Good morning. Welcome to the Waters Corporation First Quarter 2021 Financial Results Conference Call. All participants will be 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, you may 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 first 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 second quarter and full year 2021. We caution you that any and all such statements are only our present expectations, that actual events or results may differ materially from those indicated in the 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, 2020 in Part I under the caption Risk Factors, and the cautionary language included in this morning's press release, including with respect to risks and 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 August 3, 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 first quarter of fiscal year 2020. 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, Corporate Controller and Interim CFO. I would like to start by expressing how grateful I am to our colleagues for their continued hard work and commitment especially to those who are continuing to experience the devastating effects of the pandemic. We have not yet seen a uniformed recovery as there are still many regions around the world that are being ravaged by the pandemic. As many of you are aware, India is facing a particularly dire situation at the moment. Our colleagues and customers there are very much on our minds and we are working closely with our team in India to ensure safety of our employees and their families and we're doing all we can to support our customers. During today's call I will provide you a brief overview of our first quarter operating results as well as an update on our three-phase transformation plan focused on number one, beginning our commercial momentum; number two, further strengthening on organization with leadership and performance management; and number three, aligning our portfolio with growth areas. Next I will provide some thoughts on how our business is positioned to drive sustainable growth. Mike will then review our financial results in detail and provide comments on our updated second 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 first quarter, revenue grew 31% as reported, 27% on a constant currency basis and non-GAAP adjusted earnings per share grew 99% year-over-year. This strong start to the year was driven by growth across all end markets as we saw continued strength in pharma and earlier than expected recovery…

Thank you, Udit. Good morning everyone. In the first quarter, we recorded net sales of $609 million, an increase of approximately 27% in constant currency. Currency translation increased sales growth by approximately 4% resulting in sales growth of 31% as reported. Looking at product line growth, our revenue -- our recurring revenue which represents a combination of precision chemistry products and service revenue, increased by 15% for the quarter, while instrument sales increased 45%. Chemistry revenues were up 18% for the quarter driven by strong pharma market growth and improving industrial demand. On the service side of our business revenues were up 14%. As customers continued to reopen labs and catch up on performance maintenance professional services and repair visits. As we noted on our last earnings call, reoccurring sales are impacted by five additional calendar days in the quarter, which primarily impacted service revenues. Looking ahead, compared to 2020, there is no year-over-year difference in the number of calendar days for this year's second or third quarter. However, there are six fewer calendar days in the fourth quarter of this year. Breaking first quarter operating segment sales down further, sales related to Waters Division sales grew 26%, while TA Instrument sales grew 28%. Combined LC and LC-MS instrument sales were up 47%, while TA system sales grew 34%. Now I'd like to comment on our first quarter non-GAAP financial performance versus the prior year. Gross margin for the quarter was 58.2%, a 350 basis point increase compared to 54.7% in the first quarter of 2020, primarily due to an increase in sales volume and favorable FX. Moving down, the first quarter P&L, operating expenses increased by approximately 9% on a constant currency basis and 11% on a reported basis. The increase was primarily attributed to higher labor incentive compensation…

Thank you, Mike. In summary, there is much to be pleased about with our first quarter results driven by strong growth across each of the major end markets with Pharma leading the way. Thanks to solid execution and double-digit growth in instrument sales, we saw broad-based revenue growth across every region, with China sales more than doubling. Our transformation plan is well underway with commercial momentum and a strong leadership team in place. We now turn towards developing a new strategy as we work more closely to align our portfolio with higher growth areas of the market. With that, we will now begin the Q&A session. Operator?

And our first question comes from Dan Brennan, UBS. Sir, your line is open, you may go ahead.

Great, thank you, thanks for the question and congrats obviously on the strong start to the year. Maybe just looking at the guidance, Udit, if you don't mind, I know you talked about six less days in the fourth quarter and tough comps, but nonetheless you had strong start and the good second quarter guidance, your full-year guidance does imply something on the order of 1% growth in the back half of the year. So maybe could you just tease out a little bit, like what's going on with the back half, like how much are you still assuming to obtain that with us, just any further color there, because I would expect that will be a question that we’re going to be getting?

