Waters Corporation · NYSE:WAT
Waters — Investor Day (March 2017)
169 slides from Waters's investor day presentation, Mar 2, 2017
Slide 1: Forward-looking statements notice
PLEASE NOTE: This presentation contains financial projections and other forward- looking statements that are based on current expectations and assumptions and currently available data, and are neither predictions nor guarantees of future events or performance. They speak only as of the date hereof (
Slide 2: Waters Corporation 2017 Investor Day
Waters Corporation 2017 Investor Day March 2, 2017
Slide 3: Welcome and Overview
Welcome and Overview John Lynch Vice President, Investor Relations
Slide 4: Cautionary Statements
Cautionary Statements This presentation may contain “forward-looking” statements regarding future results and events. For this purpose, any statements that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words, “may”, will”, “should
Slide 5: Agenda for the Day
Agenda for the Day 8:30 am Welcome and Cautionary Statements John Lynch Strategy and Overview Chris O’Connell Pharmaceutical Mike Harrington Materials Terry Kelly 10:20 am BREAK Food Rohit Khanna Products and Innovation Ian King Financials Sherry Buck Panel Q&A ALL Closing Comments Chris O’Connell 1
Slide 6: Chris O'Connell
Chris O’Connell President and Chief Executive Officer
Slide 7: Objectives for Today
Objectives for Today 1 Broad look at Waters’ markets, products and growth strategies 2 Outline framework for long-term shareholder value creation 3 Gain insight from talented and experienced management team ©2017 Waters Corporation 7
Slide 8: Management Team
Management Team Chris O’Connell Mark Beaudouin Sherry Buck Gene Cassis Mike Harrington President and CEO SVP, General Counsel SVP, CFO SVP, Senior Advisor SVP, Global Markets and Secretary Terry Kelly Rohit Khanna Ian King Liz Rae Dave Terricciano SVP and President, SVP, Applied Technology SVP, Inst
Slide 9: Summary: Focused on Long-Term Value Creation
Summary: Focused on Long-Term Value Creation Structurally attractive markets with larger growth opportunities Unique growth strategy driven by robust organic innovation Sustained operational improvement Continued judicious use of capital Performance-driven culture and proven management team ©2017 Wa
Slide 10: Values and Culture Are Key Performance Drivers
Values and Culture Are Key Performance Drivers Deliver Benefit “Deliver Benefit comes in a whole lot of different ways. You deliver benefit to your customers; you deliver benefit to your employees; you deliver benefit to your stockholders; you deliver benefit to the world. The secondary benefit, if
Slide 11: Rich History of Focus, Innovation and Growth
Rich History of Focus, Innovation and Growth 1958: Jim Waters starts 1980: Waters 1994: Waters splits from Millipore company to develop and becomes a division manufacture made-to-order of Millipore; 1,000 1995: IPO specialty instruments employees 1996: Acquired TA Instruments and Micromass • Launche
Slide 12: Waters Today
Waters Today $11 Billion market served 6,900 employees worldwide $2.2B annual sales active in 125 countries $555M free cash flow1 52% technology sales 30% and services employees operating margin1 38% 14% employees with 10+ years ROIC R&D Centers Manufacturing Major Sales Offices of service 1Non-GAAP
Slide 13: Strong 2016 Builds on Long-Term Track Record
Strong 2016 Builds on Long-Term Track Record Above-market growth, Industry-leading operating Modest financial driven by focused margins and continued leverage to drive organic innovation operating leverage double-digit EPS growth 12% 11% 10% 8% 7% 6% Revenue Growth Operating Profit Growth EPS Growth
Slide 14: Delivering Strong ROIC for Investors
Delivering Strong ROIC for Investors 14% Organic Revenue Growth 10% Operating Leverage Cash Flow Generation Efficient Capital Deployment Waters Comparator Group FYE 2016: (Non-GAAP EBIT*(1-t)/Invested capital): Invested capital = equity + long term debt ©2017 Waters Corporation 14
Slide 15: Corporate Strategy
Corporate Strategy Waters THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 16: Waters' Vision and Corporate Strategy
Waters’ Vision and Corporate Strategy WHERE WE COMPETE: Waters is the world’s leading specialty Serve the most demanding markets and exacting customers measurement company, delivering benefit through innovations and people that enable HOW WE COMPETE: customer success in the life, materials, and food
Slide 17: Corporate Strategy Reflects Our Specialty Vision
Corporate Strategy Reflects Our Specialty Vision 1 Focused segments Markets driven by regulation and rising quality standards 2 Sustained innovation Product superiority in LC, LC/MS, Thermal and Rheology 3 Complete offerings Transformational engineering to enable system intelligence 4 Expanding appl
Slide 18: Very Selective About Where We Compete
Very Selective About Where We Compete Waters competes in $11B 20% of the $50B global analytical instruments market Analytical Instruments Specialty segments Market growing faster than the total market $39B 2015, Worldwide Revenue. The analytical instrument market is based on industry data and manage
Slide 19: Focused on High-Value Technology
Focused on High-Value Technology Sophisticated, high-precision specialty measurement technologies for the most demanding applications ©2017 Waters Corporation 19
