Good morning. Welcome to the Waters Corporation Fourth Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode until the question-and-answer session _____ the conference call beginning. This conference call is being recorded. If anyone objects, 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 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 and commentary on potential market and business conditions that may impact Waters Corporation over the first quarter and full year 2021. We caution you that all such statements are only our present expectations and that actual events or results may differ materially from those indicated in our forward-looking statements. 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 Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 in Part I under the caption Risk Factors, and our most recent Quarterly Report on Form 10-Q for the quarter ended September 26, 2020 in Part I under the caption Risk Factors, both of which are on file with the SEC, as well as cautionary language included in this morning's press release, including with respect to risks related to the effects of COVID-19 pandemic on our business. 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 May 5, 2021. 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 third quarter of fiscal year 2019. 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 Dr. Udit Batra, Waters President and CEO. Udit?

Thank you, Bryan, and good morning, everyone. Along with Bryan joining me on this morning's call is Mike Silveira, Water's Vice President, Controller and Interim CFO. Some of you may already know Mike who has been a part of the Waters finance organization for 16 years and I am happy to have him joining me on this morning's call. I would like to start by thanking our employees around the globe for their hard work and dedication through what has been an extraordinarily difficult year. It is one that has brought significant change and sacrifice. From navigating the pandemic and resulting short-term cost saving initiatives earlier this year to changes in leadership, the Waters team has responded with drive, determination and an indomitable spirit. I am impressed by and grateful for our team's resilience and commitment to our customers and to each other. During today's call I will provide a brief overview of our fourth quarter and full-year operating results, as well as an update on the stabilization that we have seen in the LC market and a few factors influencing our thinking for 2021. Mike will then review our financial results in detail and provide comments on our first quarter and full-year 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 10% as reported, 7% on a constant currency basis and adjusted earnings per share grew 14%. For the full year revenue declined 2% and adjusted earnings per share was up 1%. This strong finish to the end of a challenging year was driven by the pharmaceutical market improvement, capital spending recovery in the second half of the year, strong execution and early contributions from our near-term growth initiatives. Looking more closely at…

Thank you, Udit and good morning everyone. In the fourth quarter we recorded net sales of $787 million, an increase of approximately 7% in constant currency. Currency translation increased sales growth by approximately 3%, resulting in sales growth of 10% as reported. For the full year, sales declined about 2% in constant currency and as reported. Looking at product line growth, our recurring revenue, which represents a combination of precision chemistry products and service revenue, increased by 11% in the quarter, while instrument sales increased 4%. For the full year recurring revenue grew 3%, while instrument sales declined 9%. Chemistry revenues were up 14% in the quarter, driven by strong pharma growth. On the service side of our business, revenues were up 10%, as customers continued to reopen labs, catch-up on performance maintenance, see professional services in the paid visits. As we noted last quarter, recurring sales were impacted by 2 additional calendar days in the quarter, which resulted in a slight increase in service revenue sales. Looking ahead, there are 5 additional calendar days in the first quarter and 6 fewer calendar days in the fourth quarter of 2021 compared to 2020. Breaking fourth quarter product sales down further, sales were weighted to Waters branded products and services grew 8% while sales of TA branded products and services declined 1%. Combined LC and LC-MS instrument sales were up 5% while TA system sales declined 4%. Now I'd like to comment on our fourth quarter and full-year non-GAAP financial performance versus the prior year. Gross margin for the quarter was 59.2% an increase compared to the 58.2% in the fourth quarter of 2019, primarily due to higher sales volume and FX. On a full-year basis, gross margin was 57.4% compared to 58% in the prior year on lower overall sales…

Thank you, Mike. In summary, we're pleased with our resilience in the second half of 2020 and the strong finish to the year, which is a true testament to the determination of this team. Though the environment remains variable, pharma markets have shown resilience and our transformation program is already demonstrating results and contributing to growth. Despite the challenging environment, the progress we've made as an organization over the last five months is nothing short of extraordinary. I remain ever more confident in the team, our portfolio and our market position. There remains a lot of work to do, but we have a tremendous opportunity in front of us to turn the business around. With that, we will begin the Q&A session. Operator?

[Operator instructions] Our first question comes from Vijay Kumar from Evercore ISI. Your line is now open.