Firstly, thanks Dan and good morning. Look, we are very pleased with the first quarter, and as we look at the rest of the year, I mean as Mike also mentioned, the pandemic is still ongoing, that's the first consideration. Second we saw pent up demand we released in Q1 which had five extra days, so that grew our base quite nicely. And the second half has a higher comp which makes us prudent as we guide towards the full year. Now of course, if our initiatives continue to do what they're doing and we see good execution there, and the other end markets continue to improve, we would be on the higher end of that guidance. So I think to me it's a prudent or to use another word, wise guidance, which basically takes these factors into account.

Okay, and then you talked a lot about new product launches, particularly on LC side, is it possible to see that a little bit in terms of what impact these are actually having? Again really strong 27% organic growth, but could you give us a flavor for kind of the impact from these new product launches in the quarter, and kind of what you're assuming for the full year? And then if you could also make any comments on what you are seeing from the relative market share trends across LC and LC-MS?

Sure. I think first on new products. I'm very excited about our whole portfolio across LC, across mass spec, across informatics. In terms of overall quantitation, I mean I think as we look at the contribution, it's probably 2% to 3%, is it a bit higher or bit lower, I think you would have to do very sophisticated math, but it's 2% to 3% contribution. And that's quite impressive, especially on the LC side given the launch has just took place, right? So for Arc HPLC, it was launched only in June of last year, smack in the middle of the pandemic and that has had great uptake especially in China for general purpose HPLC. And then that ACQUITY Premier, the columns were launched last year and we saw, I would say absolutely terrific uptake, in fact better than the ACQUITY launched originally. And then finally, as I look at the mass spec growth, I mean our replacement initiative is doing well, especially with the launch of our renewed Tandem Quad portfolio. So, really lot to be excited about on the new products side.

And if I could just one more and this is China obviously you are up against an easy countdown 45 or thereabouts, about 120% growth is certainly significant. Just how do we think about, you know, you were facing some unique challenges in China over the past couple of years in Food and Pharma, how do we think about the door [ph] like what's kind of expected from here as you think about this full 2021 guide for China?

Yes, absolutely, I mean super happy with China, especially given the pandemic is still not over and our colleagues have really done a great job of implementing our initiatives, and some of that is contributing to the growth. I mean it's terrific growth across all segments, especially Pharma which doubled and then you saw Industrial also grew very nicely. And Academic and Government was in the mid 70%. Right? So, with that said, what I would argue is Pharma is continuing to show strength. Industrial is also starting to get stronger especially in the TA business. Academic and Government on a stack basis still has some work to do. Right? So, we still want to make sure that we focus on it as the market recovers. And then I look at the portfolio side, Instruments grew very nicely, as you again saw from the prepared remarks. And the consumables portion of the business was in the mid-40s in terms of percentage growth. Look, as I look at our -- the implementation of our initiatives that I mentioned earlier, they are contributing nicely. We singled out the Food market in the past for commentary when we talked about transformations, so let me just comment on that. We saw incredible growth in the contract testing market for Food both in the Government segment and with new customers. Right? Remember I spoke about that when we talked about the transformation plan. And with the CDMO segment some of our best performance is in China. And then finally I have a lot to thank in terms of our leadership in China. We have a new leader in China and really has renewed focus on growth. That said, I would caution against taking two data points of recovery and saying that we have completely turned the business. We still remained focused, but I'm very happy with the start.

Great. Thanks a lot.

Thank you for your questions.

I didn't answer your question for the full year, full year I think no reason to expect anything less than high-teens in China and that would be a very good stacked growth as well versus last year.

Excellent. Thank you.

And thank you. Our next question is from Tycho Peterson, JP Morgan. Your line is open.

