Waters Corporation (WAT) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with 11% EPS growth and optimistic future guidance. The transition to subscription models and new product launches are expected to drive growth. Despite some challenges in BD assets, management is confident in achieving synergies and improving execution. The Q&A section reveals cautious optimism, with a focus on pricing discipline and operational improvements. Overall, the positive guidance, strong EPS growth, and strategic initiatives suggest a positive stock price movement over the next two weeks.
Key Financial Performance
Reported Revenue Growth 7% year-over-year growth in Q4 2025, driven by high single-digit growth across pharma and industrial end markets.
Adjusted EPS Low double-digit growth to $4.53 in Q4 2025, supported by top-line strength and operational excellence.
Recurring Revenue 9% growth in Q4 2025, led by 12% growth in chemistry.
Instrument Revenue 3% growth in Q4 2025, with high single-digit LC-MS growth offset by declines in TA Instruments due to cautious spending in the U.S. and Europe.
Full-Year Revenue Growth 7% growth in 2025, driven by 8% growth in recurring revenue and 5% growth in instrument revenue.
LC-MS Revenue High single-digit growth every quarter in 2025, driven by demand for PFAS testing and new product launches.
India Revenue Low teens growth in 2025, contributing approximately $40 million, tied to the ongoing patent cliff of blockbuster drugs.
China Revenue 9% growth in 2025, driven by momentum in biotech, CDMOs, and environmental applications.
PFAS Testing Revenue 40% year-over-year growth in 2025, contributing roughly 80 basis points of growth, driven by regulatory demand.
GLP-1 Testing Revenue More than doubled in 2025, contributing approximately 100 basis points of year-over-year growth, supported by global development and manufacturing wins.
Adjusted EPS (Full Year) 11% growth to $13.13 in 2025, supported by top-line strength and effective tariff mitigation.
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Operating Highlights
Alliance iS HPLC sales: Sales more than doubled, reflecting strong adoption of the flagship platform, which reduces errors by up to 40% in QC labs.
Xevo TQ Absolute mass spec platforms: Grew over 30%, driven by PFAS demand and the launch of the Absolute XR, which sets a new benchmark for robustness and sensitivity.
MaxPeak Premier chemistry: Grew over 35%, highlighting its significant impact on the industry for larger and more complex molecules.
Bioanalytical characterization: Adoption of light scattering and BioAccord continues to build in pharma process development and quality control applications.
Bioseparations: New generation of products designed to separate complex large molecules, including SEC Columns for viral vectors and slalom chromatography for large oligonucleotides.
India generics: Revenue grew low teens, increasing by approximately $40 million, driven by the ongoing patent cliff of blockbuster drugs.
China: Sales grew 9% for the year, driven by renewed momentum in biotech and CDMOs, food and environmental applications, and academic/government stimulus tenders.
GLP-1 testing: Revenue more than doubled, contributing approximately 100 basis points of year-over-year growth, supported by global wins in development and manufacturing.
PFAS testing: Growth increased more than 40% year-over-year, adding roughly 80 basis points of growth, driven by an expanding regulatory landscape.
Service plan attachment: Increased to 54%, reflecting approximately 400 basis points of improvement in a single year, setting up for above-average service growth in 2026.
E-commerce penetration: Reached approximately 45% of consumables revenue, driving growth along with new products in the chemistry portfolio.
Subscription-based model for Empower: Achieved strong wins with successful adoption across multiple large pharma customers, supporting accretive tailwinds in 2027.
Acquisition of BD's Biosciences and Diagnostic Solutions business: Marks a transformative step forward, uniting expertise across chemistry, physics, and biology into a scientific powerhouse.
Integration of BD Biosciences: Clear line of sight to cost synergies of $55 million and revenue synergies of $50 million in 2026, with a focus on commercial execution and forecasting discipline.
New operating structure: Waters reorganized into four divisions to enhance accountability and provide transparency into performance across key segments.
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Risk or Challenges
Integration of BD Biosciences and Diagnostic Solutions: The acquired business results came in below expectations due to weakened demand in China, delays in U.S. government export approvals, and a milder flu season impacting the point-of-care business. These factors could hinder the expected synergies and growth from the acquisition.
Subscription-based model transition: The shift to a subscription-based model for Empower software reduced overall instrument growth rate by a low single-digit percentage for the quarter. This transition could create short-term revenue timing challenges as revenue is recognized over the life of the contract rather than upfront.
China market conditions: Demand in China weakened due to increased focus on reducing consumption in diagnostics testing. This could impact revenue growth in a key market.
U.S. government shutdown: The U.S. government shutdown delayed export approvals, affecting the Biosciences business. This could create operational disruptions and revenue delays.
Point-of-care business performance: The point-of-care business was impacted by a milder flu season compared to the previous year, leading to reduced demand and revenue.
TA Instruments performance: TA Instruments declined for the quarter due to cautious spending in the U.S. and Europe, reflecting potential challenges in customer spending trends.
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Guidance & Outlook
Revenue Growth: For 2026, Waters Corporation expects total reported revenue of approximately $6.405 billion to $6.455 billion, implying blended year-over-year constant currency growth of approximately 5.3%.
Adjusted Operating Margin: The company anticipates delivering an adjusted EBIT margin of 28.1% in 2026, reflecting approximately 80 basis points of adjusted operating margin expansion at Waters on a stand-alone basis.
Adjusted EPS: Full-year 2026 adjusted earnings per share are projected to be $14.30 to $14.50, representing 8.9% to 10.4% growth.
Acquired Business Contribution: The Biosciences and Diagnostic Solutions businesses are expected to contribute $3 billion of revenue in 2026, with approximately 2.5% underlying constant currency growth on an owned-period basis.
