Waters Reports Second Quarter 2016 Financial Results

MILFORD, Mass.--(BUSINESS WIRE)--

Waters Corporation WAT reported second quarter 2016 sales of $537 million, an 8% increase versus sales of $495 million in the second quarter of 2015. Foreign currency translation did not materially impact sales growth. On a GAAP basis, earnings per diluted share (EPS) for the second quarter were up 24% to $1.57 compared to $1.27 for the second quarter of 2015. On a non-GAAP basis, including the adjustments in the attached reconciliation, EPS increased 20% to $1.58 from $1.32 in the second quarter of 2015. A description and reconciliation of GAAP to non-GAAP EPS is attached and can be found on the Company's website at http://www.waters.com under the caption "Investors".

Through the first six months of 2016, sales for the Company were $1,012 million, up 6% compared with sales of $955 million in the first six months of 2015. Foreign currency translation decreased sales growth during the first half of 2016 by 1%. On a GAAP basis, EPS for the first six months of 2016 were up 13% to $2.72 compared to $2.41 for the comparable period in 2015. On a non-GAAP basis and including adjustments in the attached reconciliation, EPS increased 13% to $2.85 in the first six months of 2016 as compared to $2.52 in 2015.

Commenting on the Company's performance, Christopher J. O'Connell, President and Chief Executive Officer said, "Continued strength in bio/pharmaceutical end markets and improvement in industrial end markets, as well as relatively balanced instrument and recurring revenue growth, highlighted our second quarter results. Disciplined execution of our business plan contributed to operating leverage and strong earnings per share growth, while we continued to invest in innovation to drive future growth."

The sales growth percentages below are on an as reported basis and are the same as the sales growth percentages on a constant currency basis, as detailed in the attached reconciliation of GAAP to non-GAAP sales.

Results from the Company's end markets in the quarter were highlighted by 12% sales growth from the broadly defined bio/pharmaceutical market and 7% sales growth from the industrial market, offset by a 4% decline in sales within the government and academic market.

The Company's recurring revenues, the combination of service and consumables, posted 10% sales growth in comparison to a strong prior year's result, while instrument system sales grew about 7% in the quarter.

Geographically, the Company's sales growth rate in Asia was 9%, with continued strong demand from China. Sales in Europe increased by 12%, while sales in the U.S. increased by 5% in the quarter.

As communicated in a prior press release, Waters Corporation will webcast its second quarter 2016 financial results conference call this morning, July 26, 2016 at 8:00 a.m. eastern time. To listen to the call, connect to www.waters.com, choose "Investors" and click on the "Live Webcast". A replay will be available through August 2, 2016 at midnight eastern time, similarly by webcast and also by phone at 402-998-0509.

About Waters Corporation

Waters Corporation WAT develops and manufactures advanced analytical science technologies for laboratory-dependent organizations. For more than 50 years, the Company has pioneered a connected portfolio of separations science, laboratory information management, mass spectrometry and thermal analysis systems.

Non-GAAP Financial Measures

This press release contains financial measures, such as constant currency growth rate, adjusted operating income, adjusted earnings per share and adjusted operating margin, among others, which are considered "non-GAAP" financial measures under applicable U.S. Securities and Exchange Commission rules and regulations. These non-GAAP financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles (GAAP). The Company's definition of these non-GAAP measures may differ from similarly titled measures used by others. The non-GAAP financial measures used in this press release adjust for specified items that can be highly variable or difficult to predict. The Company generally uses these non-GAAP financial measures to facilitate management's financial and operational decision-making, including evaluation of Waters Corporation's historical operating results, comparison to competitors' operating results and determination of management incentive compensation. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company's operations that, when viewed with GAAP results and the reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting Waters Corporation's business. Because non-GAAP financial measures exclude the effect of items that will increase or decrease the Company's reported results of operations, management strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the tables accompanying this release.

