Good morning, and welcome to the Waters Corporation Fourth Quarter 2019 Financial Results Conference Call. All participants are in a listen-only mode until the question-and-answer session of the conference call. This conference call is being recorded. If anyone has any objections, please disconnect at this time. It is now my pleasure to turn the call over to Mr. Bryan Brokmeier, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to the Waters Corporation’s fourth quarter earnings conference call. Before we begin, I will 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 results of the company for the first quarter and full year 2020. We caution you that all such statements are only our present expectations and that 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 the risks factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, in Part 1 under the caption, Risk Factors, and the cautionary language included in this morning’s press release and 8-K. We further caution you that the company does not intend to update any of its predictions or projections, except during our regularly scheduled quarterly earnings release conference calls and webcasts or as otherwise required by law. The next earnings release call and webcast is currently planned for April 28, 2020. During today’s call, we will be referring to certain non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are attached to our earnings release issued this morning and available on the company’s website. In our discussions of the results of operations, we may refer to non-GAAP results, which exclude the impact of items such as those outlined in our schedule titled Reconciliation of GAAP to Adjusted Non-GAAP Financials included in this morning’s press release. Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the fourth quarter of fiscal year 2018. In addition, unless stated otherwise, all year-over-year revenue growth rates, including revenue growth ranges given on today’s call, are given on a comparable constant currency basis. Now, I’d like to turn the call over to Chris O'Connell, Waters’ Chairman and Chief Executive Officer. Chris?

Thanks, Bryan, and good morning, everyone. Thank you for joining us today. Along with Bryan Brokmeier, joining me on this morning’s call is Sherry Buck, Waters’ Chief Financial Officer. During today's call, I'll provide an overview of our fourth quarter and full-year 2019 operating results, as well as some broader commentary on our business. Sherry will then review our financial results in detail and summarize our first quarter and full year 2020 financial outlook. We will then open up the phone lines to take your questions. Briefly reviewing our operating results for the fourth quarter, revenue grew 1% and adjusted earnings per share grew 11%. The fourth quarter played out generally as we expected, with mixed market conditions similar to those we experienced throughout 2019, but also with encouraging progress on key growth initiatives, particularly the positive impact of our new products. In the quarter growth in large molecule pharma and biomedical research applications driven by our new product offerings was largely offset by market conditions in our industrial markets, China and continued capital spending softness in small molecule pharmaceutical applications. Looking at the full year 2019 in total, revenue grew 1% and adjusted earnings per share grew 8%. Macro factors led to a more variable set of end market conditions than we had expected entering the year. Customers in key markets we serve were more cautious in their capital purchasing throughout 2019 and more willing to delay spending. I'd like to review the three areas where we were most impacted by this dynamic. First, government policy changes in China affected the food and pharmaceutical markets. As a reminder, China represents 18% of our global revenue and continues to be a key growth priority for the company. Our business mix in China is unique within our global portfolio as well…

Thank you, Chris and good morning everyone. In the fourth quarter we recorded net sales of $716 million, an increase of approximately 1% in constant currency. Currency translation decreased sales growth by approximately 1% resulting in flat sales as reported. For the full year sales grew about 1% before currency translation, which decreased sales growth by approximately 2%, resulting in a full year sales declined of approximately 1% on a reported basis. In the quarter, sales into our pharmaceutical category were flat, sales into our industrial category were down 1%, our academic and governmental category grew 10%. For the full year, the pharmaceutical market category grew 2%, our industrial market category declined 2%, and our academic and governmental category was up 3%. Looking at product line growth, our recurring revenue which represents a combination of precision chemistry products and service revenue grew 6% in the quarter, while instrument sales declined 3%. For the full year recurring revenue grew 5% while sales for instrument product groups declined 3%. As we noted last quarter, recurring sales were impacted by one additional calendar day in the quarter, which resulted in a slight increase in service revenue sales. Looking ahead, there is one less calendar day in the first quarter and two additional calendar days in the fourth quarter of 2020 compared to 2019. Breaking fourth quarter product sales down further, sales related to Waters branded products and services grew 2% while sales of TA branded products and services declined 8%. Combined LC and LC/MS instrument platform sales were down 1% and instrument sales were down 12% for TA. Looking at our growth rates in the fourth quarter geographically, sales in Asia were flat with China declining 3%. Sales in Americas were down 1% with U.S. flat and European sales were up 5%. For…