Revenue Synergies: Approximately $50 million of revenue synergies are expected in 2026, with $25 million in corresponding adjusted EBIT.
Cost Synergies: The company expects to realize approximately $55 million of adjusted EBIT from cost synergies in 2026.
First Quarter 2026 Revenue: Total reported first quarter 2026 revenue is expected to be $1.198 billion to $1.211 billion, with the Biosciences and Diagnostic Solutions businesses contributing $480 million.
First Quarter 2026 Adjusted EPS: Adjusted earnings per fully diluted share for Q1 2026 are expected to be in the range of $2.25 to $2.35, reflecting flat to 4.4% growth.
Idiosyncratic Growth Drivers: The company is expanding its growth driver framework to include biologics and informatics, in addition to GLP-1s, PFAS, and India generics. These drivers are expected to contribute over 200 basis points of annual revenue growth accretion through 2030.
Subscription-Based Model Transition: The phased transition of Empower from a license-based model to a subscription-based offering is expected to add incremental high-quality recurring revenue, with significant benefits beginning in 2027.
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Shareholder Return Plan
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Key Q&A
Q:What is the management's take on the BD results and the numbers, particularly for lagging parts of the portfolio?
A:Management acknowledged several issues in Q4 that impacted growth in BD Diagnostic Solutions and Bioscience businesses, which were not fully known in Q3. They are focused on improving operational execution, implementing pricing discipline, ensuring launch readiness, and delivering synergies. They are confident in achieving $50 million in revenue synergies and a 5.3% growth rate for the combined business by 2026.
Q:How is the Empower transition impacting instruments, and what is the go-forward P&L impact?
A:The Empower transition caused a 250 basis point headwind this quarter. Management is pleased with the transition from on-prem to subscription, which is expected to create recurring revenue. They have accounted for Empower headwinds in their guidance and are optimistic about the strong funnel and order growth for instruments in 2026.
Q:Why does the full-year guide imply deceleration after Q1?
A:The full-year guide of 5.5% to 7% reflects prudence and assumes no recovery in academic, government, and pharma research segments, mid-single-digit growth in China, and no stimulus revenue. The Q1 guide benefits from strong momentum and four extra working days, which derisks the remainder of the year.
Q:What is the outlook for BD assets and their recovery path?
A:Management expects a low single-digit decline in Q1, with growth gradually ramping up throughout the year as headwinds like the DRG issue become rooted in the baseline. They are focused on improving operational execution, pricing discipline, and launch readiness to drive recovery.
Q:What is the purpose of the deal desk for pricing, and which product areas are in focus?
A:The deal desk centralizes pricing and discounting decisions to maintain discipline, especially for instruments and recurring revenue products. It focuses on innovative products like the FACSDiscover line and differentiated reagents, ensuring appropriate pricing and reducing unnecessary discounting.
Q:What is the pro forma leverage for Waters, and how will it evolve?
A:The pro forma net debt is around $4.6 billion to $4.7 billion, translating to 2.4x net debt-to-EBITDA. Management expects to reduce this to below 2x within 18 months. The pro forma interest expense for 2026 is approximately $179 million.
Q:What are the synergy targets for the acquired businesses, and how are they progressing?
A:The initial year 1 guidance assumes 5% to 6% cost reduction in the acquired businesses' OpEx, driven by site consolidations and commercial efficiencies. Management is confident in delivering these targets and sees potential upside based on early momentum.
Q:What level of commercial investment is needed for BD assets to improve execution?
A:Management is deploying central teams to implement pricing discipline, launch readiness, and operational excellence. They are also investing in commercial readiness for new product launches, ensuring resources are allocated to improve execution and uptake.
Q:What is driving the strong performance in chemistry, and how does pricing contribute?
A:Chemistry growth of 12% is driven by innovative products like MaxPeak Premier technology and affinity chromatography. Pricing improvements contribute 200 basis points overall, with 400-450 basis points for like-for-like SKUs in chemistry. Management sees significant pricing opportunities for BD assets.
Q:How conservative is the guidance for the acquired portfolio, and what adjustments have been made?
A:The guidance reflects prudence, baking in headwinds from China DRG and continued slowness in academic and government markets. Pricing improvements and operational enhancements are not included in the numbers, leaving room for upside.
Q:What is the operating margin progression with the addition of BD?
A:The operating margin for 2026 is expected to be 28.1%, with BD Biosciences and Diagnostic Solutions contributing 22.4%. This aligns with the long-term margin expansion target of 27% to 32% over five years, with 100 basis points of expansion in the first year.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific pacing of BD assets' recovery and the exact level of conservatism baked into the guidance. They also did not provide detailed numerical breakdowns for certain pricing and synergy assumptions, relying on general statements about prudence and operational improvements.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Advanced Diagnostics
BD Biosciences
Biosciences Diagnostic
Diagnostic Solutions
EBIT
Empower
Europe digit
LC MS
Sciences
Solutions business
Waters
adjacency
baseline
benefit
bioseparations characterization
brand
change
cost synergy
deal
diagnostics
digit Americas
digit Asia
discipline
government
informatics
integration
model
percentage
platform
sale end
starting point
subscription
tailwind
transaction
transition
vector
wave
WAT Transcript
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Waters Corporation (WAT) Q4 2025 Earnings Call Transcript
Positive2-9
The earnings call indicates strong financial performance with 11% EPS growth and optimistic future guidance. The transition to subscription models and new product launches are expected to drive growth. Despite some challenges in BD assets, management is confident in achieving synergies and improving execution. The Q&A section reveals cautious optimism, with a focus on pricing discipline and operational improvements. Overall, the positive guidance, strong EPS growth, and strategic initiatives suggest a positive stock price movement over the next two weeks.
WAT Slides
WAT Report
Frequently Asked Questions
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