Slide 20: Specialty Measurement Model Drives Industry-Leading Margins
Specialty Measurement Model Drives Industry-Leading Margins Unique product mix Informatics Instruments gradually trending to more profitable, 11% 40% recurring service, chemistry and Chemistry informatics lines 16% Product Mix Highly-differentiated Service system offerings and competitive advantage
Slide 21: Enhancing Waters' Organic Innovation Advantage
Enhancing Waters’ Organic Innovation Advantage $125 Innovation to Drive the Core $119 Strong near-term product pipeline $101 $108 $96 Informatics; LC upgrades; Discovery TA 9% 9% 8% 8% 8% Transformational Engineering Toward complete system intelligence Putting it all together: what’s coming
Slide 22: Broad Global Balance with Strength in Emerging Markets
Broad Global Balance with Strength in Emerging Markets Asia Americas Developed Markets: sticky share, high recurring revenue 36% 37% Emerging Markets: Geographic leading position where Mix rising regulation and Europe market development drive high growth 27% Note: 2016 numbers, 100% = $2.2B ©2017 Wa
Slide 23: Concentrated in Structurally Attractive Markets
Concentrated in Structurally Attractive Markets Reporting Mix Environment Clinical 5 % 2% 56 % Pharma Research 6% Market Pharma 31 % Industrial Food Mix 58% 12 % 13 % Government/ Academic Materials 17% Note: 2016 numbers, 100% = $2.2B ©2017 Waters Corporation 23
Slide 24: Global Market Trends Shaping Our Strategy
Global Market Trends Shaping Our Strategy Global expansion of patient access to medicines Increasing Customer Needs Increasing complexity of biologic molecules in High-Value Measurement ▪ Data security and integrity Rising standards for materials performance and quality ▪ More accessible technologie
Slide 25: Summary of Markets and Strategies
Summary of Markets and Strategies PHARMA MATERIALS FOOD RESEARCH ENVIRONMENT CLINICAL Total Tools $15B $10B $9B $8B $4B $4B Market Waters Chosen Segments Segment MSD+ MSD- M-HSD L-MSD L-MSD HSD Market Growth Core business #2 business High potential High-visibility Intriguing Significant upside Water
Slide 26: Up Next: Markets, Products, Strategies and Financials
Up Next: Markets, Products, Strategies and Financials Mike Harrington Terry Kelly Rohit Khanna Ian King Sherry Buck Pharma Materials Food Innovation Financials Sustainable Attractiveness of Increasing Strong near-term Organic growth, market trends Materials market regulation core innovation leading
Slide 27: Summary: Focused on Long-Term Value Creation
Summary: Focused on Long-Term Value Creation Structurally attractive markets with larger growth opportunities Unique growth strategy driven by robust organic innovation Sustained operational improvement Continued judicious use of capital Performance-driven culture and proven management team ©2017 Wa
Slide 28: Reflection: An Exciting Journey
Reflection: An Exciting Journey Delivering strong results Enhancing innovation Developing the organization Expanding the vision Staying true to core values Our best days are ahead! ©2017 Waters Corporation 28
Slide 29: Waters
Waters THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 30: Mike Harrington: Pharmaceutical
Mike Harrington, Ph.D. Senior Vice President, Global Markets Pharmaceutical
Slide 31: Pharmaceutical section outline
▪ Waters in the Pharmaceutical Market Today ▪ Keys to Sustainable Growth ▪ How Waters is Positioned to Win
Slide 32: Key Messages — Pharmaceutical
Key Messages — Pharmaceutical Global pharmaceutical trends support sustainable growth for Waters Regulation and drug production volumes drive Waters’ business Waters has sustainable “annuities” in chemistry, service and informatics Waters is the leading player in high-value, regulated workflows ©201
Slide 33: Pharmaceuticals: Our Core Business and Top Priority
Pharmaceuticals: Our Core Business and Top Priority We compete in ~$4B of the $15B global pharmaceuticals tools market Waters 24% 6% market growth TA Global Pharmaceuticals Market 3% ~25% market share Note: The pharma market is based on industry data and management estimates. ©2017 Waters Corporatio
Slide 34: Pharmaceutical Business Overview
Pharmaceutical Business Overview CAGR $1,206M 7% $847M 63% Americas Europe Asia Service, Informatics & % Revenue 38% 28% 34% 57% Chemistry 5Y CAGR % 6% 5% 12% Instruments 43% 37% 2011 2016 R E V E N U E B Y P R O D U C T, % 1 R E V E N U E P E R C E N TA G E A N D G R O W T H P E R C E N TA G E B Y
Slide 35: Market Trends—Pharmaceutical
Market Trends—Pharmaceutical Prescription Medicine Growth Increasing drug development and production globally Growing Diversity Industry growth is less dependent on “big pharma” Rise of Generics Longer lifecycles for drug production and testing Increasing Complexity Increasing demands for testing an
Slide 36: Prescription Medicine Growth
Prescription Medicine Growth
Slide 37: Prescription Medicine Growth: Global healthcare landscape
Prescription Medicine Growth Global healthcare landscape 6.0% $628 BILLION of Global GDP on prescription drugs Up from 5.2% in 2000 ~15% of Total Healthcare (WHO report, 2015) (IMS Institute report, Nov 2015) 400 MILLION 50% Without access to basic of the world’s population healthcare, clean water a
