Waters Corporation

Welcome to the Waters Corporation's second quarter 2026 financial results conference call. All participants will be in 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.

Thank you, Leila, and good morning, everyone. Welcome to Waters Corporation's second quarter earnings call. Joining me today are Dr. Udit Batra, our President and Chief Executive Officer, and Amol Chaubal, our Senior Vice President and Chief Financial Officer. Before we begin, I will cover the cautionary language. In this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company, including the financial and operational impact of Waters Biosciences and Diagnostic Solutions businesses acquired from Becton Dickinson & Company, or BD, will provide guidance regarding possible future results and commentary on potential market and business conditions that may impact Waters Corporation over the third quarter of 2026 and full year 2026. These statements are only our present expectations and are subject to risks and uncertainties. Please see the risk factors included within our Form 10-K, our Form 10-Qs, our other SEC filings, 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. Unless stated otherwise, all organic revenue growth rates are presented on a constant currency basis and are in comparison to the second quarter of 2025. for acquired business revenue. Unless stated otherwise, all growth rates are presented on an as-reported basis, covering the current period in comparison to the revenue as reported by BD for the prior year comparable period that predates Waters' ownership. 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. On today's call, Udit will begin with our key messages and business highlights. Amol will then review our financial results and updated guidance. After that, we will open up the lines for questions. I'll now turn the call over to Udit.

Thank you, Caspar, and good morning, everyone. We delivered an excellent second quarter, executing ahead of guidance across all four divisions as a powerful new era of growth extends across waters. We sustained industry-leading results at our legacy businesses, fueled by strong commercial performance and pioneering innovation in our product portfolio, while recovery in our end markets broadened into previously lagging customer segments and further augmented our growth. We build outstanding momentum in our newly acquired businesses in their first full quarter under Waters' leadership, driving an acceleration to mid-single-digit growth as the commercial actions from our 180-day plan have quickly taken hold and are already reshaping their trajectory. We also took further decisive steps towards building our new platform for sustained long-term growth, executing flawlessly on our revenue synergies and cost actions as we enter our next phase of growth. Over the last few months, I've visited many sites and many customers. Our teams are executing with rigor and speed and advancing our value creation roadmap faster than we expected. I want to thank them for their dedication before we turn to the results. In the second quarter, total company as reported revenue was US$1.645 billion, comprising of US$828 million of organic revenue and US$817 million of Waters Bioscience and Diagnostic Solutions. Organic revenue grew 7% as reported and 9% in constant currency, exceeding the high end of our constant currency guidance range by approximately 100 basis points, with orders again outpacing sales. Underlying growth was double digits as this performance absorbed a 1% headwind from pull forward in last year's second quarter. Bioscience and diagnostic solutions revenue also exceeded our guidance. Revenue outpaced guidance by $15 million and grew 4% on a reported basis versus the prior year comparable period. With these businesses under our leadership for the entirety of the quarter, we achieved a 400 basis point improvement in reported growth versus last quarter's flat full quarter growth rate. Our strong momentum and disciplined cost management offset adverse foreign exchange translation as the US dollar strengthened since our last call. Adjusted EPS grew 3% to $3.05, landing at the high end of our guidance rate. Let me now cover these drivers of strength in more detail. Beginning with the analytical sciences division, growth was 7% as reported and 9% in constant currency, with instruments up 8%, chemistry up 10%, and service up 9%. We drew double digits in both our pharma and academic and government end markets for the second consecutive quarter, driven by improving market conditions, strong commercial execution, and the merits of new product innovation in our industry-leading portfolio. Thanks to continued cross-divisional collaboration, we placed approximately 10 million of mass spec instruments into pharma BMPK settings in the quarter, as early revenue synergies continued to build. In analytical sciences, we have continued to build our innovation leadership position with a number of new product launches in recent months. At ASMS, we launched two new high-resolution mass spec products, the cyclic IMS P20 and the Zevo MRT P10. Both deliver step-change improvements in sensitivity as the cyclic