Hey thanks. I want to follow-up on the Instrument growth. You know 45% on a 90% comp is just pretty impressive. I'm just curious how much in your view was market pent up demand versus some of the stuff you are intentionally driving out your replacement cycle initiatives. You mentioned 2% to 3% from the products, so I get that. But how much came from new customer penetration, CROs, CDMOs? You know the main question we are going to get is kind of the sustainability of what you are seeing right now?

Yes, yes, so Tycho, excellent point. I mean and then I think there are many things to be happy about on the Instrument side, right? I mean if we place more Instruments, we get more consumables and more service down the line and we saw a very nice recovery. It is a mix of everything. Right? So, we saw a recovery front, seeing continued strength in Pharma, but we also saw a nice recovery in Industrials and also in Academia. In terms of the contribution, our initiatives have been doing extremely well. Our LC replacement initiative and now we have added the mass spec initiative as well, is doing super well. And that is now being helped by the launch of Arc HPLC and ACQUITY Premier which are allowing us to focus both on the general purpose segment, but also on the UPLC segment. So, it's very difficult to extract how much is coming from -- going and finding only replacement and then how much is coming from the new products that are actually helping that conversation. So, really added together it's a very good performance. And then also from a stacked comp basis it's looking very good as you've already commented. I mean LC is doing very nicely on a -- from a 29 basis -- from a 2019 basis and mass spec is almost double digits on that front. So, really very happy with what we've been able to do on -- do with our initiatives. And then finally on the CRO, CDMO area, I mean we have had incredible impact. Last Friday I was with -- incredible conversations with CDMOs, especially last Friday I was with the CEO of one of the leading CDMOs and they perceive us as very strong partners to help them transfer methods for complex molecules. And this is something that has come more and more to the front and center globally as we talk to many of these customers. Of course, I mean they are focused on cost, but even more importantly they are focused on transferring these methods from originators. So, I think the initiatives are doing well, but there's a lot more to do there. We've just, I mean I would say in terms of penetration of our Instrument space, we are 30% along the way on mass spec. I would say we are about slightly more than that on the LC side. So we still have fertile ground there to see more growth.

That's helpful. And then you mentioned the Innovation Board, I am just curious, there are implications here in terms of how you are approaching R&D and what you want to spend in R&D, should we assume kind of 6%-6.5% you know if sales are still the bogey or how you think about that?

Yes, I think Tycho that question came up last time as well. We don’t think of R&D in percentage terms and being an engineer myself and now surrounded by people in the Innovation Board we really look at the quality of the ideas. And if the quality of the ideas are good and we see a market opportunity, we will invest behind it. So, let me give you an example. As LC-MS or Diagnostics, right, so we work very closely with the UK Government on the COVID Moonshot program and we were able to develop LC-MS for as a diagnostic tool for detecting pathogens. This is now going to be submitted as an RUO later, mid this year or later this year for research is only, at least initially, but we see incredible traction in that area and we are investing behind it. So, those are the kinds of examples that come to the Innovation Board and if we see room to invest, we will. Second type of ideas where we invest our platforms, right? So, I already mentioned from a commercial perspective e-Commerce, but also taking the disparate data that exists in the organization and putting them into a data lake. Right? So, I would be loathed to tell you hey, you know, this is the ratio that we're trying to manage. Of course it's a cost conscious organization as you know from the past. We will not do silly things. At the same time if we see good ideas that have good basis, we will invest behind them. So, I hope that's satisfactory.

Okay. And then just lastly on the model, I am curious, the five extra days could you quantify was that added in the quarter, was that around 300 basis points? And then as we look ahead to the second quarter, given the tragedy unfolding in India, just curious how you are thinking about your exposure there in the second quarter?

Let me comment on India and then I let Mike comment on the contribution of the extra days. Look, I mean our heart goes out to everybody who is going through the pandemic in India. We have still seen our customers as you can imagine continue to produce small molecules and large molecules to address the challenges of the pandemic. And so our sales are tracking that and we are very heavily focused on the LC market in India, which is still the method of choice to release small molecules that India continues to produce. So, we're seeing very good growth, very good access for our service engineers despite the pandemic. I do expect it to be bumpy, but the underlying demand as we look at the full year I would expect to continue to rise. Mike, on the extra days?