Hey congrats on a good [indiscernible] year Udit. I guess when you look at the revenue guidance here, which shed the color on COVID [indiscernible]. I guess on a go forward basis when you think about some of the growth initiatives you guys were making, is Waters now 5% or 7% maybe perhaps you can talk about what the medium term outlook for the company?

Thank you. Thank you, Vijay. And first let me say I'm super pleased with how we've finished the year. Looking ahead, I think we've guided I think more prudently than not. I think we have, I would say, we expect - the basis of the guidance for the full year which is about 5% to 8% is continuing strength in pharma. And there are three factors, if they go better would tend towards the higher end of the guidance, both in short and the mid-term; first, recovery of the other markets beyond pharma. Second, continuing tailwind from COVID-19 programs where we've seen our par expecting. And third, even more stronger contribution from our turnaround program. So I think I would simply say the guidance is prudent and we see several triggers that should allow us to get on the higher end, if they turn in the right direction.

Got you and one last quick follow up on margins, I know there's been some debate if you will on the margin reset for the company. I guess when you look at the, and correct me if I'm wrong, I think I heard 28% to 29% margins for fiscal 2021, is that's the new base and should Waters be expanding margins off of the new base?

So Vijay I think, I think you've been looking at it probably much too closely. It's actually rather simple. The cost actions that we have taken in 2020 come back into the base and then that should allow us to go from there further on. But Mike, did you want to provide more color on that?

Sure, I could. So definitely our operating margins are being impacted by the normalization of those cost options that were put in place in the second quarter. As a result of that, the COVID-19 pandemic these costs were temporary, and they included furloughs and salary reductions, but they have been restored already and we're already seeing that benefit in the sales growth. So, it will put a drag on our 2021 operating margins, but as we return to growth and we return to more of a historical, geographic and product mix in future, we believe that our margins will get back to those historical levels and maybe we will expand if we can get a higher level of our guidance.

Fantastic guys. Thanks again on a nice print [ph] year.

Thank you, Vijay.

Thank you. And our next question comes from Derik De Bruin from Bank of America, your line is open.

Hey, good morning, couple of questions. I guess the first one, could you talk a little bit more about the LC cycle, and some of the benefits of premier? And specifically, I'm also just curious about what if your pharma and installed base is Alliance versus your various ACQUITY generations, and what's actually, potentially amenable to upgrade? I just maybe just trying to get some sense about where you are in the process of a potential replacement cycle in the scheme of things here?

Sure, some, in fact look, the LC replacement initiative, the one that I introduced in the call earlier, is off to a wonderful start. If you look at the HPLC to UPLC mix of our installed bases, I would say roughly 53% to 47% HPLC to UPLC. And in terms of dimensionalizing it, remember we talked about Alliance in particular instruments that are now on limited service, assuming there are about 8000 or so of them we expect 10% to 15% of those to be replaced. The initiative in itself is off to an excellent start. I mean, we've contacted over 60% of those customers already, received rather positive feedback. And I would say a couple of facts; one, Arc HPLC is of course helping quite a bit in the replacement, but what we've seen in Q4 is the highest win loss ratio that we've seen in over three years for our LC instruments. So this bodes well for the initiative and we're seeing rather positive uptake. Second, you asked a question on premier, we launched our premier columns in Q4. These are especially designed for molecules that have affinity for metals, and we've designed a non-absorptive surface which increases the efficiency of the separation. And if you'd say, well what is the application, the application is actually squarely targeted towards larger molecules and oligonucleotides, and the uptake has been excellent. And I would say it's even, it will get even more interesting when we take the technology and implement it across our UPLC instruments such as ACQUITY premiere, and that's set to launch on February 10. The pre-market works have been very, very good and I expect that to do just as well. So, I hope that gives you more clarity on LC, and also on premier.

Yes, no, I appreciate the detail and I mean it is very helpful. And just how should we think about the tax rate sort of beyond 2021?

Mike?

Regarding to the 15% to 16%, we've obviously -- I mentioned that we actually have a new agreement in force so that will help maintain our current tax profile between 15% and 16%, but obviously with all the new tax legislations that could possibly come down the pike it would maybe a different story. We are looking at it. Obviously there's a rate increase from 21% in the U.S. to 27%. We estimate that the impact would be about a 1% increase in the future to our tax rate overall worldwide if that were to happen with that legislation in place.

