Waters Corporation (WAT)

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Waters (WAT)

Q4 2010 Earnings Call

January 25, 2011 8:30 am ET

Executives

John Ornell - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance & Administration

Arthur Caputo - Executive Vice President and President of the Waters Division

Douglas Berthiaume - Chairman, Chief Executive Officer and President

Analysts

Derik De Bruin - UBS Investment Bank

Jonathan Groberg - Macquarie Research

Ross Muken - Deutsche Bank AG

Neha Sahni -

Peter Lawson - Mizuho Securities USA, Inc.

Stephen Unger - Lazard Capital Markets LLC

Tycho Peterson - JP Morgan Chase & Co

Quintin Lai - Robert W. Baird & Co. Incorporated

Paul Knight - Credit Agricole Securities (USA) Inc.

Daniel Leonard - Leerink Swann LLC

Sung Ji Nam - Gleacher & Company, Inc.

Isaac Ro - Goldman Sachs Group Inc.

Doug Schenkel - Cowen and Company, LLC

Jon Wood - Jefferies & Company, Inc.

Charles Butler - Barclays Capital

Amit Bhalla - Citigroup Inc

Presentation

Operator

Good morning and welcome to the Waters Corp. Fourth Quarter 2010 Financial Results Conference Call. [Operator Instructions] I would like to introduce your host for today's conference, Mr. Doug Berthiaume, Chairman, President and Chief Executive Officer of Waters Corp. Sir, you may begin.

Douglas Berthiaume

Thank you. Good morning, and welcome to the Waters Corp. Fourth Quarter and Full-Year Financial Results Conference Call. With me on today's call is John Ornell, Waters' Chief Financial Officer; Art Caputo, the President of the Waters Division and Gene Cassis, the Vice President of Investor Relations.

And as is our normal practice, I will start with an overview of the business highlights, and John will follow with details on our financial results and then provide you with our outlook for the first quarter and for the full year 2011. But before we get going, I'd like John to cover the cautionary language.

John Ornell

During the course of 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 income statement results of the company, this time for Q1 and full year 2011. We caution you that all such statements are only

Predictions, and that the actual events or results may differ materially.

For a detailed discussion of some of the risks and contingencies that could cause our actual performance to differ significantly from our present expectations, see our 10-K Annual Report for the fiscal year ended December 31, 2009, in part one under the caption Business Risk Factors. We further caution you that the company does not obligate or commit itself by providing this guidance to update predictions. We do not plan to update predictions regarding possible future income statement results, except during our regularly scheduled quarterly earnings release conference calls and webcasts. The next earnings release call and webcast is currently planned for April 2011.

During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure is attached to the company's earnings release issued this morning. In our discussions of the results of operations, we may refer to pro forma results which excludes the impact of items such as those outlined in our schedule entitled Reconciliation of Net Income Per Diluted Share included in this morning's press release.

Douglas Berthiaume

Thank you, John. Well, for Waters, 2010 was a year where we saw a broad recovery from nearly all of our end markets and strong customer acceptance of key new instrument systems. Following a challenging business environment in 2009, we started the year confident in some improvement but remain somewhat cautious in our outlook as much uncertainty certainly remain regarding the strength of the recovery. However, early in the year, we did embark on significant new product initiatives designed to strengthen our market position and to establish a foundation for a multi-year total refresh of our product portfolio. This aggressive plan started with the introduction of our ACQUITY H-Class UPLC system last January and was soon followed by a significant mass spectrometry-based systems launched midyear at the ASMS conference.

I'm happy to tell you that business results in 2010 exceeded our expectations and that our new product strategies meaningfully contributed to our success as we returned to double-digit top line growth for the year, along with close to 20% growth in adjusted earnings per share.

Potentially, even more significant as we begin 2011, we have seen a continuation of improved demand and are gaining greater traction from our new system introductions.

Looking at the fourth quarter of 2010, our sales and earnings came in ahead of our expectations, with sales increasing by 13% over the 2009 quarter and adjusted earnings per share up by 23%.

Geographically, all major regions performed favorably and there was balanced strength across our major product technologies.

We move down to P&L. Our profitability remained strong due to the success of our product introduction, our strong recurring revenue growth and our continued focus on operational efficiency.

On the product side, new technology platforms delivered the strongest sales growth highlighted by record shipment volumes of the ACQUITY UPLC and Xevo mass spectrometers. I'm happy to tell you that our Xevo TQ-S, a tandem quadruple technology instrument that we introduced this past June had an impressive quarterly sales performance. And that increasing customer interest in this ultrasensitive performance leaving systems has a positive influence on my outlook for overall instrumentation growth in 2011.

On the Chromatography side, ACQUITY UPLC sales drove growth in the quarter due primarily to rapid adoption of our H-Class system and regulated testing applications such as pharmaceutical quality control.

Looking at Customer segments in the fourth quarter. We saw a mid single-digit growth in university and government spending as stronger growth in the Americas and Europe was partially offset by weakness in Japan.

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