Q4 2024 Earnings Summary
- Strong growth in India, with Q4 constant currency growth of 34% and 27% for the year, making India over 8% of total sales. Waters is the market share leader among key generics companies in India, positioning it well for the significant $240 billion genericization opportunity over the next 5 to 7 years.
- Successful new product launches like the Alliance iS, which constituted 20% of HPLC revenue in Q4, and the Xevo TQ Absolute, which made up 50% of quantitative Mass Spec revenue in Q4. These products are driving significant revenue growth and are expected to continue this trend into 2025.
- Consistent growth in recurring revenues at 6% to 7%, even when others are flat or low single digits, due to Waters' unique position with its Empower software and high service attachment rates, with over 50% of the active installed base under service contracts, aiming to reach 55%.
- Potential macroeconomic headwinds such as tariffs, NIH spending cuts, and reductions in agency budgets like the EPA could negatively impact Waters' business, which was a concern raised during the earnings call.
- The company's strong growth relies significantly on emerging markets like India, which experienced 34% growth in Q4 and now represents over 8% of total sales; however, such high growth rates may not be sustainable in the future, potentially affecting overall growth.
- The wider-than-usual guidance range for Q1 2025 indicates elevated uncertainty, including potential impacts from academic funding cuts and currency headwinds, which could negatively affect the company's financial performance.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +18% YoY | Total Revenue increased from $740.3 million to $872.73 million, reflecting broad-based gains driven by improved customer demand and a more favorable product–service mix. This growth suggests that initiatives such as strategic acquisitions and improved market positioning have built on the modest gains from previous periods, amplifying revenue beyond earlier incremental increases. |
Total Product Sales | +67.5% YoY | Total Product Sales surged from $340.71 million to $570.9 million, indicating a robust turnaround in product demand. This dramatic rebound likely stems from enhanced instrument systems and chemistry product offerings, as well as the continued beneficial impact of the Wyatt acquisition, which helped offset earlier declines noted in previous periods. |
Service Sales | +11% YoY | Service Sales rose from $272.32 million to $301.83 million, reflecting steady growth in recurring revenue streams. This improvement builds on past efforts to drive service demand, showing that operational efficiencies and enhanced customer relationships are now delivering more consistent and higher revenue, compared to previous periods when service sales growth was emerging. |
Europe Revenue | +10% YoY | European revenue increased from $253.82 million to $278.82 million, driven by strong performance in key end markets like pharmaceuticals, academic, and government sectors. Sustained momentum in this region suggests that improvements from earlier challenges—such as currency volatility and uneven demand—have translated into stronger and more consistent quarterly performance. |
Operating Income | +38% YoY | Operating Income improved significantly from $211,132 thousand to $292,263 thousand, thanks to increased sales volume and successful cost-reduction initiatives (e.g., previous workforce reductions and lower acquisition-related charges). This efficiency gain builds on lessons from prior periods, where higher costs had dampened operating margins, thus marking a notable turn toward improved profitability. |
Basic EPS | +43% YoY | Basic EPS jumped from $2.72 to $3.90, a result of the combined effects of stronger revenue performance, enhanced operational efficiency, and reduced interest expense compared to prior quarters. This EPS improvement underscores how a better revenue mix, reduced costs, and effective financial management have compounded the favorable trends noted in previous periods. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Constant Currency Sales Growth | Q4 2024 | Projected in the range of +5% to +7% | no current guidance | no current guidance |
Reported Sales Growth | Q4 2024 | Projected in the range of +3.3% to +5.3%, including a 1.7% negative currency impact | no current guidance | no current guidance |
Non-GAAP EPS | Q4 2024 | Projected in the range of $3.90 to $4.10, including a 3% negative currency impact | no current guidance | no current guidance |
Constant Currency Sales Growth | Q1 2025 | no prior guidance | 4% to 7% | no prior guidance |
Reported Sales Growth | Q1 2025 | no prior guidance | 1% to 4%, considering a 3% negative currency impact | no prior guidance |
Non-GAAP EPS | Q1 2025 | no prior guidance | $2.17 to $2.25, reflecting a 7% FX headwind on earnings | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Reported Sales Growth | Q4 2024 | +3.3% to +5.3% | 6.5% year-over-year ((872.73−819.47)/819.47) | Beat |
Constant Currency Sales Growth | Q4 2024 | +5% to +7% | 6.5% year-over-year ((872.73−819.47)/819.47) | Met |
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Guidance Amid Macro Risks
Q: How does guidance incorporate macro risks?
A: Management guided revenue growth of 4.5% to 7% for 2025, best-in-class relative to peers. They accounted for macro risks like potential NIH spending cuts and tariffs by building prudence into the lower end of the guidance. Recurring revenues are expected to grow 6% to 7%, consistent with historical performance. Instrument growth needs to be around 4% to 4.5% to reach the midpoint of guidance, supported by strong funnels and new product traction. -
Instrument Growth Expectations
Q: What is the outlook for instrument growth?
A: Instruments are projected to grow at mid-single digits, approximately 4% to 5% for 2025. All instrument segments, including LC, Mass Spec, TA, and light scattering, are expected to contribute. Management finished 2024 with high single-digit instrument growth, driven by strong new products and a replacement cycle beginning in earnest. -
Replacement Cycle Progress
Q: Where are you in the instrument replacement cycle?
A: The replacement cycle has begun, particularly with large pharma initiating replacements and CDMOs showing good momentum. The Alliance iS instrument now represents 20% of HPLC sales in Q4. There remains 15% of lagged 2015–2019 replacement opportunity, tracked diligently in their CRM system. Conversations with customers are widespread, involving IT and procurement, indicating a robust multiyear replacement cycle. -
Pharma Growth and Budget Flush
Q: Can you discuss pharma growth and budget flush dynamics?
A: Pharma grew double digits in Q4, driven by large pharma and strong instrument sales. The budget flush was typical, with a high teens ramp from Q3 to Q4. Management sees normalization towards prepandemic behavior, especially in QA/QC spending, and expects these trends to continue into 2025. -
Dynamics in China and India
Q: How are China and India contributing to growth?
A: China is expected to have low single-digit growth in 2025, with modest stimulus contribution. India delivered over 25% growth in 2024, contributing 70 to 100 basis points to overall growth. India is now over 8% of total sales, benefiting from the genericization opportunity of $240 billion in revenues going off-patent over the next 5 to 7 years. , -
PFAS Market Opportunity
Q: What's the outlook for the PFAS market?
A: The PFAS market size has increased to $400 million due to expanding applications. Waters is outpacing market growth, driven by their Xevo TQ Absolute instrument, which offers the highest sensitivity and lowest environmental footprint. PFAS contributed 60 basis points to growth in 2024 and is expected to contribute 30 basis points in 2025. The opportunity spans environmental, food testing, academic, and remediation markets. , -
Services and Empower Software
Q: How is the services business performing?
A: Services saw impressive growth, with over 50% of the active installed base now under service contracts, aiming to reach 55%. Empower software contributes to this strength, offering compliance advantages in regulated settings. The recurring revenue growth remains robust at 6% to 7%, driven by high service attachment rates and growth in consumables through e-commerce. , -
First Quarter Guidance
Q: Why is Q1 guidance wider than usual?
A: Q1 guidance is 4% to 7% due to uncertainties like potential NIH cuts and has two fewer days impacting growth by about 1%. Q1 is the smallest quarter, and management built in prudence. EPS guidance reflects a 7% headwind from currency, and they continue to invest in training and sales meetings to drive growth.