Waters Corporation

to the Waters Corporation first quarter 2023 financial results conference call. All participants will be in a listen only mode until the question and answer session of today's call. This conference call is being recorded. If anyone has any objections, please disconnect at this time. It is now my pleasure to turn the call over to Casper Trudeau, head of investor relations. Sir, please go ahead.

Thank you, Brad. Good morning, everyone, and welcome to the Waters Corporation first quarter earnings call. Today, I'm joined by Dr. Udit Batra, Waters President and Chief Executive Officer, and Amol Charbel, Waters Senior Vice President and Chief Financial Officer. 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. In particular, we will provide guidance regarding possible future results and commentary on potential market and business conditions, including with respect to the close of the WIAT transaction that impacts Waters Corporation over the second quarter of 2023 and full year 2023. These statements are only our present expectations and actual events or results may differ materially. For more details, please see the risk factors included in our most recent annual report on Form 10-K, are Form 10Qs and the cautionary language included in this morning's earnings release. During today's call, we will refer to certain non-GAAP financial measures, including in our discussions of the results of operations. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are attached to our earnings release issued this morning and in the appendix of our presentation, which are available on the company's website. Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the first quarter of fiscal year 2022. In addition, unless stated otherwise, all year-over-year revenue growth rates and ranges given on today's call are given on a comparable constant currency basis. Finally, we do not intend to update our predictions or projections except as part of a regularly scheduled quarterly earnings release or as otherwise required by law. Now, I'd like to turn the call over to Udit to deliver our key messages for the quarter. Then Amol will provide a more detailed look at our financial results. After, we will open up the phone lines to take questions. Udit?

