker Change: And I think these are segments.
Speaker Change: That will recover down down the line, but for now we see we see continued pressure on those segments. So drug discovery pharma research and Seattle, All three are still under pressure.
Speaker Change: But again I'll remind you that's less than 20% of our overall business.
Speaker Change: Our overall pharma business.
Costar: And this concludes the Q&A portion of the call I will now hand, it back to Costar.
Speaker Change: Thank you Leila I will hand, it over to <unk> to deliver our closing remarks.
Speaker Change: Thank you again for joining us on the call today, we had a wonderful start to the year. Thanks to the focus on downstream high volume applications driven by the momentum in the replacement cycle game, changing new products as well as our idiosyncratic growth drivers I want to thank our team who has risen yet again to meet another set of challenges solving problems on a daily basis.
Speaker Change: Collaborating closely with each other and with our customers.
Speaker Change: Coming up with creative solutions in real time, and implementing them with excellent. Thank you for supporting waters and the indomitable spirit of our colleagues.
Speaker Change: This concludes our call we look forward to connecting with many of you at upcoming events and conferences.
Speaker Change: Yes.