Good morning and welcome to the Waters Corporation Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] This 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. Caspar Tudor, Head of Investor Relations. Please go ahead, sir.

Thank you, Leyla, and good morning, everyone. Welcome to Waters Corporation's Fourth Quarter Earnings Call. Joining me today are Dr. Udit Batra, our President and Chief Executive Officer; and Amol Chaubal, our Senior Vice President and Chief Financial Officer. Before we begin, I will cover the cautionary language. In this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company, including the expected financial and operational impact of Waters' combination with the Biosciences and Diagnostic Solutions business of Becton, Dickinson and Company. We will provide guidance regarding possible future results, as well as commentary on potential market and business conditions that may impact Waters Corporation over the first quarter of 2026 and full year 2026. These statements are only our present expectations and are subject to risks and uncertainties. Please see the risk factors included within our Form 10-K, our Form 10-Qs, our other SEC filings and the cautionary language included in this morning's earnings release. During today's call, we will refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are attached to our earnings release and in the appendix of the slide presentation accompanying today's call. Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the fourth quarter of calendar year 2024. In addition, unless stated otherwise, all year-over-year revenue growth rates and ranges given on today's call are on a comparable constant currency basis, and all quarter-over-quarter revenue growth rates and ranges are on a comparable constant currency basis. Finally, we do not intend to update our guidance, predictions or projections, except as part of a regularly scheduled earnings release or as otherwise required by law. I would now like to turn the call over to Udit to begin with our key messages for the quarter. Over to you, Udit.

Thank you, Caspar, and good morning, everyone. We delivered a strong finish to the year, achieving high single-digit reported revenue growth and low double-digit adjusted EPS growth in the fourth quarter. This reflects yet another quarter of industry-leading sales growth. Today also marks a transformative step forward as we complete the acquisition of BD's Biosciences and Diagnostic Solutions business. We are uniting world-class expertise across chemistry, physics and biology into a scientific powerhouse with category-defining brands and a shared culture of pioneering innovation. We look forward to welcoming our new colleagues later this morning. It also marks the point at which we will have full operational control over the convey business. With months of rigorous integration planning behind us, we're now moving immediately into execution, applying the same focus and discipline that have driven exceptional results at Waters. We are entering this chapter from a position of strength. Throughout 2025, we have advanced the strategic road map that we laid out 5 years ago. Commercial execution continues to strengthen with KPIs running ahead of the commitment we made at our March 2025 Investor Day. Innovation remains a powerful growth driver as we launch a new wave of pioneering innovation. Our unique exposure to high-volume testing opportunities across GLP-1s, PFAS and India generics, again, outpaced expectations. We secured key wins in our transition to Empower as a subscription-based model, and we continue to expand deliberately into our high-growth adjacencies like bioseparations and bioanalytical characterization. These outcomes reflect the strength and discipline of our simple, repeatable business model serving high-volume regulated growth markets. They also reflect the dedication of our team whose focus on customers, science and operational excellence continues to differentiate Waters. Now turning to the quarter. As reported sales and adjusted EPS landed at the high end of our guidance…

Thank you, Udit, and good morning, everyone. In the fourth quarter, we delivered a strong finish to the year with as-reported sales and adjusted EPS landing at the high end of our guidance. Sales of $932 million grew 7% as reported and 6% in constant currency. Orders growth outpaced sales growth in the quarter. By end market, pharma grew 7%, industrial grew 8%, while academic and government declined 3%. In pharma, growth was led by mid-teens performance in Asia, high single-digit growth in Europe, and low single-digit growth in Americas. Instrument replacement remains strong along with new product adoption in both our instrument and chemistry portfolios. In industrial, Waters division grew low teens with double-digit strength across chemical analysis, food and environmental testing. Performance was supported by continued momentum in PFAS-related workflows, led by the sensitivity and robustness of the Xevo TQ Absolute XR mass spec system. TA division was flat, reflecting an improvement versus the first half of the year as customer spending trends continue to recover. In academic and government, strong double-digit growth in Americas was offset by year-over-year spending declines in other regions. By region, Asia grew low double digits, while Americas and Europe grew mid-single digits. Within Asia, India grew high teens, reflecting continued strength in pharma generics. In China, sales grew 3% as strength in pharma and industrial was partially offset by timing of stimulus-related funding in academic and government. By product line, instrument sales grew 3%. High single-digit LC-MS growth was partially offset by a low single-digit decline in TA system sales. We also incurred a low single-digit percentage growth impact from successful customer migration to Empower subscription agreements, which carry long-term recurring revenue benefits. Recurring revenues grew 9%, driven by 8% growth in service and 12% growth in chemistry. We again saw fantastic…