Yes, on the five additional days, it added about 3% of growth to our recurring revenues in the quarter.

And thank you. Our next question is from Vijay Kumar, Evercore. Your line is open.

Hey guys. Congrats on a really strong fin this morning. I proved from the, and may be on the first one. I look at the guidance to 2Q, 14% to 16% constant currency. I mean, your comps actually get easier for 2Q. If I look at the 27% you guys did in Q1, x days it was about 24. So, can you maybe just walk us through the 24 to perhaps 15, 16 for 2Q? Was there any timing element which pulled forward from Q2 or is this perhaps like you said prudent guidance?

Yes, I think Vijay you answered your own question. It's actually prudent guidance. I mean given that the pandemic is still not over, there was a bit of pent up demand that came also from last year into Q1, not a pull forward from Q2. And then finally, I mean our initiatives are ongoing. They have shown incredible traction. We're very happy with what's happening. However, I think they still are getting traction. Right? I mean despite the pandemic we have seen good traction for our LC initiative. We are seeing good traction for e-Commerce where the page views have increased quite dramatically. We have seen good traction in reaching out to new customers. But two data points don’t make a full trend. So, we're just being wise to use another word. I think that would be the answer.

I understood. And then another guidance question. I guess simplistically you guys beat Q1 EPS by about $0.70 and the annual guidance raised by about $0.50. Is there I guess from an expense standpoint, is this also perhaps prudence from an OpEx perspective or is there something else going on, on the spend perspective? And Mike on the Q1, 300 basis points contribution from extra days should be a zero, a 300 basis headwind in Q4, given the fewer selling days? Thank you.

Mike, go ahead on the EPS.

So from an EPS perspective, one thing to remember here is, last year with the pandemic we put in place many cost actions. For example, salaries were reduced, furloughs were put in place, spending was reduced significantly throughout the corporation. We are going to experience a huge normalization for rest of this year that will mitigate the growth of the EPS. I guess, said it another way, the kind of normalization that needs to happen this year. As far as the gross margins, this margin there was so much volume that lead to a kind of operating leverage. So that will mitigate itself the rest of the year because of that normalization that I mentioned. So, I would expect for the full year, we're going to get back for the 57.5% to 58%, but I don't expect it to be inconsistent with the past.

Go it, yes, sorry on the days, is that a 300 basis point headwind in Q4?

Headwinds, that would be about a 3%.

Understood. Thanks guys.

Thank you. Our next question is from Derik De Bruin with Bank of America.

Hey thanks. This is Mark Ruskin on for Derik, first he is taking a question. I want to follow up on some of your comments earlier on sort of the Instrument growth you saw in the quarter and you gave a lot of prepared remarks on. Have you been able to drive some of the upgrades and replacements? I am just wondering if you could comment, how many of those were competitive or you are replacing existing product, and you know you are having to discount to drive upgrades there, is there any bundling across the portfolio, sort of what are the puts and takes in that program that's helping you make those gains besides the comps.

Sure. I think look it's virtually all of the above, but that said, but let's start with especially for LC, I mean we have the focus on solutions for our customers, and as we go in the new products definitely helps. Arc HPLC and ACQUITY Premiere, especially help in having the conversation. Anything when we started the program first with our own installed base, then looking at the competitor installed base and the third step would be to look at everybody and anybody who is using Empower. Right? So, it's a pretty large pool and we have just, I would say one-third of the way with our own instruments in terms of getting that replacement cycle done. So, there's a lot of room there. That said, the conversation is more straightforward if you have new products, especially the Arc HPLC, as well the ACQUITY Premier. And then finally, given our reputation as a solid service company and our service engineers absolutely help. So, I think the answer is and your question, it's all of the above. For mass spec also, we've also launched a similar program and there the success rates are absolutely terrific. We're going after our own installed base from a Tandem Quad perspective and replacing the older instruments with the newer generation of Tandem Quads that were introduced in 2019. So nice progress. Some of it is the market, but I think a significant amount is renewed focus on the replacement cycle of older instruments and finding [ph] products and a broader value proposition. As far as pricing and bundling, except the pricing is concerned, we have not had to use heck of a lot of pricing to make this happen. People trust the quality that Waters brings and the innovation that we're bringing to them to solve these problems.

