Waters Corporation (WAT)
Q3 2010 Earnings Conference Call
October 26, 2010 08:30 am EST
Arthur G. Caputo – EVP and President, Waters Division
Douglas A. Berthiaume – Chairman, President and CEO
John Ornell – VP, Finance and Administration and CFO
Sung Ji Nam – Gleacher & Company
Dan Leonard – Leerink Swann
Doug Schenkel – Cowen & Company
Tony Butler – Barclays Capital
Amit Bhalla – Citigroup
Ross Muken – Deutsche Bank
Stephen Unger – Lazard Capital
Derik deBruin – UBS
Marshall Urist – Morgan Stanley
Steve Willoughby – Cleveland Research
Brian – Jefferies & Company
Tycho Peterson – JP Morgan
Paul Knight – CLSA
Isaac Ro – Goldman Sachs
Quintin Lai – Robert W. Baird
Previous Statements by WAT
» Waters Corporation Q2 2010 Earnings Call Transcript
» Waters Corp. Q1 2010 Earnings Call Transcript
» Waters Corporation Q4 2009 Earnings Call Transcript
» Waters Corporation Q3 2009 Earnings Call Transcript
I would like to introduce your host for today's call Mr. Douglas Berthiaume, Chairman, President and Chief Executive Officer of Waters Corporation. Sir, you may begin.
Douglas A. Berthiaume
Thank you. Good morning and welcome to the Waters Corporation third quarter financial results conference call. With me on today's call as usual is John Ornell, the Company's Chief Financial Officer; Art Caputo, the President of our Waters Division and Gene Cassis, Waters Vice President of Investor Relations.
As is our normal practice, I will start with an overview of the quarter's highlights and then John will follow with details on our financial results and provide you with our outlook for the remainder of the year, but before we start I'd like John to cover the cautionary language.
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 full year 2010. 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 January 2010.
During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures 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 include 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 A. Berthiaume
Thank you, John. We are pleased with the top line performance of our business in the third quarter. Our consistent order momentum throughout the quarter and continued positive acceptance of our new systems offerings are both encouraging signs as we look toward the fourth quarter and 2011.
For the Waters Division, momentum continued to build in the third quarter and the Division's sales grew organically at 8%. From a product line perspective, instrument systems sales growth approached 10% organically, while our recurring revenues, the combination of our chemistry and services businesses, grew at a mid single-digit rate. This increase in instrument systems sales was highlighted by the continued strong uptake of ACQUITY H-Class UPLC and our high-end mass spectrometry technology.
Looking at our end markets, we saw strong growth from pharmaceutical and chemical accounts in the quarter. Pharmaceutical sales were strongest among medium and small sized firms, with our largest pharmaceutical accounts delivering somewhat mixed results and an overall flattish year-over-year performance. Sequentially, however, sales to these large accounts improved significantly over the second quarter results. So that's a trend that's encouraging as we look towards year-end spending volumes.
Waters Division sales to chemical and applied market segments were up at a double-digit rate, and that was led by our industrial chemical customers. The strong performance by this Group represents both a nice recovery from last year's economically challenged spending levels as well as high interest in advanced research systems, such as our SYNAPT and Xevo mass spectrometry platforms.
Government and university sales were less robust in the quarter as the base quarter in 2009 included international stimulus-related business. A decline in sales volume to government labs was most apparent in Western European markets, while government spending in Asia and in the U.S. fared better. We're expecting the sales to government agencies in Europe will remain under pressure for the foreseeable future, but we are encouraged by the high level of interest for our research systems by government and university labs in the U.S. and in Asia.
Geographically, Asia and the Americas performed well in the quarter. Asia benefited from very strong sales growth in China and India, while our growth in Japan was moderately positive. The strength that we saw in Asia was primarily related to generic drug end markets in India and to overall pharmaceutical spending in China.