Great, thank you, Sherry. In summary, our fourth quarter played out largely as we expected with a continuation of macro headwinds, similar to what we saw throughout 2019. That said, we saw an encouraging uptick of sales in our newly released products in the fourth quarter. As we look to 2020, our focus is on execution to deliver improving growth and balancing our industry-leading profitability with the right investments to support our innovation strategy and long-term growth, as well as a consistent return of capital to shareholders. With that, we will now begin the question-and-answer session. As we are not always able to get to everyone's questions, please limit yourself to one question and one follow-up. And if you have additional questions, please contact the Waters Investor Relations team after the call. Operator?

The first question is coming from Vijay Kumar, Evercore ISI. Your line is open.

Hey guys, thanks for taking my question. Chris, just one on, I appreciate all the colors on end markets on the guidance, especially when you look at the end markets right, pharma, industrial, what are you assuming for 2020? Are you assuming pharma, you know some of the weakness we saw in North America customers, is some of that coming back? Industrial, any thoughts on how that segment is that going to shake out? TA did decline. And then I have one follow-up please.

Sure, thanks for the question, Vijay. As you know we had a really variable set of market conditions throughout 2019 and certainly the business mix we have was particularly impacted in part by some of the geographic considerations in China, the large mix we have in LC small molecule pharma and some of the industrial categories. As we turn the page to 2020, our starting point is really just a carry-over of market conditions from 2019. We're not assuming an acceleration until we see clear change in the market. Within each geography and category we're looking to balance both the opportunities and the risks. With regard to pharma, as you point out, our assumptions include continued robust performance in the large molecule pharma market, which is about 30% of our mix overall and continued softness in the small molecule market, which is 70% of our mix, and that's why we have a - kind of a moderate view of the pharma market at this point. From an industrial standpoint, the biggest impacts we saw and you referenced TA, were in large polymer and chemicals companies. If you look at our top 20 account say within TA, those are the big global industrial polymers and chemicals companies, they were really soft through the year and particularly in the fourth quarter. Interestingly enough in TA we actually added more new accounts last year than we ever have to try to make up for that, but when the very large companies are down, it's challenging to overcome that. And I would also say that we do support those same customers through our Waters branded products as well and we saw the same exact phenomenon on the Waters side, as we saw in TA in that industrial polymers and chemicals. So again, our assumption there is, we're not assuming a major rebound, but we are assuming stable conditions. And so, until we see some different conditions where we thought it was prudent to just assume a continuation of some of the conditions we saw in 2019 into the early part of '20 and we will update as we go along.

That's helpful. And Sherry, just on the EPS guidance here, it looks like you're assuming a step down in margins here. I'm just curious, is this a continuation of the gross margin dynamic that we saw in '19 or is the step-up and maybe some of the commercial activities to support the new product launches and why would tax rate step up? Thank you.

Yes. So you've got a couple of questions buried in there Vijay, so I'll try to cover them all. We look at our gross margins and really our operating margins. The lower gross margin guidance, I'd say overall is really a function of our topline growth. Peeling that back down a little bit, we think about our gross margin. The two biggest levers on our gross margin are volume leverage and FX. And in years when we've had higher gross margins in the 59% range, we had mid single-digit plus growth. So I'd say the gross margin is really a function of our top line guide. And similarly with our operating margin and our operating expenses coming into 2020, we're really trying to strike a balance between growth, investment and profitability. And so we're continuing to invest in R&D and commercial capabilities. But we also have some headwind coming into 2020 with normalization of our variable costs and some expenses for Andrew Alliance. So that's our inputs for our guide of 30% operating margin. Moving on to the tax rate that you asked about, we ended the fourth quarter tax rate more favorable than we were expecting. That was due to some discrete items in the quarter as well as the mix of our profits in our tax jurisdictions, and we're not expecting that to repeat in 2020. So after we came out of tax reform, we're really looking at our tax rate for the business to be in that range of 14% to 15%.