Great, thank you very much. I'll get back in queue.

Thank you. And our next question comes from Tycho Peterson from JPMorgan. Your line is now open.

Hey, thanks. Udit, I think, one of the questions we're all going to get is just on the sustainability of the instrument strength, in particular the LC strength, especially after last quarter you expected a moderation in the fourth quarter because you had talked about CapEx spending in 3Q. It sounds like you mentioned normal budget plus for kind of planned spending and the LC replacement initiative is a big driver. So why should we expect a moderation going forward on the instrument side if you're in early innings of the LC replacement cycle?

Yes look Tyscho, we are being prudent with what we are guiding at this stage, right? I mean, so if you just look at the, or let me start with the overall commentary and then I'll comment more on LC and the instrument replacement and the other initiatives in particular. Look, if you just look at how we've guided, we say look towards the end of the year we should and Waters has as you know underperformed in the last few years, we would want to reach market growth of above in the next 12 to 18 months and these initiatives will help us. Right? So if I just now break it down, if our initiatives do better than planned, if other end markets recover and we continue to see COVID tailwind, we believe that we will be on the higher end of the guide, and that should set us up very nicely for the future. As far as the LC instrument replacement cycle is concerned, we're in the early stages of the innings. I mean it's a good start, but it's a start all the same. I don't want us to get overconfident with one data point. I believe the execution is very good. We have a good feedback from our customers. I do believe, especially with Arc HPLC the launch of premier we will continue to see strength in LC, but I would still want to remain prudent. So as I said, it's one data point, it's a good data point, but I would not want to extrapolate just based on one data point at this stage.

Okay. And then one other question we've gotten is a lot of the turnaround plan is on kind of a refocused selling effort, whether it's penetrating CLOs or pushing more of an attach rate or trying to drive the replacement cycles you alluded to. The feedback in the market over the last couple of years is your competitors are selling better products cheaper. Now you highlighted the ACQUITY premier, Arc and BioAccord. I'm just curious if you still think there's an innovation gap in the market or how you feel about the current suite of instruments as it stands today versus competition?

Yes, I think let's take it across the portfolio. Right? So I've had a chance to examine the portfolio. I would say again, if you remember the turnaround plan was the first focus is on the short term commercial momentum. I think you would agree that that gives us freedom to act. Then we get our processes and systems right and then we focus on the portfolio. So there will be more to say about the portfolio in the future, but the current assessment suggests the following. First, if you just look at the instrument portfolio, our mass spec portfolio has been completely refreshed with five new launches in 2019 alone, and we've talked a lot about BioAccord, but also our Tandem Quad portfolio with the Xevo line has done quite well, especially if you look at the uptake for traditional Chinese medicine in China and small molecule organic testing with that portfolio. So the mass spec portfolio, both on tandem quad and high res I feel good about. Of course there's always more to do, but it's a very, very good start. And if I move to LC, we talked a bit about HPLC and premier, both are significant steps forward for our portfolio. And as I mentioned earlier, we are thinking of how to re-imagine the LC instrument, especially in the QA/QC space and there'll be more to say about that in the next few years, that programs went under okay. If I move on to the consumer goods side, both for small and large molecule pharma, our portfolio is very well set. I won't speak much about the small molecule. I think that is well understood. But on the large molecule side our ACQUITY columns in particular have been designed for large molecules and these were for proteins, for peptides, for oligos, and now with the launch of premier that even strengthens the position further. So across the portfolio on the instrument side, on the consumable side, and with service we continue to look for better options. I believe we're doing, we've done a lot. We're doing a fair bit to continue to refresh the portfolio. And going forward, I mean there are of course, there are of course things to do to enhance the portfolio, but I don't feel for a second that we are disadvantaged versus competition in the market. So, I think for the short term, I believe with the hand that we have we can fight pretty well.

Okay, that's helpful. One quick one before I hop off, just on the share repurchase, I'm curious as to the kind of the thought process there Waters has been criticized in the past for buying back a lot of stock, especially as revenues are going along the way, I don't think you'd be penalized for reinvesting more. So just talk about that trade-off between people interested in maybe investing more. So just talk about that tradeoff between, big purchases and maybe investing more in business.