CAUTIONARY STATEMENT

This release may contain "forward-looking" statements regarding future results and events. For this purpose, any statements that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words, "feels", "believes", "anticipates", "plans", "expects", "intends", "suggests", "appears", "estimates", "projects", and similar expressions, whether in the negative or affirmative, are intended to identify forward-looking statements. The Company's actual future results may differ significantly from the results discussed in the forward-looking statements within this release for a variety of reasons, including and without limitation, the affect on the Company's financial results from the United Kingdom voting to exit the European Union; foreign exchange rate fluctuations potentially affecting translation of the Company's future non-U.S. operating results; the impact on demand among the Company's various market sectors from economic, sovereign and political uncertainties; fluctuations in expenditures by the Company's customers, in particular large pharmaceutical companies; introduction of competing products by other companies and loss of market share; pressures on prices from competitors and/or customers; regulatory, economic and competitive obstacles to new product introductions; other changes in demand from the effect of mergers and acquisitions by the Company's customers; increased regulatory burdens as the Company's business evolves, especially with respect to the U.S. Food and Drug Administration and U.S. Environmental Protection Agency, among others; shifts in taxable income in jurisdictions with different effective tax rates; the outcome of tax examinations or changes in respective country legislation affecting the Company's effective tax rate; the ability to access capital, maintain liquidity and service our debt in volatile market conditions, particularly in the U.S., as a large portion of the Company's cash is held and operating cash flows are generated outside the U.S.; environmental and logistical obstacles affecting the distribution of products and risks associated with lawsuits and other legal actions, particularly involving claims for infringement of patents and other intellectual property rights. Such factors and others are discussed more fully in the sections entitled "Forward-Looking Statements" and "Risk Factors" of the Company's annual report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission, which "Forward-Looking Statements" and "Risk Factors" discussions are incorporated by reference in this release. The forward-looking statements included in this release represent the Company's estimates or views as of the date of this release report and should not be relied upon as representing the Company's estimates or views as of any date subsequent to the date of this release.

Waters Corporation and Subsidiaries
Condensed Preliminary Unclassified Consolidated Balance Sheets
(In thousands and unaudited)
					July 2, 2016		December 31, 2015
Cash, cash equivalents and investments					2,599,786		2,399,263
Accounts receivable					445,953		468,315
Inventories					286,447		263,415
Property, plant and equipment, net					330,235		333,355
Intangible assets, net					217,393		218,022
Goodwill					352,987		356,864
Other assets					215,272		229,443
Total assets					4,448,073		4,268,677
Notes payable and debt					1,756,958		1,668,336
Other liabilities					541,771		541,490
Total liabilities					2,298,729		2,209,826
Total equity					2,149,344		2,058,851
Total liabilities and equity					4,448,073		4,268,677

Waters Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
		Three Months Ended								Six Months Ended
		July 2, 2016				July 4, 2015				July 2, 2016				July 4, 2015
Net sales		$	536,560			$	494,740			$	1,011,806			$	955,144
Cost of sales			220,379				208,707				421,530				397,953
Gross profit			316,181				286,033				590,276				557,191
Selling and administrative expenses			129,581				122,660				258,932				242,411
Research and development expenses			32,578				30,555				62,016				59,506
Purchased intangibles amortization			2,411				2,500				5,055				4,974
Operating income			151,611				130,318				264,273				250,300
Interest expense, net			(6,156	)			(6,546	)			(12,188	)			(13,181	)
Income from operations before income taxes			145,455				123,772				252,085				237,119
Provision for income taxes			17,238				18,115				29,816				35,401
Net income		$	128,217			$	105,657			$	222,269			$	201,718
Net income per basic common share		$	1.59			$	1.28			$	2.74			$	2.44
Weighted-average number of basic common shares			80,804				82,564				81,043				82,798
Net income per diluted common share		$	1.57			$	1.27			$	2.72			$	2.41
Weighted-average number of diluted common shares and equivalents			81,455				83,332				81,663				83,551