IMS P20 raises the bar in structural and spatial omics. While the Zevo MRT-P10 not only sets a new standard for speed and throughput in multi-omics, but does so in a highly efficient benchtop format, which is unique in high resolution mass spec. In bioseparations, we launched our BioResolve peptide and GTX Resolve lipid columns. both delivered industry-first particle optimization, reliably separating structurally and chemically similar impurities in GLP-1 peptides, insulin, and lipid nanoparticles with twice the resolving power and sensitivity of competing products. The biosciences division grew 3% as reported, improving 400 basis points from the 1% full quarter decline in the first quarter. Excluding China, which represented a 2% headwind to growth, the division grew 5%. The growth acceleration was primarily driven by flow clinical, which grew 8% on a reported basis, improving versus both the 7% partial growth rate and flat full quarter growth rate in the first quarter. Performance was led by mid-teens growth outside of China, reflecting sharpened execution, greater commercial activity from new KPIs and early benefits of our incremental pricing initiatives. In flow research, reagents returned to positive growth in the quarter, reflecting an improvement in customer activity levels. At the divisional level, advanced diagnostics grew 7% on a reported basis, even with China remaining a notable drag on growth due to ongoing DRG headwinds. Within the division, the acquired diagnostics solutions business grew 5% as reported, accelerating versus the 1% full quarter growth rate in Q1. Excluding China, growth was 7%. In microbiology, we grew mid-single digits as we drove relentless focus on execution, improved utilization of Bactec bottles, and began to enact list price increases across the portfolio. In molecular diagnostics and point of care, we grew high single digits, driven by strong placements in molecular diagnostics related to HPV testing on BD core. Also within the division, the organic clinical business unit grew 15% as reported and 14% in constant currency led by double-digit strength in the Americas and Europe. We recently launched the Zivo TQ Absolute XR IVD Mass Spec, the industry's most sensitive and robust clinical IVD system. It delivers five times greater sensitivity and a six-fold increase in robustness for critical applications including women's health, cancer assessment, and toxicology, further expanding our technological advantage in the IVD market. The material science division returned to high single digit growth in constant currency. Strength was driven by electronics research testing for semiconductor and data center applications, together with advanced materials testing in aerospace and defense applications. Our leadership in battery safety testing was recently expanded with the launch of our point cell differential scanning calorimeter, which represents a significant advancement in battery thermal analysis, simultaneously capturing thermal, evolved gas and electrochemical data. Our organic growth results reflect a successful strategy that has played out over the past several years across commercial execution, new product innovation, and entering faster growing adjacencies. Having delivered in each of these areas, we have achieved our promise of high single-digit growth over the past seven quarters. This is the long-term trajectory Thank you for joining us. Looking within analytical sciences, the breadth of this performance is clear. In pharma, we've grown double digits this year, driven by robust capex spending trends across large pharma, contract organizations, and generics. This has been augmented by our idiosyncratic growth drivers tied to GLP-1 testing, India, and biologics, which includes bioseparations and bioanalytical characterization. Notably though, U.S. biotech and CROs have improved over the past two quarters, adding a new layer of demand to the recovery. At the same time, we've seen a strong recovery from our pharma customers in China, with double-digit growth in the first half of the year, accelerating versus last year's 6% growth rate, and making China now accretive to our growth again. This reflects excellent commercial execution alongside a resurgence in biotech, CDMOs, and CRO activity as Chinese companies, buoyed by the commercial success of their research and outlicensing model, attract investment and reinvest into R&D. Beyond the near-term recovery, this points to a broader structural tailwind. As Chinese discovery output continues to scale and the outlicensing model matures, we are well indexed to the theme since molecules developed on waters platforms transfer cleanly into Western development and regulatory pathways. In our non-pharma end market, we have seen growth rate acceleration led by double-digit growth in academic and government. Performance was broad-based across geographies, including a return to positive growth in the Americas in the second quarter. In industrial, which drew low single digits in the analytical science division, PFAS has remained a source of strength and has grown double digits this year. Our growth is led by food analysis, which has now surpassed