All right, thanks guys.

The next question is coming from Tycho Peterson, JPMorgan. Your line is open.

Thanks. Chris, I'll start with the guide. If I go back to our conference couple of weeks ago, you were highlighting mid single digits. I know that's maybe a longer-term target. But if I think about the drivers here, you've got new products, you did highlight easy comps. Can you maybe just and your view talk about what it takes to get this business back-to-mid single digit and how much you're expecting from new products this year? In other words, is the portfolio declining if you back out some of these new product launches? And then also on gross margins, is there any pricing headwind in there? I know you called out FX and fixed cost, but was there any pricing sensitivity as well?

Sure, thanks, Tycho. I appreciate the question. Yes, absolutely. We think the underlying market dynamics are - and fundamentals over the long term are really strong. The underlying secular demand drivers, our unique competitive position and our strategy would over time under more normal market conditions scenario continue to support a mid single-digit kind of long-range target and that's exactly what we were talking about at your conferences, is our belief and our confidence in the underlying fundamentals of the market on a long-term basis. And clearly, the difference between that and our immediate near-term outlook is simply a function of some of the challenges that we faced in the markets where we're particularly exposed and to be - to not assume that those change overnight that as I mentioned before that the starting point is more of a carryover from the conditions that we saw. And so, in terms of what it would take to get back up into the mid-single digit plus, it's really a normalization in demand in a couple of key market segments, notably the small molecule pharma segment, certainly general conditions within China returning to reasonable growth, and the stabilization of the industrial markets. We don't have to get huge growth out of the industrial markets. We have to get modest growth out of the industrial markets and then more of a historic norm in terms of the pharma business. As I mentioned before, the large molecule pharma space has continued to stay robust for the market and for Waters through this whole period, and so it's really about that small molecule space perking up. And certainly with some of the deferred investment in that space, we do see pent-up demand building, but until we see it come back into the market we'll continue to remain cautious. As it relates to pricing, there is nothing unusual in terms of pricing in our assumptions. We have seen quite stable pricing on the instrument side. We continue to put small increases through on the recurring revenue side. And despite the gross margin dynamic Sherry talked about in FX and all these other things, we've seen no deterioration in our trade margin. So anyway that's how I'd summarize all of that.

I'd just like to add on the gross margin for the quarter, just to break that down a little bit. Gross margin in the quarter was impacted by about 90 basis points of FX and the remainder of that lower gross margin year-over-year was fixed cost absorption and mix.

Okay, and then just to flush out a couple of pressure points you highlighted, for China is your assumption for 4.7 that around 3 doesn’t present an incremental headwind? And then any budget delay issues we heard about that in the high-end market from some of your peers? And then Chris separately, you flagged clinical soft, I'm just wondering if you can elaborate on that issue? Thanks.

Yes, let me try to cover those Tycho. In terms of around 3 on the GPO, the 4 plus 7, let me just quickly summarize. It was about a year ago that we were coming to grips and the market was coming to grips with what was really a pilot phase of the 4 plus 7, 25 drugs in 11 cities. The second round extended that same set of 25 drugs to 27 provinces, more widespread, and accounted for multiple winners per. The third round bidding has been completed. There are 33 drugs that have been bid and this is across 32 provinces. And so, I think as I said in my prepared remarks, we've seen a pragmatic response from the - from our customers in this. Clearly there is a shift in the market underway from a market that was more purely focused on generic drugs to a market that's being encouraged to scale in that way and maybe in a more price-competitive way to bend the cost curve on generic drugs, while encouraging investment in the innovation sector, and actually a lot of our customers are quite excited about that possibility. And there is a couple of other regulations coming into the market that should support that, including the 2020 ChP or Chinese Pharmacopoeia modernization of QC methods, as well as revised drug administration law which encourages more R&D. So I think taking all that into account, our assumption is for stability, but not necessarily a big bounce back, but we think the foundations are being put in place for a sustainable growth picture in the future, and we're investing to take advantage of that where it comes. I think you asked about high-end capital purchases as well if I understood the question correctly. Towards the end of…

The next question is coming from Dan Brennan, UBS. Your line is open.