Slide 38: Prescription Medicine Growth: Faster, more global
Prescription Medicine Growth Faster, more global in the coming years Large Molecule Small Molecule CAGR CAGR $868B 2015-20 2015-20 $5.1B +7% +5.5% 7.5% +1% $1.6B $628B $330B 10.5% +5% $3.9B $594B $200B $3.0B $1.1B $150B $0.8B 4.5% $3.5B 4.5% $538B $2.8B $444B $428B $2.2B 2010 2015 2020 2010 2015 202
Slide 39: Prescription Medicine Growth: Drives spending
Prescription Medicine Growth Drives spending in development and QA/QC REVENUE DRIVERS Discovery Development QA/QC R&D Spending $$ $$$ – Relative # of Tests Low Medium High Drug Sales – $ $$$ Waters Revenue Drivers W AT E R S R E V E N U E B Y F U N C T I O N , % 1 Discovery Development QA/QC Small M
Slide 40: Growing Diversity
Growing Diversity Waters ‘THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 41: Growing Diversity: India and China
Growing Diversity Strong and sustainable growth in India and China 8% 11% of WAT Pharm 7% 12% of WAT Pharm CAGR CAGR 13% 20% 2011 2016 2011 2016 INDIA REVENUE CHINA REVENUE Largest # of FDA-approved manufacturing sites Huge growth in APIs, drug product and TCM outside of US “Gold Pharma” Joint Open
Slide 42: Growing Diversity: More biologics, more generics
Growing Diversity More biologics, more generics 2005 2015 Drug Manufacturer $B Drug Manufacturer $B Lipitor Pfizer 6.3 Humira Abbott 8.6 Nexium AZ 3.4 Abilify Otsuka 7.2 3 of the Top 10 Prevacid Takeda 3.3 Enbrel Amgen 6.1 are now Zocor Merck 3.1 Crestor AZ 6.1 Biologics Advair Diskus GSK 2.8 Lantus
Slide 43: Growing Diversity: Business by segment
Growing Diversity More biologics, more generics Other 4% 7% Generic 18% Top Ten Pharma 25% Companies: 33% in 2005 Small Molecule 53% 36% 18% in 2015 Innovator 14% CRO 12% 13% 19% Biologics 2005 2015 W AT E R S B U S I N E S S B Y S E G M E N T ©2017 Waters Corporation 43
Slide 44: Rise of Generics
Rise of Generics Waters ‘THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 45: Rise of Generics: Lipitor example
Rise of Generics Lipitor (atorvastatin) example 12,886 12,675 12,401 Pfizer Inc Mylan Watson (Actavis) Dr Reddys Ranbaxy (Sun) 12,187 11,494 10,862 10,733 9,577 9,231 Generic Atorvastatin Multiple Companies filed ANDAs In the US in 2015 ~87M US Generic Prescriptions (Est $3B in Sales) 3,948 2,313 2,
Slide 46: Rise of Generics: HPLC column annuity
Rise of Generics HPLC column “annuity” resulting from extended drug lifecycles CORTECS XSELECT CSH Approaching 1M Columns XBRIDGE ACQUITY UPLC SunFire ATLANTIS 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 XTERRA µ B O N D A PA K R E V E N U E S T R E A M SYMMETRY NOVA-PAK SPHERISORB UBONDA
Slide 47: Rise of Generics: Service revenue annuity
Rise of Generics Longer lifecycles also deliver service revenue annuity 10% Self-Service 80% of ALL Waters LC systems sold 83% of those are maintained 7% Other Vendors Service since 1996 are still in ACTIVE USE by Waters 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 ACTIVE LC BY AGE IN PHARM
Slide 48: Increasing Complexity
Increasing Complexity Waters ‘THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 49: Increasing Complexity: Biologics and biosimilars
Increasing Complexity Emergence of biologics and biosimilars 907 Biologics in development (Phase I, II & III), targeting more than 100 diseases Source: PhRMA Report, Medicines in Development, 2013 ©2017 Waters Corporation 49
Slide 50: Small molecule vs. large molecule biologics
Increasing Complexity Small molecule vs. large molecule biologics Simple Complex 151 Da 150,000 Da Chemical Biological mAb “Incidental” “Fundamental” (5 parameters) (25 parameters) “I made what I said” “What did I make?” ©2017 Waters Corporation 50
Slide 51: Small and simple vs. large and complex
Increasing Complexity Small and simple vs. large and complex ©2017 Waters Corporation 51
Slide 52: Biopharmaceutical workflows
Increasing Complexity Biopharmaceutical workflows DEVELOPMENT Protein Integrity Antibody Subunits (Fc, Fab) Peptide Mapping PTM ID Disulfide Characterization Glycan Characterization QUALITY CONTROL Monoclonal Antibodies N-Glycan Monitoring Peptide Mapping Monitoring PTM Monitoring COMPLIANT DATA ACQ
Slide 53: Rising Standards
Rising Standards Waters ‘THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 54: Rising Standards: FDA presentation
Rising Standards FDA presentation | June 2015 ©2017 Waters Corporation 54
Slide 55: Rising Standards: FDA presentation
Rising Standards FDA presentation | June 2015 ©2017 Waters Corporation 55
Slide 56: Rising Standards: FDA presentation
Rising Standards FDA presentation | June 2015 ©2017 Waters Corporation 56
Slide 57: Data integrity guidances
Rising Standards Data integrity guidances Medicines & Healthcare Products Pharmaceutical Inspection Regulatory Agency (UK) Co-Operation Scheme Website Q and A 2015, GMP Data Integrity, March 2015 PI-041-1 (DRAFT 2), DRAFT Guidance April 2016 GxP Data Integrity, DRAFT July 2016 August 2016 Released J
Slide 58: FDA warning letters show data integrity issues increasing
Rising Standards FDA warning letters show data integrity issues increasing 80% 74% NUMBER OF % D ATA WA R N I N G 9 INTEGRITY LETTERS 55% 8 28 26% 10 5 29 10 12 13 2013 2014 2015 2016 DI-OUS DI-US Other Worldwide Percent ©2017 Waters Corporation 58
Slide 59: Data integrity — what is the cost?