	Waters Corporation and Subsidiaries
	Quarterly Reconciliation of GAAP to Adjusted Non-GAAP
	Net Sales by Operating Segment, Products & Services, Geography and Markets
	Quarters Ended July 2, 2016 and July 4, 2015
	(in thousands)
																			Constant
							Three Months Ended						Percent			Currency			Currency
							July 2, 2016			July 4, 2015			Change			Impact			Growth Rate (a)
	NET SALES - OPERATING SEGMENT
	Waters						$	478,731		$	442,232			8%		$	497			8%
	TA							57,829			52,508			10%			(167)			10%
	Total						$	536,560		$	494,740			8%		$	330			8%
	NET SALES - PRODUCTS & SERVICES
	Instruments						$	272,639		$	254,297			7%		$	(460)			7%
	Service							176,873			162,704			9%			(358)			9%
	Chemistry							87,048			77,739			12%			1,148			11%
	Total Recurring							263,921			240,443			10%			790			10%
	Total						$	536,560		$	494,740			8%		$	330			8%
	NET SALES - GEOGRAPHY
	Americas						$	202,895		$	192,652			5%		$	(1,850)			6%
	Europe							143,317			127,414			12%			2,188			12%
	Asia							190,348			174,674			9%			(8)			9%
	Total						$	536,560		$	494,740			8%		$	330			8%
	NET SALES - MARKETS
	Pharmaceutical						$	310,009		$	276,851			12%		$	(191)			12%
	Industrial							166,686			155,379			7%			939			7%
	Government & Academic							59,865			62,510			(4%)			(418)			(4%)
	Total						$	536,560		$	494,740			8%		$	330			8%

(a) The Company believes that referring to comparable, constant currency growth rates is a useful way to evaluate the underlying performance of Waters Corporation's net sales. Constant currency growth rate, a non-GAAP financial measure, measures the change in net sales between current and prior year periods ignoring the impact of foreign currency exchange rates during the current period. See description of non-GAAP financial measures contained in this release.

	Waters Corporation and Subsidiaries
	Quarterly Reconciliation of GAAP to Adjusted Non-GAAP
	Net Sales by Operating Segment, Products & Services, Geography and Markets
	Six Months Ended July 2, 2016 and July 4, 2015
	(in thousands)
																			Constant
							Six Months Ended						Percent			Currency			Currency
							July 2, 2016			July 4, 2015			Change			Impact			Growth Rate (a)
	NET SALES - OPERATING SEGMENT
	Waters						$	902,924		$	851,900			6%		$	(5,824)			7%
	TA							108,882			103,244			5%			(318)			6%
	Total						$	1,011,806		$	955,144			6%		$	(6,142)			7%
	NET SALES - PRODUCTS & SERVICES
	Instruments						$	496,346		$	478,987			4%		$	(4,891)			5%
	Service							344,262			320,235			8%			(2,210)			8%
	Chemistry							171,198			155,922			10%			959			9%
	Total Recurring							515,460			476,157			8%			(1,251)			9%
	Total						$	1,011,806		$	955,144			6%		$	(6,142)			7%
	NET SALES - GEOGRAPHY
	Americas						$	381,636		$	370,232			3%		$	(2,616)			4%
	Europe							268,349			251,815			7%			671			7%
	Asia							361,821			333,097			9%			(4,197)			10%
	Total						$	1,011,806		$	955,144			6%		$	(6,142)			7%
	NET SALES - MARKETS
	Pharmaceutical						$	569,095		$	518,154			10%		$	(4,627)			11%
	Industrial							320,207			310,389			3%			(250)			3%
	Government & Academic							122,504			126,601			(3%)			(1,265)			(2%)
	Total						$	1,011,806		$	955,144			6%		$	(6,142)			7%

(a) The Company believes that referring to comparable, constant currency growth rates is a useful way to evaluate the underlying performance of Waters Corporation's net sales. Constant currency growth rate, a non-GAAP financial measure, measures the change in net sales between current and prior year periods ignoring the impact of foreign currency exchange rates during the current period. See description of non-GAAP financial measures contained in this release.