Great, thanks. Thanks for taking the questions. Chris, I wanted to address, kind of, the LC small molecule market where you've obviously highlighted that you're feeling the pain more than peers. Could you just discuss a little bit about market conditions versus share loss, anything on the relative market share trends? And then importantly, kind of, what drives the improvement here? What are the signpost towards, like, why this market kind of will recover? I know you talked about pill count, generic and population growth, which sounds great, but that's really hard for us to distill that back to the model, particularly as - there's all this excitement over burgeoning our biologic pipelines? Thanks.

Sure. Yes, thanks, Danny. I think as we look at the overall market, we've seen consistent feedback from a lot of different sources that the small molecule market has been in a tougher growth environment recently. And what's most different about Waters is that, we have such a large exposure there, with pharma being about 55% of our revenue overall, and small molecule being 70% of that. We're simply more exposed. As you know, we have a unique mix that's in our LC business, that's pharma heavy and is QC heavy. And so where we play and what we see, we see our share is very stable. We're expecting to the majority of workflows and within our installed base the purchasing can come and go with capital purchasing cycles, but we see the underlying utilization very clearly with our service and our chemistry business. And our chemistry business, by the way in pharma, has remained very solid through this cycle. Chemistry is in pharma on a global basis is consistently up in the mid-to-high single digits, which underscores the stability of that installed base. And so, our focus is simply to continue to serve our customers and position ourselves to take advantage of when demand returns. Certainly, there have been some unique factors in the pharma LC market. The tailwinds, if you will, in the middle part of the decade, particularly in China and India, yielded some headwinds as we got to the end of the decade with China and India. And on top of that, the U.S. generic market has been a tougher environment in the last year with a spike in user fees and some litigation noise in the environment. So I think we understand it all very well. We think the market is fundamentally attractive as you point out of your question. We've continued to invest in our portfolio, and we're expanding our technology portfolio and LC, and we're excited for a rebound of that market when it occurs.

Okay. Great, Chris. And then maybe just one follow-up to Tycho's question just on new products. I know you've talked about a point contribution, it still seems pretty modest given the number of new products and the time you spent highlighting the unique features here. So could you just flesh out some details, maybe a little bit? I know you don't want to get in too far in the weeds and the math behind that, but why can't the impact be larger and what should we look for, as kind of signpost towards the success of these new products?

Sure. We're committed to continuing to update these on a quarter-to-quarter basis and like I said, the product launches, particularly in the mass spectrometry side last year were spread across the year the larger systems geared towards the back half of the year, while the BioAccord came in earlier and was a market development process that really began to bear some meaningful fruit by the end of the year. I'd say in very simple terms, Dan, the overall impact of the new products is somewhat impacted by the market conditions that we face in our business. You can see segments where those products have a more prominent impact have done better, such as the governmental and academic category, the large molecule category. And so as market conditions improve, we should see a bigger impact of new products. But like I said, at the top of the call, the prudent assumption heading into the year is starting point, that's more of a carryover of those market conditions until we see the change clearly in our business. And so, we have taken, I think, a pragmatic approach to forecasting the impact of the new products, but have - continue to be very, very excited about them and certainly the innovation strategy generally. And the gains in R&D productivity we're achieving inside are really motivating the team and making us excited for what's ahead as market conditions stabilize.

The next question is coming from Derik de Bruin, Bank of America. Your line is open.

Hi, good morning.

Good morning.

Hey, a couple of questions. So first one is, and they're interrelated and the first one is the contribution from the Andrew that's sort of embedded into your M&A for revenue contribution in 2020. And then, just sort of looking at the guidance you've given for the share buyback, roughly $800 million for the full year, $200 million in the first quarter, that by our math, it really to take you about 2 times levered by the end of the year sort of $400 million to $500 million out there. And going back to the first comment on the M&A, is that $400 million to $500 million slug money on the table for potential deal activity to sort of get to the 2.5 times or is it 2.5 times somewhere in the future? Just sort of general thoughts on sort of what's involved in the math?