Rising Standards Data integrity — what is the cost? Lost Revenue Hard Costs Opportunity Costs Major Global Manufacturer WL in 2012; Plant closed for 9 months; ($20M) ($35M) ($9M) WL closed out after 2 years In FY 2012 Remediation Based on 20% ROCE Indian Manufacturer ($50M) ~($35M) ($14M) WL in 2015
Slide 60: Empower: the gold standard chromatography data system
Rising Standards Empower: the “gold standard” chromatography data system Installed Over More than on over 70 400,000 4,000 Supporting10 countries users networks languages Deployed at all Regulators and >60% 20.5% 50 customers TOP 50 TRAINED CDS market share CAGR for Empower in Pharma sales (Q4 2010-
Slide 61: Data integrity is about more than just software
Rising Standards Data integrity is about more than just software Quality consumables LC Quality robust Qualification UPLCs and services HPLCs Independent Regular LC ASR Maintenance standards Reproducible columns ©2017 Waters Corporation 61
Slide 62: ACQUITY QDa Systems give more information
Rising Standards ACQUITY QDa Systems give more information, clarity and confidence ©2017 Waters Corporation 62
Slide 63: Towards ACQUITY QDa becoming a Standard of Measurement
Rising Standards Towards ACQUITY QDa becoming a “Standard of Measurement” Method Development Genotoxic Impurities Drug Discovery In vitro Metabolism assays Library Purification and Analysis Peptide Drug QC On-line Reaction Monitoring All of the above applications have been published by
Slide 64: Pharmaceutical Industry Trends: Play to Waters' strengths
Pharmaceutical Industry Trends Play to Waters’ strengths Prescription Fuels growth in Development and QA/QC, where Waters is strong Medicine Growth Growing Diversity Gives more stable, predictable growth in our core business Rise of Generics Growth in our profitable “annuity” revenue streams Increas
Slide 65: Key Messages — Pharmaceutical
Key Messages — Pharmaceutical Global pharmaceutical trends support sustainable growth for Waters Regulation and drug production volumes drive Waters’ business Waters has sustainable “annuities” in chemistry, service and informatics Waters is the leading player in high-value, regulated workflows ©201
Slide 66: Terry Kelly: Materials
Terry Kelly Senior Vice President and President, TA Instruments Materials
Slide 67: Materials section outline
▪ Waters in the Materials Market Today ▪ Growth Drivers ▪ Positioned to Win
Slide 68: Key Messages — Materials
Key Messages — Materials Characterizing material properties is critical for a wide range of industries TA has a robust new product pipeline and opportunities for additional M&A Strategically well positioned with global organization Opportunities for synergies with Waters technology and customers ©20
Slide 69: ©2017 Waters Corporation
©2017 Waters Corporation 69
Slide 70: ©2017 Waters Corporation
©2017 Waters Corporation 70
Slide 71: ©2017 Waters Corporation
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Slide 72: ©2017 Waters Corporation
b———@ Ares Eon Pfizer) <> mM © © Lilt, > MERCK 4040 Google PRG «iP Gis (intel) ewe Procter& Gamble SOEING Cy A Can on &>medtronic Ferrari Mercedes-Benz ©2017 Waters Corporation
Slide 73: Materials Characterization Market
Materials Characterization Market $2.5B $1.3B 19% #1 Approximate size of Addressable market. TA share of this highly Market leading position materials characterization Leading technology fragmented market, in thermal analysis and market. Growing at 4-5% in acquired products, making it the #1 player.
Slide 74: TA Growth
TA Growth 7% 10-year CAGR for 2/3 1/3 Organic growth Acquisition of TA Instruments complementary technologies ©2017 Waters Corporation 74
Slide 75: Customer Base
Customer Base Pharma Government Industrial 12% Materials Asia Americas 10% 70% Food 85% 33% 44% Academic 3% 20% Segment Market Geographic Mix Mix Mix Europe 23% ©2017 Waters Corporation 75
Slide 76: Build Instruments That Can Handle…
Build Instruments That Can Handle…. 90 % 90 % APPLICATIONS CUSTOMERS …and build them over and over again, efficiently. ©2017 Waters Corporation 76
Slide 77: Common Platforms—Thermal
Common Platforms—Thermal ©2017 Waters Corporation 77
Slide 78: Common Platforms—Rheology
Common Platforms—Rheology ©2017 Waters Corporation 78
Slide 79: Tiered Product Strategy
Tiered Product Strategy TOP OF THE LINE COMPETITION All features and accessories included as standard. Specs and features PRICE Unmatched targeting competitive performance. units performance. Good basic Price inflexible. Flexible on price and performance. configuration. Targeting price sensitive seg
Slide 80: Tiered Product Strategy
Tiered Product Strategy HR-1 HR-2 HR-3 DSC 25 DSC 250 DSC 2500 TGA 55 TGA 550 TGA 5500 ASP + $10-15K + $15-20K ©2017 Waters Corporation 80
Slide 81: Growth Drivers — Customer
Growth Drivers — Customer NEW SYSTEM SALES 25,000 installations 50% 40% 45%of customers say… …the needs for tests are increasing TA Customers New Users 10% 96% 96% TA customers Would recommend that would buy TA to a colleague from TA again Competitive Users ©2017 Waters Corporation 81
Slide 82: Growth Drivers — New Products
Growth Drivers — New Products High performance, good cost structure 7 New thermal analysis 6 New products for high 3 New microcalorimeter products last temp thermal analysis platforms 12 months ©2017 Waters Corporation 82
Slide 83: Growth Drivers — Acquired Products
Growth Drivers — Acquired Products Strong technology, market share growth opportunity RUBBER RHEOMETERS ELECTROFORCE NEW MAG-LEV TGA ©2017 Waters Corporation 83
Slide 84: Growth Opportunity — Leverage TA and Waters
Growth Opportunity — Leverage TA and Waters $400M+ in combined business at chemical and materials accounts Direct overlap in key customer accounts: – Thermal, Rheology, LC, LC-MS, GPC overlap at chemical and materials accounts – All top 25 pharmaceutical companies are TA customers (thermal, rheo