environmental analysis as our largest PFAS application for the first time. The broad strength of our customers bodes well for the instrument replacement cycle, where we remain firmly in the middle innings with a significant runway still ahead. Despite recent strong growth trends, our instrument revenue has grown only 2.5% on an organic constant currency CAGR basis versus 2019, well below the 5% long-term historical growth rate from 2009 to 2019. This gap reflects the multi-phase recovery that has emerged since the middle of 2024, which has elongated the replacement cycle beyond what has historically been a two to three-year typical duration. Beyond the replacement cycle, pharma reshoring also represents an increasingly well-defined incremental growth opportunity for waters in the years ahead. We've been tracking 76 expansion sites linked to U.S. pharma investment announcements. Roughly half are now under active construction, representing approximately $100 billion in capex spend, confirming that at least a portion of these commitments are beginning to translate into real capital deployment on the ground. Weighing the focus, modality, and analytical intensity of each site, we expect instrument outfitting to drive a revenue tailwind for our analytical sciences division over the next three to five years. As sites move from construction to equipping, we are well positioned to capture a disproportionate share of the resulting demand, given that approximately 70% of the tracked sites are linked to customer accounts where Waters holds a high market share. We are already seeing funnel activity tied to a number of these sites. In our acquired businesses, we have continued to drive positive impact from our 180-day growth revitalization plan with each of our three near-term rapid execution initiatives already contributing to our results. Our first priority, driving urgency, accountability, and transparency, The commercial discipline and KPI focus we quickly established at the close of the transaction is now embedded and compounding across the acquired businesses. As a result, funnel conversion rates are rising, field activity has stepped up materially, and the outbound momentum we built in Q1 has progressed further through the second quarter. On our second priority, pricing excellence and contract compliance, We've made fast moves to embed the same discipline at Biosciences and Diagnostic Solutions that we established at Legacy Waters. We've hired dedicated pricing directors for each division, structured our 2026 and 2027 pricing actions to drive incremental price realization, and have already enacted list price increases across parts of the acquired portfolio, achieving Thank you for joining us. To supplement this effort, we have brought in a dedicated operational leader with deep industry experience who has managed similar programs before. On our third priority, regaining share in flow research, we've made meaningful progress across several fronts. In China, we have significantly improved the speed and efficiency of export license approvals, generating twice the number of license approvals in the second quarter versus the first full quarter. and helping to reverse the share loss dynamics that constrain prior performance. The results have been tangible. China flow research, which declined 30% in the full first quarter, improved to mid single digit decline in the second quarter, a swing of approximately 25 percentage points. Meanwhile, our localized manufacturing program for flow instruments is well underway and expected to begin contributing to growth in the fourth quarter. With a successful transformation behind him, Ching Lee, our general manager for the ASD China business, has now taken on the added responsibility of revitalizing growth for biosciences in China. Ching and his team are moving decisively to implement new commercial rigor and accountability while sharpening our focus on the pharma market given the resurgence in Chinese biotech, CDMO, and CRO activity. Across our geographies, we also have an attractive share recapture and instrument replacement opportunity in flow cytometry with the FACTS DISCOVER A7 cell analyzer, which we unveiled at CYTO and is set to launch on September 15th. The A7 fills a key gap in our portfolio while setting a new benchmark in spectral flow cytometry, bringing IBD level standardization and reproducibility to a spectral analyzer for the first time. Leveraging automation and self-calibration, it also enables workflows to easily transition between instruments and users, representing meaningful innovation for our customers. In advanced diagnostics, PacTech FXI, our next-generation blood culture system, recently received FDA 510K clearance, enabling U.S. commercializations as we scale the launch globally in microbiology. With placements now beginning in Japan and Europe, we're excited about the instrument replacement potential that PacTech FXI holds, particularly given the early customer feedback we've received. PacTech FXI is a groundbreaking system. It detects bloodstream infections up to three hours faster than competing systems, offers two to three times the input capacity, and provides customers