Thanks, Derik. I appreciate it. Let me make a couple of quick comments on Andrew and then Sherry can talk a little about buyback program and the leverage targets and so forth, and I'm happy to add to it as well. But Andrew Alliance, we're super excited about that technology. One of the most consistent things that I've heard from customers as I go around regularly is the pressure point on sample preparation and sample automation on the front end of a lot of analyses and Andrew is truly a next generation technology platform in robotics, but also in a cloud ready software to tie it all together and to automate and replicate experiments in a much more effective way. We're not going to break out revenue at this point. It's fairly modest in the big scheme of the world and we're also trying to get a handle on the opportunity, not just to sell Andrew products, but the beneficial impact that will have on pulling through Waters instruments, which is a big part of our logic. The integration is going really well and in fact, the Andrew team is in town and I had a chance to sit down with them yesterday and the people within our chemistry organization that are leading the charge as well as the Andrew people, I couldn’t be more excited. Everybody from the organization is staying and working very closely together to take advantage of the opportunity. So we'll give updates as we move along and look forward to sharing some more of that technology with the investment community.

Yes, and Derik, just to follow-up on the capital allocation question is, as you know, after we came out of tax reform, we started working towards a more optimal capital structure and we've been executing against that plan over the last couple of years with higher return of capital through share buybacks. So as we look at going into 2020, there's a variety of factors that we look at. Our priorities from a business standpoint, our performance, et cetera, and really looking at repurchases this year of about $800 million and that would put us based upon our guide we gave today in the low 2 times leverage ratio. And so the factors that could increase us towards our kind of near-term goal of 2.5 times could be M&A opportunities. So we just look at all the different factors, and this is where we set our guide for the full year and we'll look at it each quarter and make adjustments there - updates as we go through the year.

Yes, Derik, as you know, it's hard to forecast that. Well, we do have a good pipeline. We are very, very selective. We have been involved in a number of different situations and chosen to move forward just very selectively. But it is purposeful and it is proactive and we'll just have to take it as it comes, but continue to focus on those investments in terms of what they can do for our growth, what they can do for the accretion of EPS over time, as well as the returns on invested capital which are our key metrics there.

The next question is coming from Doug Schenkel, Cowen. Your line is open.

All right, good morning. Thank you for taking our questions guys. I just want to start on margins, and then I just want to ask a couple of clarification questions as we think about the outlook for growth in 2020. So starting on margins, as I'm sure you guys appreciate a key pillar to the bare thesis on Waters over good times and bad has been the argument that you're pretty close to peak operating margin. And I can see where your guidance for 2020 feeds into this a bit, especially given I think this would translate into year four of operating margin coming in between 30% and 31%. How would you address that argument? And building off of this, how would you like investors to measure the success of your planned 2020 investments and over what timeframe? And I guess the third part of this is, for 2020 specifically, and this is really just a cleanup, how much of an impact does Andrew Alliance have on operating margins?

Hi, Doug, this is Sherry. I'll start off maybe with the last question there about Andrew Alliance. We haven't done a breakout all the detail line item specifically. There is some impact on operating margin - operating margins and operating expenses and we gave in our guide that it's slightly dilutive to our overall EPS, so a modest amount there. And when you think about our margins - the 30% margin, one of the things we have in 2020 here is some normalization of prior year variable costs, that's a headwind for us. But as we look at our overall operating margins and getting beyond the 30%, it's really a function of our top line growth. So as we get back to our goal of being mid-single digits or above, that's when we have opportunity for higher operating margins and expansion. And so that's kind of the factor around that. As far as measuring some of the investments we're making, I'd say two key areas where we're investing for growth is, continuing to invest in our R&D pipeline and that's really continuing to keep our product pipeline robust and bringing new products to market and that will play out in the top line growth, and also, we're investing in commercial capability. So tools for our sales force as far as salesforce.com, it again should play out in top line growth metrics. So that's kind of how we're looking at the investments we're making in the business.