Yes, look, I mean, we and I would let my comment a bit more in a minute. But at the height at the high level, we've we don't feel that there is any limitation for us to invest. Look, I mean, we just want to take it one step at a time. I mean, Waters has industry leading margins, have superb cash flow. So there is incredible flexibility to invest. We simply want to make sure that we do it in the right way and in the right areas. Right? And again, coming back to the transformation program, the first focus is to get the sales momentum back which were off to a good start. I mean, one or two data points don't make a trend, so we'll keep at it. We'll focus on the processes and the systems. And then there'll be enough time to think about enhancing the portfolio, both organically and in organically. So there is no limitation on that front. As far as the share repurchase program is concerned, it's part of our overall capital allocation philosophy. It is a lever, but don't assume that, that's the only lever we have. Mike, do you want to comment on the priorities for a minute?

Sure, I would just add that we do have a strong flexible balance sheet, but we also generate a ton of free cash flow. Certainly, we generate about 25% of each sales dollar that gets converted into free cash flow. But we can use that and obviously our debt capacity to both invest in growth, both organically and inorganically, but we can also return value to shareholders. We have -- our share repurchase program over the course of the years has been very beneficial to our shareholders. We bought back -- it's been in place for about 18 years now and we bought back close to $9 billion. So as we move forward through this year, certainly, we're still in a pandemic here and we'll evaluate how much and when we actually will buy during the course of the year. But again, it's about being flexible and we believe we do have that flexibility and strength to do a couple of different things with respect to capital.

Thank you. Our next question comes from Doug Schenkel from Cowen. Your line is now open.

Good morning and thank you for taking my questions. Udit, in recent discussions you acknowledged that Waters, over the last several quarters has in certain instances been losing market share. And we've talked about this being a function of strong competitors really targeting Waters for a long time and finally make some, making some progress, especially in disrupting typical replacement cycles, where you would kind of have the home field advantage in placing a replacement box. I'm just wondering, where do you think you are in the process of taking steps to reverse these trends? How much investment and time is required pursuant to the reversal? And then keeping in mind that it was a pretty strong quarter, should we put much weight on Q4 results in the context of assessing your progress with these efforts?.

Thanks. Thanks, Doug. Look, it's a good quarter. It's a strong start to our initiatives, and especially the LC initiative, which we've talked about a fair bit. The basic assumption is and as you mentioned, is that there is a replacement cycle and replacement cycle of our instruments in the past as I mean, we knew about it, and we've been at it for a while. But I think the focus that we have now and you'd say well, what are you doing differently? I think what we're doing differently from the past, which starts to show, starts to pay dividends is that we're using we know exactly where these instruments are. We've taken a look at the database. We've targeted our reps to those exact channels, to those exact customers and in addition, armed with Arc, Arc HPLC has a new product in addition to our value proposition with Premier, we feel our full portfolio with the LC, with Premier, with our service offering, is off to a good start in this replacement cycle. I don't want to get too far ahead of ourselves and I won't speculate too much on the future, but this data point looks good and leading indicators in terms of orders also look rather good. Now in terms of how you should think about it, in the future, I think I'd rather share the fact after we're done rather than speculating, but all I can say is the data points we have at this point in time look positive, both in terms of how the customers are receiving our value proposition and how they're targeting the customer. So I mean, in general I will remind you that Waters is an LC company, right? Any time we do something on LC, our whole team, our sales team, our service team gets super enthusiastic and we're seeing some of that in the results. So I’ll stop there and of course happy to answer any follow ups.

Okay, that was super helpful Udit, thank you for that. And then I guess this has kind of been touched on in some of the earlier questions, but I still think it's worth revisiting. If we just think about what we've heard, in terms of some of the early updates from some of the other larger tools companies, they are significantly accelerating investment in the current environment, essentially taking the COVID-19 related windfalls and reinvesting a lot of that cash flow into growth initiatives. In response to that, do you see the need to increase investment to essentially help maintain your competitive position kind of building off of the last question? Or, do you think that's not necessary and not something that drove you to kind of be reactionary in terms of how you looked at your investment plan for 2021?