Thank you, Amol. So to summarize, with a revitalized core portfolio, expanded high-growth adjacencies and tangible synergy levers now underway we are entering 2026 with strong momentum and a highly compelling growth outlook. Our growth outlook of 5.3% at midpoint for the combined company is appropriately prudent, yet industry-leading even before factoring in the full benefits of upcoming execution improvements, which we will now work decisively to implement. Within the P&L, we are confident in our ability to accelerate value creation as the year progresses. We look forward to updating you on our progress as we move through the year. So with that, I will now turn the call back to Caspar.

Thanks, Udit. That concludes our prepared remarks. We are now happy to open the lines and take your questions.

[Operator Instructions] Our first question will come from Tycho Peterson with Jefferies.

Udit, I think the two things people really want to dig into here are obviously the BD results this morning and the numbers, obviously, have deteriorated relative to the original deal model. So maybe just talk a little bit about your take on the numbers this morning, particularly for the lagging parts of the portfolio, U.S. academic, government, China, early-stage research on the BD side. And how do we think about the path to recovery there? And then the second thing is instruments, right, and the Empower impact on that transition. I understand it's, call it, 250 basis point headwind this quarter. But how do we think about the go-forward P&L impact on instruments from this Empower transition?

So Tycho, thanks for the two questions. So let me start with the BD Diagnostic Solutions and Bioscience business first. Look, several issues emerged in Q4 that impacted the growth of both of those businesses that were not fully known in Q3. And I'll let Amol describe those in a few minutes. But what is important is that all of these will now be present in a lower baseline for us in 2026 to basically help us deliver the 2.5%, which we think has several upsides. Now this reminds me of Waters almost 5 years ago, right? You couple this with a host of innovative new products in both Diagnostics Solutions and in Bioscience across flow cytometry, as well as across the microbiology business and the molecular diagnostics business. You start at a fresh portfolio. And -- so we are now really squarely focused on, first, improving the operational execution, for instance, by implementing a deal desk for pricing discipline and discounting discipline, ensuring launch readiness of this fantastic portfolio, just like we did with Alliance iS and improving forecast accuracy to minimize surprises. And equally, after months of detailed integration planning, we're now ready to deliver the synergies. Be it around instrument replacement, e-commerce or service attach. And look, I mean, the service attach was starting at a 40% number, and you've seen what we've already done in 2025 alone. So we're very confident to deliver the $50 million in revenue synergies and more. You add this to what a stand-alone guidance is and you end up with over 5%, close to 5.3% in -- at the midpoint of the guide for the combined business. So we're feeling pretty good about that industry-leading growth rate as we head into 2026. Amol, do you want to comment on the dynamics of the two businesses in 2025?

Yes. I mean, look, coming into the fourth quarter, we were starting to see the DRG headwind in China. And then we knew Q4 had a higher baseline from the prior year IP onetime revenue, right? But then a couple of other things sort of crept in, which is a weaker flu season, coupled with challenges getting exemptions on shipments to China because of the government shutdown. Now as we get into Q1, three out of the four are sort of behind us in terms of the baseline for the flu season, no IP issues in the baseline for the first quarter as well as, remember, the China export ban started at the beginning of the first quarter last year. So from a baseline point of view, it's pretty clean, except for the DRG issue, which will start to come in the baseline late Q3. And quarter-to-date trends give us a lot of confidence that where we are guiding, which is a low single-digit decline for Q1 is sort of a reasonable guide.

So now turning to your second question on instruments. Really happy with instruments performance. LC-MS grew high single digits again. And this is like through the year, every quarter has been high single digits to double digits for LC-MS with the same drivers, instrument replacement cycle still going strong, as well as the idiosyncratic growth drivers plus the new products. TA was a drag at a low single-digit percentage to the overall instrument number given the weakness in both the U.S. and Europe. And what's great news is something that we've been telegraphing for a while is the transition of Empower from on-prem to subscription where several large pharma customers transitioned in Q4, and that was about a low single-digit headwind to the overall instrument number. So overall, LC-MS high single-digit growth. TA was a low single-digit percentage headwind just given the challenges in U.S. and Europe. And Empower really a wonderful transition that we told you that we will talk about it in the rearview mirror. Now as you look ahead into 2026, Q1 started off extremely well on the instrument side. The funnel is extremely strong. Orders grew faster than sales in Q4. So we feel very good about where we're starting. And the guide we have given for Q1 and the full year. And all the drivers are currently fully intact. And we've also accounted in the guidance that we've given for the Empower headwinds that we expect during the year as customers transition from the CapEx to a recurring revenue model. So all going according to plan and really happy with, especially the Empower transition that is happening.