Okay, that's helpful. And in terms of 2020 growth, you're targeting 2% total revenue growth. I think you talked about new products given about a point. You noted that LC is expected to be stable and TA is expected to return to growth. I think just by process of elimination, this leads us to conclude that you're expecting another year of moderating growth for Waters recurring revenue. I just want to make sure we're not missing something up here, and I guess, cutting to the chase, do you expect Waters Division recurring revenue to get up into the 4% to 5% range or right now are you embedding an assumption that it's going to be a little bit lower than that?

Yes, let me take a comment on that, Doug, and Sherry can add to it as well. I see how you're piecing apart the math, and certainly as we've said, we - our assumption coming into the year is just stable conditions, nothing really better from the standpoint of the type of conditions we saw until it actually comes through in the business plus some benefit in new products. Actually our recurring revenue assumption is very consistent in the coming year with where we've been. We saw solid recurring revenue performance in 2019 with some improvement over the course of the year, some steady improvement over the course of the year, and a really solid Q4, but all in, the recurring revenue assumption stays about the same. And really that does imply an instrument assumption that is flat to maybe slightly down at the midpoint, but we think that's prudent and consistent with what we saw in the prior year before the effect of new products. So I think a very balanced outlook that balances opportunity and risk, and obviously looking forward to updating that over the course of the year.

The next question is coming from Dan Arias, Stifel. Your line is open.

Good morning guys. Thanks for the questions. Chris, just following up on the BioAccord, obviously, 1Q can be a choppy spending quarter in pharma just given the budget situation. So are you expecting BioAccord performance to be up sequentially? Do you think that the new product momentum has placements or contributions up quarter-over-quarter or is the 4Q to 1Q spending dynamic the bigger factor there?

Yes. Thanks, Dan. Thanks for the question. Yes, BioAccord, we thought was a good story over the course of the year, a lot of excellent foundational work to get as many customers exposure to it as we could to work into some budget cycles for potential year in money and we saw a nice benefit there. Like I mentioned, we sold more BioAccords in Q4 than we sold in Q1 and Q3 combined. As it relates to Q1, we've seen quite a stable or modest purchasing dynamic in Q1 on a fairly regular basis and so we're not making any huge assumptions for Q1 as you know from our top line guide of flat to 2%. We're expecting a modest quarter in Q1, consistent with sort of prior year experience, but - so we're not necessarily expecting a sequential move on BioAccord from Q4 to Q1, but certainly we're expecting a nice sequential move from '19 to '20 for the year overall to be very positive for BioAccord.

Okay. And then Sherry, maybe just staying with profitability, this could be a little bit of a tough one, but if you just look at the combined margin profile of the BioAccord, the Cyclic IMS and the SYNAPT, is that any different than the corporate average? I'm just trying to understand if there is a benefit to be had there as new product introduction - as your new product contributions pickup?

I think as we look at our new products, obviously, when we're bringing new products to market, we're looking at our customer demands and have financial hurdles for those business cases. And so I'd say, that the operating margins on the - particularly some of these mass spectrometry products are at or a little bit above our company average.

Okay. Thank you so much.

The next question is coming from Paul Knight of Janney. Your line is open.

Hey, Chris, you had mentioned in your comments that you see a more sustainable market introduction or more sustainable new product introduction per cadence. Can you talk to that statement? Is there - obviously BioAccord seems to be pacing well, what else is different that you make that comment?