Thanks Doug. Again, a very perceptive question and look at from your view, you somehow answered your question in the last comment. I mean, we will not be reactionary to anything. I think, R&D and having been a researcher myself for a good part of my career, I mean, we want to focus on fundamentals. We want to focus on technology development and Waters is a technology oriented company, so we will stay true to the problem solving that we have to do. Now to some facts. If you look at the R&D productivity in recent times, the mass spec portfolio has been completely renewed, both on the high res side as well as on the tandem quad side. And to provide you more color on the tandem quads we're seeing very good uptake of those. In particular, as I mentioned earlier, in China we wanted to continue to work on our software on those tandem quads to even increase the uptake in Pharma DMPK sort of areas as well. So I feel we have done a good job in refreshing the mass spec portfolio and we also know what we need to get done specifically, and we are funding those programs very well, especially on the informatics side for mass spec. BioAccord is another case in point. I mean, as you know, QA/QC -- LC-MS and QA/QC is somehow the holy grail in the industry to be able to take large molecules to the same place where small molecules are in release testing. And we have a robust and reliable instrument in BioAccord, which is starting to see very good uptake. And we have a really clear roadmap in increasing applications and improving the software on that front as well and that's very well funded. If I now turn…

Thank you. And our next question comes from Dan Arias from Stifel. Your line is now open.

Good morning guys, thank you. Udit on the specialty selling efforts that you've kind of honed in on as a need? Can you just sort of share some thoughts on how we should think about the scale and the magnitude of that push? I mean is there a percentage of reps or users who from now that we might be thinking about is as focused on either a particular product or a particular application?

Sure. I use that as an example, as an example Dan when we were talking about BioAccord in particular. Right? I mean, products that require a deeper explanation, products that could benefit from our customers, our customers being coached on how to use it, how to develop methods on them. And for BioAccord in particular, and I'll just use that as an example, that's off to an excellent start. Right? So we have done specialty reps and we've created a specialty reps team and turned them towards specific customers, especially ones with large molecule and oligonucleotide applications. And they've gone in and developed methods for these customers. And in many cases, we have follow on orders as well. And to just come back to the facts, I mean, for BioAccord Q4 was the best quarter since its launch by several fold. So we think this approach is working. Now in terms of what fraction of the total field force is specialty versus generalist, look most of our reps have a technical training. And the reasons Waters has been successful in the market for so long is because of our because of our technical capabilities and how we are able to partner with our customers. And now, we basically trained a few of them on specific methods. I would say we will continue to expand it. If it works more, we'll continue to expand that specialty field force for more complex applications and BioAccord is just a start. I hope that gives you a bit more clarity. I don't want to quantify the fraction of field force that have done specialty. We will basically it's a pilot that seems to be showing results and will continue to expand as there are larger number of customers and targets.

Yep. Okay, that's helpful. Okay and then maybe just one on margins as it relates to product mix. When you look at the collective gross margin profile for this last tranche of new products that's been developed, BioAccord, Cyclic IMS, SYNAPT XS, Arc HPLC, is there a different profile attached to that in aggregate relative to the rest of the portfolio, such that if you guys are successful, and we do see some new product acceleration there, we should think of that as a mix factor that works in your favor. And then along those lines, you have mentioned that there are some other new things that you have in the hopper, is there a conscious effort to design and add things to the portfolio that are at a higher level of profitability than, say the credit sensor platforms? Thanks.

Excellent, excellent questions. I mean, I'll give you a general answer to your second question and then let Mike give you a bit of specifics on how we're seeing the margin evolution. In general, look a simple way to think about it is, consumables and recurring revenues have a bit of a higher margin than instruments. And over time instruments as the demand rises, you can see more leverage in the P&L and you have higher units. So hence you start to see better and better margins over time. So you start-off with a slightly lower margin with instruments and that goes up over time. And with consumables informatics, you already see a nice starting point. And so launch of Premier, more informatics solutions, better service, definitely gave a lift and instruments at the beginning might start off at a lower starting point, but then would go up rather rapidly as the demand goes up and we're seeing that already in many of our platforms. So Mike, do you want to comment a bit more on the margins and the evolution, especially on the gross margins?

Sure. Well, what I will add is that obviously, when the new product gets introduced, we don't have the advantage of taking costs out. So over time, over the next couple of years after a product is introduced, we're typically able to lower the cost to produce the product, which will help the margin significantly. Also, obviously, the more units that, we did alluded to that we push through the plant will also help margins. So the combination of those two generally improves, especially on the instrument side, as we move out from one to two years after we launch.