Yes, I mean, it's a fantastic problem to have, right? Two of the top 5 pharmas converted. And I mean, Q1 funnel is strong, so we're not less.

Your next question will come from Catherine Schulte with Baird.

Maybe first, just for the full year guide of 5.5% to 7% after starting at 7% to 9% in the first quarter. It implies some deceleration for the balance of the year. Is that just prudence to start the year? Is it comp driven? Or are there some other dynamics we should be aware of?

So first on the full year guide, the 5.5% to 7%, Catherine, look, our guidance philosophy has generally not changed, right? I mean, the lower end of the guide constitutes where we think instruments are going to end up and I've given a lot of detail to Tycho's question on that front already. So we feel very good about where we're starting on the instrument side at 5.5%. And on the 7% at the top end of the guide, that is our recurring revenue, sort of, guidance for the year. This basically again constitutes several upsides that we've not baked into the guide itself. I mean we've assumed that the academic and government, drug discovery, pharma research segments don't recover. In China, we've assumed a mid-single-digit growth versus what we've done this year, which is about 9%. I mean, a fantastic growth in China, but we've assumed mid-single-digit and not included any sort of stimulus revenue. We've incorporated already the Empower headwinds from converting from CapEx to a recurring revenue. This does not include reshoring revenues. And finally, for the full year, we've assumed that chemistry is roughly 6% in our guide, while finishing the year at 12% in chemistry growth rates. So several areas to basically have risk on the upside. And so we feel pretty good about where we're starting with the guide. On Q1, Amol, do you want to talk about the 7% to 9%?

Yes. I mean in general, the momentum coming into Q1 is really strong, and that, coupled with 4 extra working days sort of supports our guide. And that then sort of derisks the remainder of the year.

Okay. Got it. And apologies if I missed it in your response to Tycho's question. But on -- for the outlook for the BD assets, any comment on pacing there? And maybe what we should expect from a fourth quarter exit rate for BD on the path to recovery?

Yes. I mean, look, we expect sort of a low single-digit decline in Q1 and then growth sort of gradually starting to ramp up as we go through the remainder of the year as some of the headwind gets more and more rooted in the baseline, particularly as we enter Q3 and Q4 when the DRG headwind is in the baseline.

Yes. And Catherine, look, equally, you should know that we are squarely focused on improving the operational execution. And as I mentioned before, this is around ensuring that there is a forecast accuracy in the business. There is a pricing discipline, not just on setting the price but also on discounting, which impacts both the top and the bottom line, and we've done that successfully at Waters. And also ensuring that the launches for the new products that are coming through go extremely well and something we've done by targeting segmenting very precisely for our Alliance iS and TQ Absolute products. And equally, we're squarely focused on taking all the work that's happened in integration planning, and implementing that throughout the year to increase momentum on the revenue synergy side, instrument replacement service attach and e-commerce should contribute immediately. So feel very good about the starting point after a lot of planning.

Our next question will come from Jack Meehan with Nephron.

Udit, on BD, you talked a couple of times about setting up a deal desk for pricing. Can you talk about which product areas are in focus and how you think that's been optimized in the past?

Yes. So look, I mean, almost 5 years ago, we set up the same process at Waters, and it has two, maybe three parts. The first is a centralized examination of what the list is prices are, as well as what the discounting is, and that escalates all the way up to me as discounting requests come from the different regions. So we've -- basically, we take away the ability for regions and sales teams to discount. So any time there's a list price increase, the stick rate is much higher. This is especially relevant for products in the instrument category. Now here, you have a couple of new products that have been launched across the Biosciences and Diagnostics businesses. The most of all being the FACSDiscover line S8, A8 as well as now the S7 and A7 that are coming up. And for instruments, it's extremely important to not sort of lose the pricing discipline as you negotiate the deals, it's pretty easy to sort of giveaway pricing on highly innovative products, if you're not disciplined. And on the recurring revenue side, we see a benefit both on the service piece so that we are charging for installation, we're charging for spare parts in an appropriate way, but also on the reagent side, where there is no reason for BD to not command the same sort of price premium that our chemistry revenue does. These are highly differentiated dyes and antibodies that only BD producers, and these are of the highest quality. So there is zero reason why there should be discounting there. So we expect those to immediately impact and those impact both the top line and the bottom line, Jack.