with meaningful productivity advantages and labor cost savings. It leads across each of the critical attributes that matter to our customers and is now the flagship product of the industry. Depending on daily volume, customers can expect up to 10 days of annualized time savings versus the prior generation systems. And we are already seeing benefits in practice as one of our earlier doctor sites in Japan reported an 80% reduction in hands-on time after switching to FXI. With these notable new advantages, the funnel is building and the commercial opportunity ahead is substantial. With over 12,000 aged back-tech systems past due for replacement, we have a large, well-defined install base that we intend to convert. Much like how Alliance IS has driven durable replacement revenue in HPLC, we expect Bactech FXI to be a multi-year growth engine in microbiology. Beyond our near-term execution, we're also making early strides into high growth adjacency in biosciences that we believe will become increasingly important over time. As AI models grow more capable of designing new antibodies, proteins, and genetic constructs, the limiting factor is shifting from computation to biology. Generating large-scale immune and disease datasets, these models depend on and require physical biology testing. Clositometry is well positioned as an enabling hardware layer given its unique ability to capture high parameter single cell resolution at real time clinical scale. Our recently announced strategic partnership with IMU Biosciences is an early proof point of our important role supporting next generation immune profiling and AI enabled precision medicine in clinical diagnostic applications. IMU has raised over $50 million to date as it accelerates its work to decode the immune system and transform how we understand, diagnose, and treat disease. Together, we're scaling a precision immunology platform for population-wide immune mapping and disease characterization in what is expected to become the world's largest immune dataset. Turning now to our cost actions and updated guidance. We have completed our planned cost actions for 2026 as our teams flawlessly implemented our restructuring plan with speed and discipline. In operations, we've unlocked spend control driven by early direct procurement savings, restructured field operations and service, and begun optimizing manufacturing and supply chain costs. Across functions, we've made significant progress on cost efficiency by optimizing spans and layers, Eliminating redundancy and achieving a leaner, centralized cost structure. These actions also carry an important strategic dimension beyond the cost benefit. They sharpen the structure of acquired businesses, reduce bureaucracy, and accelerate information flow. They also support the direction of accountability and commercial focus that will make them structurally stronger over time. Together, these actions reflect $75 million in cumulative cost savings expected in 2026, supporting solid margin progression in the second half of the year. They also represent approximately $200 million of expected run rate savings, placing us ahead of schedule that we had already laid out. They put us in a strong position to hit our margin expansion goals and drive mid-teens adjusted EPS, Over the next several years. To close, let me frame our 2026 guidance and give an update on our value creation roadmap. With momentum building across our portfolio and in markets, we are raising every component of our full year 2026 guidance, which Amol will detail shortly. Our growth strategy has delivered and Legacy Waters is now a sustainable high single digit grower. For the acquired businesses, we are running ahead of our goals for the first half of the year and our position for growth acceleration in the second half of the year. The 180-day plan has progressed rapidly. Revenue synergies are already contributing to our results and we are launching category-defining new products. This positions us to build further momentum in the second half where cross-selling synergies are joined by instrument replacement, service plan attachment, and digital channel adoption. In total, we remain well on track to deliver $50 million of revenue synergies this year. In biosciences, we will benefit from China localization and new commercial leadership in the second half, positioning us well with the local biotech and CDMO community and driving faster growth, while the launch of FACTS Discover A7 coincides nicely with a strengthening biotech and academic end market in the U.S. In advanced diagnostics, we delivered high single-digit growth despite a 2% China DRG headwind that rolls into the baseline in the fourth quarter. With BACTEC FXI and OnClarity HPV at-home testing solution now launching, the setup for the second half is excellent. As end-market conditions continue to strengthen and our growth strategy compounds, Waters is better positioned today than at any point in recent history with a broad portfolio, A larger install base and the cleanest set of growth catalysts we've ever had. With that, I will now turn the call over to Amol to cover our financial results and guidance in more detail.