But in general, I mean, just to expound on your question earlier and give you something specific, in general, it's a good assumption that we are introducing products that have a higher margin profile than we have in the past. I think that's a reasonable assumption.

Thank you. And our next question comes from Stephen Willoughby from Cleveland Research. Your line is now open.

Good morning. Thanks for taking my questions. I had a couple, maybe just one or two starting for Mike. Mike, I just want to double check that we heard you correctly as it relates to some of the guidance for the first quarter. Did you say that you expect a 15% benefit to EPS from FX in the first quarter?

15%.

Wow, okay. And then I guess…

Sorry, so to expand upon that, the number is very small, so power to dominate a little bit, so that's the - pressure to be impacted.

Okay, very good, thank you. Just Udit, two questions for you, then as it relates to sort of looking forward. One, how are you thinking about instrument growth versus, recurring growth in 2021? And maybe if you, if there's any comments on the strong 14% chemicals growth you saw in the fourth quarter, if that was, how sustainable that sort of growth is? And then the second question is just, you previously have made some comments about yourself seeing some of the largest orders in company history here recently. I was just wondering if you could provide any more color on, if that was something you think is a change or sustainable or it just happened to be kind of a one off here in the most recent couple of months?

Stephen, good afternoon. Thank you for both of those questions. First, on instrument growth versus recurring, you saw in the fourth quarter that recurring revenues were double digits, instruments were mid single digits. And I think, going forward also, I mean, if you just think through what we are thinking, what we are hoping to see in the future, I mean, we expect that pharma continues, and you should see a similar sort of mix going forward as well. If Pharma continues its trend and as other end markets recover, we expect a bit of upside to it. And if you just turn a bit towards, I think, rather than giving you ratios, let me give you a bit of specifics on how one could think about it. If you just take off, I think of applications in pharma for both small and large molecules, and let me just give you a bit of the portfolio that goes towards that. Right? So small molecules, I mean, as that rises, especially as generics consumption, and products for COVID, especially therapeutics, small molecule therapeutics rise, we see our LC portfolio with Arc HPLC in particular, going up. Then if you turn to large molecules, you can start with consumables and then the reason I'm giving you the specifics is, just to give you color that on both fronts there is reason to believe that that we should see some optimistic development. And on the consumable side for large molecules first, I mean, our ACQUITY columns for UPLC have been designed in particular for large molecules. This starts with proteins, with peptides, glycans and also oligos. The Premier getting launched first as a column, the technologies is has got very good traction, especially for oligonucleotide applications and now it goes into the instrument space. So it's rather broad based, if I just take the LC example, both on the UPLC side and the HPLC side. And from our spec, as you already know, BioAccord and QDa have done pretty well for large molecule applications in Q4, so very, very broad based. I would not speculate on one or the other, but I would say, Q4 gives you a good indication of what we should see even going forward, if not better. Now, in terms of large orders, and to give you give you color on my comment on large orders. Previously, you see with the LC replacement initiatives we've had some customers come in and asked us to replace their full fleet. And that has resulted in some of the largest orders and this is why I'm rather optimistic about this initiative. So that gives you more color. On the chemicals piece, I'm not sure what you're referring to the 14%. So I don't know Mike, if you have any comments on that I don't know what that is referring to the chemicals go to 14%.

I'm not sure either. Sorry?

Steve, I hope that gives you color.

Thanks. And our next question comes from Puneet Souda from SVB Leerink. Your line is now open.

Yes, hi. Thanks Udit and first of all, congratulations. This is an impressive quarter and thanks for all the work that you've put in these few months here. So first one based on what you were saying here and correct me if I'm wrong, it appears to me that the China Pharma recurring revenue sales and especially columns and small molecules. And then services grew very strongly in the quarter. Obviously, you highlighted the growth in China. So wondering what has changed in your approach in China in terms of commercial execution or is it largely market driven growth that we are seeing from across the peers as well. So correct me if I'm wrong on any of those assumptions as to what I'm seeing. And in that light also were there any incentives in the fourth quarter that drove this growth in that geography?