Slide 85: Growth Driver — M&A Opportunities
Growth Driver — M&A Opportunities Bolt-on opportunities. Complement current core measurements, smaller deals. Consolidate. Grow share in existing markets, leverage combined organizations. Adjacent. Gain larger share of materials labs. Same space, new technology. ©2017 Waters Corporation 85
Slide 86: Materials Characterization Summary
Materials Characterization Summary MARKET ATTRACTIVENESS RIGHT TO WIN STRATEGY SUMMARY ▪ Large addressable market; ▪ Technology leadership: ▪ Organic R&D investment TA segments grow at or New and acquired products “win the measurement” above 4% market growth ▪ Large installed base of ▪ 90/90, platfo
Slide 87: Short Break
Short Break
Slide 88: Rohit Khanna: Food
Rohit Khanna, Ph.D. Senior Vice President, Applied Technology Food
Slide 89: Global Food Landscape
Global Food Landscape 50-60% …BUT 100 % by 2050, the world population of the US population have a desire to will increase by 28% takes a prescription drug… eat safe food More than 10% 30% of the food produced is of the food entering the wasted post-harvest in some way. Japanese market undergoes a la
Slide 90: Food section outline
▪ Food Testing Market Today ▪ Food Industry Trends ▪ Waters’ Unique Value Proposition
Slide 91: Key Messages— Food Market
Key Messages— Food Market Food security, brand value and regulations drive opportunity Growing market challenges drive LC/MS as standard of measurement Waters’ strength is in fastest growing segments of food testing Waters is strongly positioned with key technologies and relationships ©2017 Waters C
Slide 92: Food Market Today
Food Market Today Waters ‘THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 93: Food Market: A High-Priority Growth Market
Food Market: A High-Priority Growth Market We compete in $1.8B of the $9B global food testing market Chemical Microbiology Analysis Waters 7% 47% 53% 17% market growth TA ~12% Global Food Testing Market Global Food Testing Market 2% market share Note: The food testing market is based on industry dat
Slide 94: Food Testing Market: fastest growth segments
Food Testing Market Waters is concentrated in the fastest growth segments Food Research Food Safety Food Research Food Safety 11 % 56 % 19% 60% Research and 10% growth 6% growth Safety have Food Food strong growth Quality Worldwide Quality Waters and Market Mix Market Mix complexity 33% 21% 6% growt
Slide 95: Food Testing Market: Asia
Food Testing Market Waters particularly well positioned in fast growing Asia Market Emerging Asia Americas Asia Americas economies represent fastest 28% 36% 53% 28% 9% growth 6% growing growth markets; strong Market Waters opportunity Geographic Geographic exists in Mix Mix developed Europe economie
Slide 96: Food Industry Trends
Food Industry Trends Waters ‘THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 97: Food Industry Trends
Food Industry Trends Growing need for selective, sensitive, flexible technologies Food Security All people, at all times, have access to sufficient, safe and nutritious food Increased Increasing consumer demand for availability, safety, quality, authenticity Food Production International An essentia
Slide 98: International Food Trade
International Food Trade Drives testing at export site and again at import site INDIA RICE EXPORTS USA RICE IMPORTS Note: Data derived from FAOSTAT — China not included. ©2017 Waters Corporation 98
Slide 99: Increasing Regulations
Increasing Regulations Drive food testing requirements Illustrative example of Japan regulations driving sales SELECTION OF RECENT REGULATIONS growth in Japan and China 2011: US signed FSMA1 into law 2015: China introduced new food JPL Implemented Japan safety law China 2016: Implementing rules fina
Slide 100: Brand and Product Value
Brand and Product Value Escalating press coverage of food fraud and adulteration Daily Record Mislabeling Among the Most Commonly Sampled Fish Types1 Guardian.co.uk 1From Oceana.org 100 ©2017 Waters Corporation
Slide 101: Waters' Unique Value Position
Waters’ Unique Value Position
Slide 102: Market Drivers
Market Drivers Key market drivers support LC/MS as standard of measurement ATTRIBUTES CURRENT ANALYTICAL SITUATION Increasing regulatory oversight Measure analytes to strict tolerances Food Quality High throughput Improving precision reduces costs of additives Increasing regulatory oversig
Slide 103: Types of Testing
Types of Testing LABEL CLAIMS FORTIFICATION FUNCTIONAL FOODS By law, in most countries there Many governments have Food is typically a high is some requirement to state mandated fortification of foods volume, low margin business. the content of nutrients with with micronutrients either to Companies
Slide 104: Types of Testing
Types of Testing CHEMICAL COMPLIANCE ECONOMIC ADULTERATION SUBSTITUTION Governments have Melamine is an example of Substituting high value fish established strict criteria economic adulteration. with an inferior species is a around the permissible levels Melamine was added to milk common occurrence.
Slide 105: Waters' Unique Value Proposition
Waters’ Unique Value Proposition Demonstrated Global food regulators, food industry groups, and global food companies Industry Leadership Key Opinion Leader Ensuring fit-for-purpose workflow solutions Network Global Applications Delivery of assured success globally Expertise Regulatory Support Leadi
Slide 106: Demonstrated industry leadership
Waters’ Unique Value Proposition Demonstrated industry leadership ▪ Food testing training laboratories ▪ Support of US Senate on Food Safety regulation ▪ Chairing APEC working groups on food safety capacity building Leadership and commitment to ▪ Leadership position on the World Bank Global Food Saf
Slide 107: Key opinion leader network