Got it. I appreciate all that color. And then a followup on the on the -- you mentioned the strategic review process one of the areas you are thinking about, some of these faster growth adjacencies, are there any opportunities here that you see organically or is this sort of part of the strategic review that the following can be handled through M&A, obviously recognizing again the really good leverage position here?

All of the above. Right? So, we will have organic initiatives. We will have partnership opportunities and we will look at inorganic options as well. Right? so, all of the above. From an organic standpoint, I can give you examples. We think the electrodiagnostics space is interesting and LC-MS is ripe to get into that space. We have made really serious progress in working closely with many academics in the UK and the NHS, to take LC-MS into their diagnostics space for pathogens with COVID-19. We also worked with folks in Sweden on the same topic and we will introduce LC-MS as a research use only technique rather in the near future. So, organically we see tremendous opportunity as well. And another example would be entering bioprocessing. We are looking at partnerships with the leading academic institutions and many of our partners to take LC-MS into the bioprocessing suite and not just leave it in the QA-QC space where we still have room to grow. And then finally on inorganic, inorganic areas we are looking at that very, very carefully and they'll be more to say about it as time progresses, so all of the above.

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

Hey, good morning everybody and thank you for taking my questions. I wanted to ask one end market question and then one guidance question. The end markets, specifically industrial, cyclical, recognizing all end markets were pretty solid, I'd love to hear more about what you're seeing in terms of the pickup and cyclical demand? And how did that evolve over the course of Q1 and are there signs that demand is picking up in a sustainable way that you know meaning just as in the catch up, it is actually a function of global economic improvement? And if you are seeing signs of that as exemplified for things, I think like backlog? Are there certain geographies where this is more or less notable? So that’s the first topic. The second topic is just, again sorry to go back to guidance, but specifically below the topline as we think about operating spend, when I look at our model for Q1, R&D and SG&A together were about $10 million below our forecast. And I think we were the high on the Street for revenue and you came in $50 million above our forecast, so that was really nice leverage in the model. I'm just wondering was there any hold back on investment in the early part of the year, just given all the uncertainty because it doesn't seem like you're looking at this as any normal. I say that because it seems like guidance assumes there's going to be an increase in operating investment moving forward over the balance of the year, which I think makes sense given the strength in your business and some of the initiatives you've talked about in your prepared remarks Udit. So, I guess, I'm just hoping you could provide some clarity there. It seems like Q1 operating leverage is the new normal just because you want to invest, I just want to make sure we got that right, thank you.

Excellent question Doug. Look first on the other two end markets, Industrial and Academic and Government, I think you rightly note that it is one quarter and we are seeing a nice rebound. And I’m cautious here. Right? So we’re seeing good conversations with our customers about the industrial end markets are disconnect. Right? I mean, they go from polymers to semiconductors and other areas which inherently are cyclical. They are seeing good demand for hardware, especially on the TA side, but that I would say is one quarter, we’re seeing good conversations, I would not start to immediately extrapolate and this is why we are a little cautious on or prudent on the guidance. On the stack growth basis, when you look at specific regions, I mean China is almost 20%, Europe is in the mid-teens in Industrial and the U.S. is mid-single-digits. So even on a stack basis this is a good performance on the Industrial end market, but largely driven by a lot of hardware spend. Now on Academic and Government, which is also the cyclical, I know you were not asking in particular, but I will take the opportunity to comment on this. Already, we saw very good growth, I mean, 29% growth overall largely driven by what we saw in China and Europe continued its strength, also 70% growth. The U.S. is still spotting and recovering. On a stacked basis, there’s still work to do on China and the U.S. I mean both are still not positive versus 2019, Europe is. So I think Industrial, a little bit more confidence in the overall trend, but Academic and Government we're seeing slow return back into the different labs, more so in Europe, definitely in China but still a bit of hill to climb and Europe is 40 up and U.S. is 40 across the country. If I move to your guidance question, I will firstly give a qualitative remark and then Mike can comment on the numbers as well. We’re not holding back any investment Doug. I mean, in fact, if you look at how much we have approved in terms of operating investment it’s fairly significant in Q1 to start, to support our initiatives that we already mentioned. So expanding our field force in contract testing, having more informatics folks to build up Waters, Waters Connect even further and to invest behind our R&D programs, I mentioned LC-MS already and there are several others. It’s just a question of the recruiting cycle taking a bit of time and people finding the right people and getting them into the system. So, really not holding back there at all. Mike, do you want to comment on the numbers?