So thanks for your question Puneet on China. Look, I mean they are extremely happy with the quarter. I mean, it grew slightly shy of 20% after I would say a very difficult first half of the year. And so we're very happy with the momentum. And largely led by pharma, both on the small molecule and large molecule side, and a very broad based growth across the portfolio, across instruments, both mass spec as well as LC consumables and service, especially recurring revenues did the trooper well in especially in the Pharma segment, so I feel really good about that. In terms of changes, I mean, it goes back to what we talked about earlier, really focusing the field on what matters. And as I mentioned earlier, as soon as we utter the words, LC at Waters, we have a genuine enthusiasm across the organization. And we have not just a portfolio, but our service teams are state of the art. So I think having the organization focused on LC, giving them Arc HPLC as a new product, and it was especially designed for China, in particular, right. So giving them Arc HPLC and Premier, to go out and have these conversations with the LC customers has been a terrific initiative. Secondly, I'd also mentioned our CXO [ph] contract testing and contract research organization initiative, that's also done rather well in China, our team has gone out to meet contract manufacturers, we've increased our penetration in contract testing organizations in the food segment. It's again, one data point, but it's a good data point. And I'm reluctant to start extrapolating too much. But it's a good data point, that gives us confidence that activity is at a higher level. Now, as far as incentives are concerned, they're no different than they have been in the past. It's just a question of focus, but giving the team's new products, giving them clarity on which customers to go after and working with them to succeed, I think are the key success factors, I would point to

And operator, we have time for one more question.

Thank you. And our final question comes from Dan Brennan from UBS. Your line is now open.

Great, thank you. Thanks for that. Thanks for taking the question. I kind of hopped on late, but I was hoping. I know you spoke a lot about Asia and China, but I was hoping to dig in a little bit more there. If you don't mind could you just kind of break apart kind of China? Because there was a lot going on in the last couple years for what is there particularly on the food and the pharma side, which and I know you've addressed that a little bit, but can you just walk us through a little bit, how you think about the opportunity going forward for Waters in China may be somewhat of a strategic initiatives that you all have ongoing? I know you're talking about a bigger portion of the contract, research organization, but I'm just wondering if you can kind of maybe peel the onion a bit more on China for us.

Sure. Dan, very good question and China, look we talked a bit about in the past, about what had caused the slowdown, right. I mean, the slowdown was led by the food segment, but also a bit of a slowdown in pharma and our focus on pharma. So I again, let me break it down a bit across the different initiatives in big Pharma. We expect our focus with LC, with Arc HPLC, with the launch of Arc HPLC and Premier and the replacement initiative should give us good tailwinds in pharma going forward. Second, for the food segment, we have really focused on expanding our coverage for the contract testing organizations. You remember, I mentioned we were a little bit late in following that trend. The team has gone and reached out to each and every one of those customers. And not only we have to make sure that our value propositions work before we start to see meaningful growth in that area. And then across clinical China is one of those markets that in the past we were very well in that segment. I mean, this year, we've seen some headwinds especially due to the diversion towards COVID-19 testing. So I expect that to come back. So across the board, we see some good opportunities in China now talking at a bit of a higher level in the pharma industry in China. You - if you look at the latest five year plan, it calls for having roughly 45% or so of the production for biopharmaceuticals occurring locally in China for China use and today that number is around 20 between 20% and 25%. So there's a commitment in the Chinese government and the Chinese economy to increase pharma consumption. So if you feel rather well placed with our portfolio with our commercial focus to go after the opportunity in pharma as well as in food. And from a portfolio perspective Arc HPLC was specifically designed for the Chinese LC market. Our tandem quad portfolio is doing rather well for traditional Chinese medicine and food testing and environmental testing in China. So I feel very good from a portfolio perspective and from a commercial perspective on the basis set. But it's as I said, it's a good start. It's a start all the same. So we're a bit prudent about what we want, what we want to see in the future.

And that was the final question.

Thank you very much. So as we conclude, thank you all for joining today. I want to thank our team for doing such a stellar job in the first, in the fourth quarter and we’re looking forward to continuing the effort and the strength as we as we go forward, I'd like to thank you for your continued support and interest in Waters and we look forward to updating you on our progress on Q1 in the Q1, 2021 call. This is currently anticipated on May 5, 2021. Thank you and have a great day.