Waters’ Unique Value Proposition Key opinion leader network Prof. Chris Elliot Prof. Clare Mills Prof. Devin Peterson Global food companies Queens U, Belfast U. of Manchester Ohio State U. and research institutes Author of UK Gov’t Leading research Flavor and taste Prevention of disease commissioned
Slide 108: Global application expertise
Waters’ Unique Value Proposition Global application expertise In-depth knowledge of customer’s analytical challenges Development of solutions for specific customer challenges Application expertise and Rapid response to emerging issues local support critical for Melamine in pet food and subsequently
Slide 109: Food-focused innovation—sensitivity
Waters’ Unique Value Proposition Food-focused innovation—sensitivity ACQUITY I-Class/Xevo TQ-XS Detect and accurately quantify contaminants at low regulatory limits CHALLENGE SOLUTION ▪ Regulations require export testing for banned ▪ LC-MS is the “gold standard”1 chemical residues at trace levels in
Slide 110: Food-focused innovation — ease of use
Waters’ Unique Value Proposition Food-focused innovation — ease of use ACQUITY QDa Make mass spectrometry accessible and available closer to point of need CHALLENGE SOLUTION ▪ R&D group required to quantify capsaicinoids at ▪ ACQUITY H-Class/PDA/QDa tested in R&D lower LOQs ▪ Required Limit of Quant
Slide 111: Food-focused innovation — direct analysis
Waters’ Unique Value Proposition Food-focused innovation — direct analysis REIMS Reduce the need for lengthy sample preparation procedures Each cluster representative of a fish species CHALLENGE SOLUTION ▪ Economic or malicious adulteration or REIMS offers a tool for rapid, automated speciation subs
Slide 112: Key Messages—Food Market
Key Messages—Food Market Food security, brand value and regulations drive opportunity Growing market challenges drive LC/MS as standard of measurement Waters’ strength is in fastest growing segments of food testing Waters is strongly positioned with key technologies and relationships ©2017 Waters Co
Slide 113: Waters
Waters THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 114: Ian King: Products and Innovation
Ian King Senior Vice President, Instrument Technology Products and Innovation
Slide 115: Key Messages — Products and Innovation
Key Messages — Products and Innovation Focused and disciplined R&D program, investing for growth Innovation to drive the core business Transformational engineering to meet changing market needs Breakthrough innovation to change the world ©2017 Waters Corporation 115
Slide 116: The Diversity of Problems Our Products Solve
The Diversity of Problems Our Products Solve Can I sell this coffee to the EU? Does our new drug give us the results Does this new we expect? composite have the right mechanical properties? What poisoned this patient? Will this ADC deliver Is my water its cytotoxic payload safe to drink? Can we rele
Slide 117: Waters Global Research and Development
Waters Global Research and Development Global R&D network with centers of excellence in Massachusetts (Liquid Chromatography) Delaware (Thermal Analysis) UK (Mass Spectrometry) Singapore (Mass Spectrometry) Romania (Informatics) ©2017 Waters Corporation 117
Slide 118: Research and Development Investment
Research and Development Investment Specialty measurement allows deep focus Investment not diluted by broad technology portfolio RECENT SIGNIFICANT RETURNS ON R&D INVESTMENT Prioritized resource allocation to support strategy Leads to superior returns LC: ACQUITY Arc $119 $125 $101 $108 MS:
Slide 119: Extensive Intellectual Property Coverage
Extensive Intellectual Property Coverage Informatics Mass 5% Spectrometry Thermal Analysis 50% 10% Intellectual Over 4,500 patents issued or pending Property Liquid Chromatography Coverage All elements of the and Chemistry portfolio covered 35% ©2017 Waters Corporation 119
Slide 120: Focused and Disciplined R&D Framework
Focused and Disciplined R&D Framework Innovation to Transformational Breakthrough Drive the Core Engineering Innovation ©2017 Waters Corporation 120
Slide 121: Innovation to Drive the Core
Waters ‘THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 122: Setting the Standard of Measurement for 40 Years
Setting the Standard of Measurement for 40 Years 1974 µBondapak 1996 First QTof enables 2004 ACQUITY 2015 QDa Mass Detector columns enable routine accurate mass UPLC creates brings new level of modern HPLC determination new category of sample information to LC performance routine chromatography rede
Slide 123: A Journey of Innovation
A Journey of Innovation 5 μm Analytical Particles 60 μm Human Hair 1.7 μm UPLC Particles ©2017 Waters Corporation 123
Slide 124: A Journey of Innovation
A Journey of Innovation SETTING THE STANDARD OF MEASUREMENT DELIVERING CUSTOMER BENEFIT HPLC analysis was a rate-limiting step in releasing ‘polypellet’ batches HPLC UPLC Redefined LC performance in terms of: Waiting time 3 hrs 30 mins Productivity x10 faster # Batches/Day 2 4 Separating power x
Slide 125: Innovation Drives Real Business Value
Innovation Drives Real Business Value $ $60,000 $1 of instrument = average ACQUITY $0.50 of column consumables2 system cost 8-10 years average lifetime 6 per year1 average column usage $500 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 average column price SUB 2µM COLUMN SALES (MI
Slide 126: Near Term Product Pipeline is Strong
Near Term Product Pipeline is Strong TRANSFORMATIONAL EARLY ADOPTION PHASE NEAR-TERM 0–18 MONTHS ENGINEERING Intelligent Systems Software and Chemistries Customer Knowledge ©2017 Waters Corporation 126
Slide 127: Transformational Engineering
Transformational Engineering
Slide 128: Scientists Want to Be Scientists
Scientists Want to Be Scientists INCREASING The complexity of the analysis is Molecular Complexity increasing as the users become less expert in the tool Problem Complexity This requires ever more powerful tools that are also “smarter” Data Aggregation DECREASING TIME ©2017 Waters Corporation 128
Slide 129: What's Driving Molecular Complexity?