Waters Corporation and Subsidiaries
Reconciliation of GAAP to Adjusted Non-GAAP Financials
Quarters and Six Months Ended July 2, 2016 and July 4, 2015
(in thousands, except per share data)
																														Income from Operations before Income Taxes
												Gross			Selling &			Research &						Operating			Interest						Provision for Income Taxes						Diluted Earnings per Share
						Net			Gross			Profit			Administrative			Development			Operating			Income			Expense,									Net
						Sales			Profit			Percentage			Expenses			Expenses			Income			Percentage			Net									Income
Quarter Ended July 2, 2016
GAAP					$	536,560		$	316,181			58.9%		$	131,992		$	32,578		$	151,611			28.3%		$	(6,156)		$	145,455		$	17,238		$	128,217		$	1.57
Adjustments:
	Purchased intangibles amortization (a)					-			-			-			(2,411)			-			2,411			0.4%			-			2,411			721			1,690			0.02
	Restructuring costs, asset impairments, acquisition-related costs & certain other items (c)					-			-			-			(1,980)			-			1,980			0.4%			-			1,980			519			1,461			0.02
	Certain income tax items (d)					-			-			-			-			-			-			-			-			-			2,367			(2,367)			(0.03)
Adjusted Non-GAAP					$	536,560		$	316,181			58.9%		$	127,601		$	32,578		$	156,002			29.1%		$	(6,156)		$	149,846		$	20,845		$	129,001		$	1.58
Quarter Ended July 4, 2015
GAAP					$	494,740		$	286,033			57.8%		$	125,160		$	30,555		$	130,318			26.3%		$	(6,546)		$	123,772		$	18,115		$	105,657		$	1.27
Adjustments:
	Purchased intangibles amortization (a)					-			-			-			(2,500)			-			2,500			0.5%			-			2,500			717			1,783			0.02
	Restructuring costs, asset impairments, acquisition-related costs & certain other items (c)					-			-			-			(2,016)			-			2,016			0.4%			-			2,016			636			1,380			0.02
	Certain income tax items (d)					-			-			-			-			-			-			-			-			-			(793)			793			0.01
Adjusted Non-GAAP					$	494,740		$	286,033			57.8%		$	120,644		$	30,555		$	134,834			27.3%		$	(6,546)		$	128,288		$	18,675		$	109,613		$	1.32
Six Months Ended July 2, 2016
GAAP					$	1,011,806		$	590,276			58.3%		$	263,987		$	62,016		$	264,273			26.1%		$	(12,188)		$	252,085		$	29,816		$	222,269		$	2.72
Adjustments:
	Purchased intangibles amortization (a)					-			-			-			(5,055)			-			5,055			0.5%			-			5,055			1,471			3,584			0.04
	Stock award modification (b)					-			-			-			(7,085)			-			7,085			0.7%			-			7,085			2,657			4,428			0.05
	Restructuring costs, asset impairments, acquisition-related costs & certain other items (c)					-			-			-			(5,588)			-			5,588			0.6%			-			5,588			1,661			3,927			0.05
	Certain income tax items (d)					-			-			-			-			-			-			-			-			-			1,630			(1,630)			(0.02)
Adjusted Non-GAAP					$	1,011,806		$	590,276			58.3%		$	246,259		$	62,016		$	282,001			27.9%		$	(12,188)		$	269,813		$	37,235		$	232,578		$	2.85
Six Months Ended July 4, 2015
GAAP					$	955,144		$	557,191			58.3%		$	247,385		$	59,506		$	250,300			26.2%		$	(13,181)		$	237,119		$	35,401		$	201,718		$	2.41
Adjustments:
	Purchased intangibles amortization (a)					-			-			-			(4,974)			-			4,974			0.5%			-			4,974			1,421			3,553			0.04
	Restructuring costs, asset impairments, acquisition-related costs & certain other items (c)					-			-			-			(3,288)			-			3,288			0.3%			-			3,288			999			2,289			0.03
	Certain income tax items (d)					-			-			-			-			-			-			-			-			-			(3,199)			3,199			0.04
Adjusted Non-GAAP					$	955,144		$	557,191			58.3%		$	239,123		$	59,506		$	258,562			27.1%		$	(13,181)		$	245,381		$	34,622		$	210,759		$	2.52

(a) The Purchased intangibles amortization, a non-cash expense, was excluded to be consistent with how our management evaluates the performance of our core business against our historical operating results and the operating results of our competitors over periods of time.
(b) The non-cash expense associated with accelerating the vesting of certain stock awards was excluded as the Company believes these expenses are not indicative of normal operating costs.
(c) Restructuring costs, asset impairments, acquisition-related costs and certain other items were excluded as the Company believes that the cost to consolidate operations and reduce overhead; the cost to complete acquisitions; the non-cash expense to record asset impairments and certain other income or expense items are not normal and do not represent future ongoing business expenses of a specific function or geographic location of the Company.
(d) Certain income tax items were excluded as these non-cash expenses and benefits represent updates in management's assessment of ongoing examinations or other tax items that are not indicative of the Company's normal or future income tax expense.

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