Sure. Absolutely, Paul, thanks. Yes, we've done a significant amount of work in the R&D function across the company and are really excited about our platform strategy. So we've done a ton of work in the last four years to establish next-generation system components that can really serve as the foundation for systems, more of a systems architecture with our products where we effectively move from a kind of a spot innovation model of one instrument at a time to families and value streams of instruments that can be produced more repeatable cadence into the future and BioAccord is a really good example of that. So the fundamental architecture of BioAccord which has a common system controller, a new software and firmware architecture, and new hardware components that are durable over time can be spun on a routine basis to bring more capability into the market. The original BioAccord launch a little about a year ago now carried three core applications of protein, peptides and glycans. We successfully launched a new application in December at the end of the year for oligonucleotides, which is a really significant need in the marketplace and has been very well received by our customers, and the BioAccord platform will spin again sometime this year. And so, as I've commented before, BioAccord as a family, as a value stream, is a platform that we can - we will spend 5 to 7 to 8 to 10 different versions over the coming years depending on customer needs, but to bring new capability in the marketplace on a routine basis. You can certainly apply that same thinking for systems architecture to our other value streams and see where we may be going. And in addition to that, we've had the chance to largely complete development and to begin the early commercialization process on Waters Connect, which is our next-generation software platform. So we've done a lot of the foundational work to move towards a more sustainable cadence of new product introductions based on more of a systems philosophy and excited about what that will yield. I think we have time for one more question.

The next question is coming from Steve Beuchaw, Wolfe Research. Your line is open.

Hi. Thanks for squeezing me in here. I was going to ask you, Chris, one about the topline and then I had a couple of margin questions for Sherry if we have time for that. And Chris, I wonder if you could put a little bit more color around the trends in TA. Did the - the dynamics that you saw in the quarter with some of your larger chemical customers, were those in line with expectations whether it was a surprise and how do you expect that to play into the first half of 2020?

Sure. Like I mentioned, Steve, the trends in TA were very much dominated by large polymer and chemicals companies. About two-thirds of our revenue in TA is sold into the polymers and chemicals world. And as you might imagine, we've got some large accounts in that space. I would say, it was softer than we expected coming into the quarter, but directionally consistent. We saw those trends really all year long among those top customers and that's why I made the comment earlier that we spent a fair amount of time actually creating new accounts and that's actually exciting for the future, because we've opened up some new ground, but some of the newer, smaller accounts that were added in greater number than ever before just can't make up for the big large customers which we expected to be soft at the end of the year but ended up being a lot softer than even our forecast. I think when we step back and look at the big picture, those customers are still great customers. We have a very strong leading market share position in all these technologies, very strong and stable team. And so looking at the year ahead, we expect those type of market conditions to stabilize. And as I mentioned, also we did see a lot of the same patterns in our advanced polymer characterization product line and some of the other things we do on the Waters side in LCMS in some of those similar types of accounts. So I think we understand the picture pretty well, and we're just focused on returning that. The other thing we're going to benefit from TA this coming year is we've got some exciting new product launches that we'll talk more about as we get into the year.

Okay. Thank you for that. And then Sherry, as we're all trying to get underlying margin and spend trends, I wonder if you might take a stab at, just speaking to the underlying ex-currency operating expense growth, if it was, hey, we didn't have Andrew added in the year, would operating expenses accelerate and by how much? And then just for those who are wondering about mix dynamics, can you just remind us what the mix spread is at the gross or EBIT line between the TA business and the Waters business? Thank you so much.

Yes, just maybe to peel back a little bit your question on the operating expenses. Over the course of the year, Andrew - without Andrew Alliance it has a modest impact. So really the bigger drivers as we look at the increase in our operating expenses and related to our operating margin guide is really the investments we're making in their business, both R&D and commercial capabilities, and then normalization of variable expenses from 2019 are the bigger drivers on operating expense and operating margins. And then, could you repeat your second question?

I think we might be finishing the call here. So I think we're a little bit over time and maybe Steve's microphone is not live there, so let me just wrap up the call. And Steve, we can certainly follow-up on your question offline here as well as everybody else. But I want to thank everyone for your participation and questions. Despite the more challenging capital purchasing dynamics in 2019, we remain focused on executing on our innovation strategy and we are excited with our early progress. While our end markets have shown some near-term volatility, we are confident in their long-term growth potential and continue to invest for growth in R&D, commercial operations, and purposeful acquisitions. So on behalf of our entire management team, I'd like to thank you for your continued support and interest in Waters. We look forward to updating you on our progress during our Q1 2020 call, which we currently anticipate holding on April 28th, 2020. Thank you and have a great day.

This will conclude today's conference. All parties may disconnect at this time.