Sure, I will just add, with the strong customer demand that we’re actually seeing, we have started to make the investment into the P&L, but all of our expenses haven’t hit Q1 P&L. So you are going to see some increase in expense as we move to the rest of the year that catches up with these initiatives that Udit was referring to. This is a gated process and we do look at projects, one on, we do look at each of the products initiatives and spending on what it is and we navigated processes and we'll make sure it makes sense before we actually start the process. So it's - it is a gated process and we will expect not the leverage to be not as good as it was in Q1 the rest of this year.

And then I think one closing remark on that Doug, just reminding you how we talked about the transformations and we said look we want to get our top line growth back first. This is such a gate business and such a good install based, there’s tons of leverage in the P&L that allows us to invest without any dilution. And you’re seeing the sustainability of the business as we recover our topline, and it’s not just towards this last year Q1, it’s also on a stack basis across many different segments and geographies.

Thank you. Our next question is from Brandon Couillard with Jefferies. Your line is open.

Hi, thanks, good morning. In terms of some of your e-commerce initiatives, are you starting to see any incremental pull-through in terms of consumables, revenue that, did you quantify and kind of what’s next in terms of the e-commerce strategy and some of those initiatives over the balance of the year?

Brandon, thank you. From an e-commerce, basically just search engine optimization and paid search we saw a 45% increase according to our own numbers and I know you look at it independently as well on the number eye balls coming on to our site. It's very difficult to translate that, as you know, into the exact impact on revenues, so I won't attempt that, but you can imagine the largest impact is on the consumable side. And especially, with newer products it’s worked out extremely well having the ability to drive more people onto the channel and find out more information, leading to purchase and a great uptake for our ACQUITY Premier launch. Now, in terms of the overall plan for e-commerce, I mean this is just a start. Right? So, remember I had said early on that we want to take the hand we have and do the best we can with it at the beginning as we make our plans to revitalize our platforms and I mentioned a couple of those investments in the previous question as well. So we do believe that investing in a data lake that takes all unstructured and structured data from different parts of the organization and putting that into an easily accessible middle layer will help us service our e-commerce customers better. We do believe investing in content even more is going to lead to better conversion on the e-commerce channel. We do believe investing in mobile is going to lead to a better conversion. So, you can see that there are some infrastructural investments that we have started to look at and as the organization becomes stronger and stronger, you’ll start to see us invest in those. So the e-commerce plan as of few phases is the first one was just to get the quick wins and we’re not done with that yet that’s just the start. And there is a long term plan that will build a world class e-commerce platform for Waters. Hope that helped.

Thank you, our next question is from Patrick Donnelly with Citi. Your line is open.

Great, thanks. I just wanted to follow up on one of the earlier questions on the capital deployment side, you know, it seems you’re a bit more open about pursuing some inorganic opportunities. Can you just talk about the size that we should be thinking about how large you guys would go and then again what verticals make the most sense for you guys to pursue inorganically versus the organic investments you reckon?

