Waters Corp 2026 Q2 Earnings Call

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'll 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 and Company, or BD. We'll 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.

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. 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 built 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 $1.645 billion, comprising of $828 million of organic revenue and $817 million of Waters Biosciences 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. Biosciences 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 U.S. dollar strengthened since our last call. Adjusted EPS grew 3% to $3.05, landing at the high end of our guidance range. 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 DMPK 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 Xevo MRT P10.

Both deliver step change improvements in sensitivity as the Cyclic IMS P20 raises the bar in structural and spatial omics, while the Xevo 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 bio separations, we launched our BioResolve Peptide and GTS Resolve Lipid columns. Both deliver 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 Diagnostic 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 Vac-Tek 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 COR. 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 Xevo TQ Absolute XR IVD mass spec, the industry's most sensitive and robust clinical IVD system. It delivers five times greater sensitivity and a sixfold increase in robustness for critical applications including women's health, cancer assessment, and toxicology, further expanding our technological advantage in the IVD market. The Materials 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 coin 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 our strategy was built to deliver, and legacy Waters is now structurally a durable, high single-digit growth business.

In 2026, our organic business has accelerated further, marked by 10% constant currency growth for the first half of the year. These industry-leading results reflect outstanding growth momentum, now amplified as our end markets have continued to strengthen and early cross-selling revenue synergies have continued to build. 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 bio separations 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 out-licensing 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 out-licensing 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.