Thank you, Kasper, and good morning, everyone. So this morning, I will start by giving you color on our first quarter results, as well as our updated guidance. Then I will cover some of our recent product launches, including Alliance IS, and I will also provide an update on WIAT. Our first quarter results were below our expectations with revenue growth of 3% on a constant currency basis versus our expected 4% to 6% growth. This was largely driven by weaker than expected demand for instruments in biotech and pharma, which I will cover in a moment. As you know, we had an extraordinary Q1 last year with 16% constant currency growth. Even though our first quarter this year was slower than expected, it still represents a very healthy two-year stacked growth of approximately 9.4%. We also saw good overall strength in our recurring revenues, which continued to grow in the high single digits, as well as mass spec and TA, both of which grew double digits. Our end markets remain resilient, and our leadership team continues to drive strong commercial execution. We have further strengthened our revitalized portfolio with a steady stream of innovative new products. Finally, we've added M&A to our growth strategy with our pending acquisition of Viat. And we continue to invest organically in our high growth adjacencies, which are also on track and are gaining momentum. Reviewing our first quarter results in more detail, our performance was impacted by a combination of three factors. China was weaker than anticipated as pharma customers scaled back purchases. Second, while we have limited exposure to pre-commercial biotech, we have seen a pronounced scale back in demand from these customers as they have significantly reduced spending to conserve capital. And third, several of our large to medium sized pharma customers delayed timing of instrument orders due to macroeconomic caution. Each of these dynamics occurred late in the quarter and led instruments declining 3% after they grew over 25% in the first quarter of last year. By end market, the impact was to our pharma business, which declined 4% overall. This was offset by strength in the academic and government segment, which grew 45%, and industrial, which grew 3%, while our recurring revenues remained strong across service and chemistry. As a result of this lower than expected volume, our non-GAAP earnings per fully diluted shares also came below our expectations at $2.49 for the first quarter. On a GAAP basis, our earnings per fully diluted share was $2.38. As we look ahead, we are assuming that spending among pharma customers in China will remain scaled back for the balance of the year. And while our exposure to pre-commercial biotech is low, We also believe that the slowdown in this space is likely to persist for the remainder of the year. As a result, we're lowering our 2023 guide due to these two factors. We now expect our full year organic constant currency growth to be in the range of 3% to 5%. We believe that large to medium pharma-sized budgets remain in place. We expect spending among these customers to catch up and be stronger in the second half of the year after delayed spending in the first half. Despite our revised revenue guide, our full-year EPS guidance, and free cash flow generation expectations remain unchanged. We intend to proactively manage our spend and working capital, and Amol will cover this in more detail. Even with short-term market challenges, our sources for growth remain intact. Our end markets are robust, with almost 80% of our business exposed to durable growth areas. This includes demand for QAQC testing of commercialized medicines, increased scrutiny of PFAS in food and water, and the testing of batteries used in applications such as electric vehicles. Our team has developed a strong commercial discipline that is supported by best-in-class, innovative new products that address evolving customer unmet needs. We're also seeing high single-digit growth in our recurring revenues, which are over 50% of our annual sales. Chemistry growth is supported by strong in-market activity, growth in biologic applications with our MacSpeak premier columns, and our e-commerce initiative. For service, we're seeing strong pull-through from our instrument sales, and increased service plan attachment is supporting the growth. We expect service plan attachment for our instruments to increase by another 100 basis points this year, building on the 350 basis point expansions in 2019. Our revitalized portfolio has been further strengthened with a recent launch of Alliance IS, which is our next generation intelligent HPLC system. We believe it is the most significant innovation to hit Pharma QA QC in the past decade, and it provides a major leap forward in lab productivity. Not only is the instrument easy to use with its large touchscreen interface, but can eliminate common user errors by up to 40%. It does this by guiding users between steps with a highly intuitive interface. It intelligently conducts a number of real time system checks before a sample is run. This helps ensure that the instrument is configured correctly for the method that is being tested. Before now, errors such as incorrect solvent or the wrong column being used are usually discovered after the sample has been run, which results in wasted time and a wasted sample. Given the strength of the Alliance brand and the significant new features that this instrument offers, we had a strong reception at its launch. Since quality testing is such a critical component of pharmaceutical manufacturing, customer interest has been strong, including from Janssen Pharmaceuticals, who noted that Alliance IS feels like the future is here and has already made plans to replace a large number of its LCs with this instrument. We now have not one, but two new industry-leading platforms for QAQC applications in pharma. Arc HPLC and its biocompatible equivalent, Arc Premier, and now higher-end Alliance IS, which sits at the top of the range. Last month, we also launched our Zevo TQ Absolute Mass Spec into clinical applications. Not only is this the most sensitive triple quad on the market for PFAS detection, where it has seen strong traction in food and environmental testing, But now, within clinical, it is up to five times more sensitive than other competing instruments in the segment. This sensitivity enables clinical labs to detect and measure trace-level analytes at lower detection levels than was previously possible. It also enables clinical labs to expand their test menu to include multiplex panels. Meanwhile, RTA Instruments' business launched a new microcalorimeter for battery testing essential for electric vehicle energy storage and electronics applications. This provides customers with a significant upgrade as it accelerates validation of battery safety, quality, and performance testing by up to 75%, while collecting up to six times more data than other calorimeters. Lastly, we also recently launched a new system monitoring software product on Waters Connect, first for us and unique to the industry. Developed in consultation with QAQC scientists, it enables real-time monitoring of all chromatography instruments controlled by our Empower software. It helps increase productivity of QAQC labs by allowing customers to analyze their instrument fleets at any time from anywhere to monitor uptime, usage levels, and real-time system availability. Each of these new products have been developed in close collaboration with our customers to address their most pressing unmet needs. They further support the strength of our revitalized portfolio. Earlier this year, we announced our intent to acquire Wired Technology, the recognized leader in light scattering. With more than 80% of its revenues tied to large molecule applications, Wired expands Waters' portfolio and increases our exposure to faster growth areas within biologics. It also increases our ability to build a business in bioanalytical characterization which is a US$1.8 billion total addressable market with a 10% to 12% projected annual growth rate. We remain on track to close in the second quarter of this year. We also expect the transition to deliver immediate growth and adjusted operating margin accretion. Now, I will pass the call over to Amol to continue covering our first quarter financial results and give additional commentary on our guidance. Amol?