Patrick, you know that I won’t take that, I won’t talk too much about the size and the exact ideas and the exact domains. I mean in general, you can assume that the part of the market we’re in is a good mid-single-digit grower. I mean we have a bit of catch up to do, so you’ll see us doing better than that in the short to midterm given the initiatives we've put in place, and the market share we’ve had to, we want to climb back and gain. Right? So, I think that will be the first lift. As you look at the adjacencies there are ones that fundamentally go faster like molecular diagnostics, like bioprocessing and bioreagents and we are looking at each of those categories to see how we can organically enter those, how we can do partnerships and also looking at inorganic ideas. I mean, the process has begun and you’ll hear more about it as we progress further with concrete ideas.

Thank you. Our next question is from Josh Waldman with Cleveland Research.

Hi guys, I wondered if you could provide more color on the replacement initiative. I guess, what inning do you think we are in here? And I think I remember you previously saying there were about 8000 systems that you are targeting. Is this still how you’re thinking about the opportunity or has that number gone up? And then I guess lastly, do you think it is driving replacement of only your systems or at this point are you seeing it replace maybe competitor systems, just thinks like growth of 40% from the LC businesses, it’s probably representing share gains?

Yes, thanks. I'm sure of picking it up Josh. Look, LC, the 8000 number was HPLC and UPLC only and especially on the Waters Instrument. And when you talk about innings, if you're talking about baseball, probably we are in the third inning. There’s a lot more work to do and lot more to pick up there. And we haven't done that in past. We haven’t replaced our own instruments. So, I mean we are going in and it’s working out super well, especially with the new products being available as well and both on the HPLC side and the UPLC side. So, we’re very happy with where we are there. To your question on competitor instruments, definitely that’s the second step and then there’s a third step everybody and anybody who is using Empower, that probably also hits the competitor set. So there is a large installed base and anytime somebody is trying to replace an HPLC or UPLC, you should expect Waters to be in that conversation, especially and then this is especially important given that Empower is installed as the most ubiquitous CDS system. So, we are going to leverage the strength of Empower to try and make sure that we have a seat at the table virtually everywhere. The second thing that I wanted to add is from an instrument perspective. I mean, don't forget mass spec. Mass spec also has an older army of instruments that we've sold over many years, and there too, we completely renewed our Tandem Quad portfolio in 2019 and we're using that to get in and have conversations with our customers. So, that also – that probably is in your baseball analogy in the first innings and that's also started off very well. So, expect to hear more as the year progresses and we do intend to make sure that that continues and gets tracked very carefully. And the last piece on that that I'll add, this is also to a previous question on the areas we are investing in, we've been invested in basically collecting all the data that we have on the installed base, be it Empower based, be it Instrument based, and of course to automate it and to make it readily usable you have to invest in technology and that's what we're doing. I hope that gives you more color.

And thank you. And our last question today comes from Catherine Schulte with Baird. Your line is open.

Hey guys, congrats on the quarter and thanks for the questions. I guess first you made a comment in your prepared remarks on the CRO and CDMO side that your customers view you as a collaborator rather than a competitor. And just given some of the M&A we've seen in this space do you think that’s a concern among customers that some of the analytical instrument providers are increasingly becoming customers, and do you see this as a competitive advantage that you can take advantage of?

Yes, I mean we are definitely hearing that. I mentioned the conversations I've had with heads of CDMO organizations, this is front and center. I mean, they view us as a collaborator who they can trust with their methods, with their ideas and I think this is something that we are definitely hearing and we intend to take, we intend to service our customers accordingly. So I think you've heard right. And I mean especially, I would even argue, especially given Waters, its technical strength and unique focus on science and technology, I mean they view us as people who can help them transfer methods, get deeper into them -- deeper with them into technical conversations and are not worried about us competing or using their technology for our own purposes. So, I would say quite a benefit, but two drivers, one might be what's happening in the competitor's universe, but the other is our own reputation as a strong scientifically based organization. At this point I want to thank you for your participation and questions and on behalf of our full 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 Q2 2021 call, which we currently anticipate to hold on August 3, 2021.Thank you all.

And thank you. This does conclude today's conference. You may disconnect your lines and thank you for your participation.