What’s Driving Molecular Complexity? More than of recombinant 65% Biosynthesis of attached glycans is DIFFICULT TO CONTROL and biopharmaceutical that has an impact on safety, efficacy and products on the immunogenicity. market are GLYCOproteins C4758 H7262 N1274 O1369 S35 MW 105,270.8 Daltons In 200
Slide 130: Biologic Workflows Are Complex
Biologic Workflows Are Complex RELEASED GLYCAN ANALYSIS High Sensitivity HILIC-Fluorescence-MS Rapid Preparation Fluorophore +MS Charge Tag Conventional Deglycosylation Labeling Fluorescence MS 2-AB SPE 30 min RapiFluorMS_hIgG_14pmol_18Nov14_04 283 (5.065) 100 3.47e6 % 0 m/z 500 1000 1500 2000 2AB_h
Slide 131: Delivering Transformational Engineering
Delivering Transformational Engineering LEADING POSITIONS Intelligent IN ALL ELEMENTS Systems Domain knowledge Functional knowledge Software and Chemistries Systems knowledge Unique manufacturing expertise Customer Deep customer Knowledge understanding ©2017 Waters Corporation 131
Slide 132: New Bio-TOF–Based System for Biomolecular Characterization
New Bio-TOF–Based System for Biomolecular Characterization Pre-analytics Robust and Simple and intuitive reproducible interface Predictive diagnostics Connected System wellness Multi-attribute …looks after itself monitoring High performance data True bench top scale acquisition and sensitivity Intel
Slide 133: Breakthrough Innovation
Waters ‘THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 134: Breakthrough Innovation Is a Collaboration
Breakthrough Innovation Is a Collaboration OVER 100 ACTIVE COLLABORATIONS WITH 34 CENTERS OF INNOVATION KEY BUILDING BLOCKS Asia Americas Technology Research Machine Chemical Ionization 14% 52% 17% 52% Microfluidics Learning Synthesis Technology Materials 10% Cloud Intelligent Ion Food Automation Co
Slide 135: Limitless LC/MS Potential Powers Our Growth
Limitless LC/MS Potential Powers Our Growth …you could identify phenotypes of disease in a single sample? …you could reconstruct a virtual organ with mass spectral data? …you could do real time pathology during cancer surgery? ©2017 Waters Corporation 135
Slide 136: Machine Learning
Machine Learning Challenge: Identify 6000 pairs of faces as same person or not Human error: 0.8% Best AI system (Google): 0.37% Nicole Kidman — Nicole Kidman Jim Carrey — Eric Christian Olsen Debra Messing — Debra Messing ©2017 Waters Corporation 136
Slide 137: Scene Classification and Parsing
Scene Classification and Parsing A baby is asleep next to a teddy bear. A man holding a tennis racquet on a tennis court. ©2017 Waters Corporation 137
Slide 138: Machine Learning at Waters
Machine Learning at Waters Predictive diagnostics Machine learning to develop predictive models from the stream of diagnostic data from our instruments Find this compound… Method development Typically a trained instrument specialist is needed to identify the right set of instrument conditions to
Slide 139: Advanced Biochemical Imaging
Advanced Biochemical Imaging Mouse Kidney 1.4 x 1 x 0.4 cm 40 sections 100 x 100 x 100µm 10 hours MS imaging with Automated slide loading Combine data and visualize DESI and MALDI of sectioned kidney REAL-TIME IDENTIFICATION WITH REIMS ©2017 Waters Corporation 139
Slide 140: Key Messages — Products and Innovation
Key Messages — Products and Innovation Focused and disciplined R&D program, investing for growth Innovation to drive the core business Transformational engineering to meet changing market needs Breakthrough innovation to change the world ©2017 Waters Corporation 140
Slide 141: Sherry Buck: Financials
Sherry Buck Senior Vice President and Chief Financial Officer Financials
Slide 142: Financial Framework
Financial Framework Waters THE SCIENCE OF WHAT'S POSSIBLE.”
Slide 143: Key Messages
Key Messages Attractive end markets with consistent organic revenue growth Operational discipline leading to margin opportunity Strong free cash flow and balance sheet Disciplined capital deployment to create shareholder value Strong free cash flow and balance sheet ©2017 Waters Corporation 143
Slide 144: Delivering Consistent Growth and Earnings Leverage
Delivering Consistent Growth and Earnings Leverage Revenue = 6% Operating Income = 8% EPS = 11% $652 $6.62 $2,167 $548 $4.81 $1,851 $1,280 $304 $2.25 2006 2011 2016 2006 2011 2016 2006 2011 2016 REVENUE O P E R AT I N G I N C O M E EPS (MILLIONS) (MILLIONS) Revenue Growth – 10 Year CAGR is in consta
Slide 145: Strong Cash Flow Generation
Strong Cash Flow Generation 10-Year CAGR 9% Robust FCF to Sales $555 26% 25% $460 18% $229 2006 2011 2016 2006 2011 2016 GROWTH IN FREE CASH FLOW FREE CASH FLOW AS (MILLIONS) A PERCENT OF SALES Free Cash Flow = Cash from operations after funding capital expenditures, add back stock compensation tax
Slide 146: High Quality Balance Sheet
High Quality Balance Sheet Strong net cash Moderate gross Intangibles represent position debt leverage small portion of assets 2.4x 2.4x 15% $1B 13% 12% $0.6B $0.7B 2.2x 2014 2015 2016 2014 2015 2016 2014 2015 2016 N E T C A S H P O S I T I O N AT L E V E R A G E R AT I O 1 I N TA N G I B L E A S S
Slide 147: Demonstrated Commitment to Return Value to Shareholders
Demonstrated Commitment to Return Value to Shareholders Established 14-year share Outstanding shares ~70% average FCF for repurchase program reduced by ~ 50% share repurchases 78 64 $4.4B in share repurchases since 2002 43 2006 2011 2016 C U M U L AT I V E S H A R E R E P U R C H A S E S (MILLIONS O
Slide 148: 2016 Recap: Ongoing Strong Performance
2016 Recap: Ongoing Strong Performance 2015 2016 Growth Sales (millions) 1 $2,042 $2,167 7% Earnings Per Share2 $5.89 $6.62 12% GROWTH BY PRODUCT1 GROWTH BY MAJOR GEOGRAPHY2 + 7% + 2% Europe China Instruments Instruments U.S. +6% Japan and Software India +20% +7% Flat +1% +16% +4% Services Chemistry
Slide 149: 2016 and 2017 Guidance Recap
2016 and 2017 Guidance Recap Initial 2016 2016 2017 Full year Guidance Actual Guide CC Sales growth MSD 7% MSD FX impact -1% -1% -2% to -3% Gross Margin % ~59% 59% 58.5% – 59% EPS range 1 $6.10 – $6.35 $6.62 $6.85 – $7.10 FX impact -2% 1% -4% See GAAP to Non-GAAP reconciliations in the appendix and
Slide 150: Delivering Strong ROIC for Investors
Delivering Strong ROIC for Investors Organic Revenue Growth 14% 10% Operating Leverage Cash Flow Generation Efficient Capital Deployment Waters Comparator Group FYE 2016: ROIC = (Non-GAAP EBIT*(1-t)/Invested capital): Invested capital = equity + long term debt . See reconciliations in the appendix.
Slide 151: Increasingly Attractive Businesses
Increasingly Attractive Businesses 56% 52% 52% 49% 42% 44% 33% 36% 27% 2006 2011 2016 2006 2011 2016 2006 2011 2016 PHARMA RECURRING REVENUES ASIA Government/ Recurring Instruments Asia Americas Academic Pharma Revenue & Informatics 13% 56% 49% 51% 36% 37% Reporting Product Geographic Mix Mix Mix In
Slide 152: Organic Growth: Pathway Forward
Organic Growth: Pathway Forward Business 3-Year Outlook Drivers and Trends Pharma MSD – HSD Regulation, pill volume, biologics Materials MSD Product performance demands Food MSD – HSD Regulation, LC-MS strength Environmental Globalization of standards Medical Research LSD – MSD Public and private sp
Slide 153: Growing Operating Margins
Growing Operating Margins 10-year Operating Income CAGR 8% KEY DRIVERS 29.6% 30.1% 23.7% Business Leveraging Mix Growth Operating Disciplined Improvement Expense Initiatives Management 2006 2011 2016 O P E R AT I N G M A R G I N S Operating Margin Percentages and Operating Income – Exclude the after
Slide 154: Strong Free Cash Flow
Strong Free Cash Flow KEY DRIVERS 10-year CAGR 9% $555 Revenue Operating $460 Growth Leverage $229 Balance Sheet Capital Management Allocation 2006 2011 2016 GROWTH IN FREE CASH FLOW (MILLIONS) Free Cash Flow = Cash from Operations after funding capital expenditures, add back stock compensation tax
Slide 155: Priorities for Capital Allocation
Priorities for Capital Allocation Invest in the Organic innovation Free Cash business Capital investments Flow Acquisitions Balance Maintain financial Strong and flexible Sheet Cash strength and balance sheet flexibility Moderate debt profile Debt Capacity Return capital to Share repurch
Slide 156: Tax Reform Considerations
Tax Reform Considerations Early proposals Active strategy Manufacturing appear beneficial development process footprint flexibility ©2017 Waters Corporation 156
Slide 157: Aligning Our Business to Drive Strong Sustainable Total Shareholder Returns
Aligning Our Business to Drive Strong Sustainable Total Shareholder Returns Historical 3-Year Upside Income Statement Average Outlook Potential Revenue 6% MSD+ Pharma and Asia growth 10 yr CC CAGR Gross Margin 59% Stable Product mix dynamics Op. Margin ~ 30% Growth Faster revenue growth Tax Rate ~14
Slide 158: Key Messages
Key Messages Attractive end markets with consistent organic revenue growth Operational discipline leading to margin opportunity Strong free cash flow and balance sheet Disciplined capital deployment to create shareholder value Strong free cash flow and balance sheet ©2017 Waters Corporation 158
Slide 159: Panel Q&A
Panel Q&A Chris O’Connell Mike Harrington Terry Kelly Rohit Khanna Ian King Sherry Buck President and CEO SVP, Global Markets SVP and President, SVP, Applied SVP, Instrument SVP, CFO TA Instruments Technology Technology ©2017 Waters Corporation 159
Slide 160: Waters
Waters THE SCIENCE OF WHAT'S POSSIBLE.°
Slide 161: Reconciliation of GAAP to Adjusted Non-GAAP Financial Measures
Reconciliation of GAAP to Adjusted Non-GAAP Financial Measures
Slide 162: Non-GAAP Financial Measures
Non-GAAP Financial Measures This presentation contains financial measures, such as constant currency growth rate, adjusted operating income, adjusted earnings per diluted share and adjusted operating income, among others, which are considered “non-GAAP” financial measures under applicable U.S. Secur
Slide 163: Non-GAAP Financial Measures
Non-GAAP Financial Measures Waters Corporation and S ubsidiaries Reconciliation of GAAP to Adjusted Non-GAAP Financials Twelve Months Ended December 31, 2014 - 2016 (In thousands, except per share data) Income from S elling & Research & Operating Operations Provision for Diluted Administrative Devel
Slide 164: Non-GAAP Financial Measures
Non-GAAP Financial Measures Waters Corporation and S ubsidiaries Reconciliation of GAAP to Adjusted Non-GAAP Financials Twelve Months Ended December 31, 2013 - 2006 (In thousands, except per share data) 2013 2012 2011 2010 2009 2008 2007 2006 GAAP Gross Profit $ 1,120,762 $ 1,106,027 $ 1,120,691 $ 9
Slide 165: Non-GAAP Financial Measures
Non-GAAP Financial Measures Waters Corporation and Subsidiaries Reconcilation of Actual GAAP Sales to Constant Currency Sales Twelve Months Ended December 31, 2016 - 2006 (In millions) 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Sales as Reported in Actual U.S. Dollars $ 2,167 $ 2,042 $ 1
Slide 166: Non-GAAP Financial Measures
Non-GAAP Financial Measures Waters Corporation and S ubsidiaries Reconciliation of GAAP to Adjusted Non-GAAP Net S ales by Operating S egment, Products & S ervices, Geography and Markets Twelve Months Ended December 31, 2016 and December 31, 2015 (In thousands) Constant Twelve Months Ended Percent C
Slide 167: Non-GAAP Financial Measures
Non-GAAP Financial Measures Waters Corporation and Subsidiaries Reconciliation of Actual Pharmaceutical GAAP Sales to Constant Currency Sales Twelve Months Ended December 31, 2016 and 2011 (In Millions) 5 Year Total Pharmaceutical 2016 CAGR% 2011 Sales as Reported Americas $ 463 5% $ 360 Europe $ 35
Slide 168: Reconciliation of GAAP to adjusted non-GAAP financials
Reconciliation of GAAP to adjusted non-GAAP financials as disclosed in the company’s annual earnings press release
Slide 169: Waters
Waters THE SCIENCE OF WHAT'S POSSIBLE.°