Great. And then for Amol, can you give us an update on the pro forma leverage for Waters and how you expect that to evolve over the year? And kind of similarly, what is the guide for interest expense assumed for any refinancing?

Yes. So I mean, look, we will be roughly at a net debt of somewhere around $4.6 billion, $4.7 billion, right? And that would translate to roughly around 2.4x net debt-to-EBITDA, slightly more than what we announced because the deal closed earlier than what we had anticipated, which is great. And then we expect to be below 2x within sort of 18 months' time frame. And then interest expense on a pro forma basis is about $179 million for 2026.

Our next question will come from Doug Schenkel with Wolfe.

I actually just have one topic I'd like to cover, just on the synergy targets. I think your initial year 1 guidance assumes you cut 5% to 6% of the acquired businesses OpEx, assuming I have that math right? So I guess one question would be, do I have that math right? And if so, recognizing this is on day 1, and I think it's about twice what you previously outlined. What's driving this increase? And recognizing this is a pretty big number to start, I'm just wondering how you're thinking about potential upside to that year 1 target, given what seems to be strong momentum in identifying opportunities in the early going?

Doug, so look, I mean, our underwriting model assumed roughly 4%, 4.5% of the pro forma cost base of Waters stand-alone plus the acquired business. And that had certain elements baked into it, like site consolidations, like sort of commercial and technology. And also, it did not include certain elements in the underwriting. When you compare and contrast it versus deals of this size, you typically see sort of 6% number. What Udit and Chris Ross achieved at Sigma Millipore (sic) [ MilliporeSigma ] was more like 8% number. We haven't baked in that level of targets in our underwriting because, one, we want to give ourselves some space. And we -- two, for a deal of this size, there's always skeletons that you find and gives this room to cover for that. If you now look at our guide, we're pretty much on track to deliver exactly what we said in our deal announcement. And we feel really good that after having done a lot of work over the last several months, we are well on track to deliver our deal announcement commitments.

Your next question will come from Matt Larew with William Blair.

Sticking with BD, maybe thinking about the revenue synergy size. The results from the most recent quarter called out a number of issues, but maybe even over the last couple of years, might be suggestive of a business in need of commercial investment to improve execution. How do you think about the level of investment needed for the business long term, and how that perhaps works with the idea of the EBIT contribution you're hoping to get from revenue synergies?

So Matt, that's a really good question and something that we invested a lot of time in doing the integration planning. Now you take what I mentioned on the pricing discipline or launch readiness. We have central teams that we will now deploy into the businesses, into the acquired businesses to implement this pricing discipline and train the teams locally, and eventually leave a few of these people behind to manage that on a day-to-day basis. Something we've done in the past as well. So the pricing discipline that we've seen at Waters, or TA, or clinical in the past will now be applied to the new divisions in the same way. So there will be commercial investment to ensure operational excellence, be it on launch readiness, be it on pricing. And equally, we've looked at separately the amount of resources that are going after the launches, be it the FXI on the microbiology business, be it BD COR, where it is enhancing HPV testing across the overall population. Or on the flow cytometry side, we've taken specialists and move them into the different businesses, equally investing further in commercial readiness. So we feel pretty good about the resources we've put against improving the execution rhythm, but also getting a stronger uptake of the new products.

Your next question will come from Casey Woodring with JPMorgan.

Great. So another strong quarter of chemistry performance. Curious if you could just unpack that for us. How much of that was price? How much was new product contribution in bioseparations? As a follow-up on pricing, can you just elaborate, you had talked about, I think it was 100 to 200 basis points of pricing improvement with a high stick rate in that business. So how do you see pricing evolving here in chemistry within that 6%, 2026 guidance framework?

Let me start with this, Casey, and Amol will elaborate. Look, very happy with what we're seeing on chemistry, 12% growth for the year. Seeing really nice momentum already in Q1 with the innovation. And I mean, basically, it's a mix of what you just mentioned earlier. These are highly innovative products that command a price premium. From a pipeline and product perspective, as I mentioned in the prepared remarks, we've built on the MaxPeak Premier technology, which is bio-inert -- which sort of targets bio-inert surfaces of all types. With SEC columns, with oligonucleotides, with slalom chromatography, and sort of the newest kid on the block is the affinity chromatography where we're attaching antibodies to particles. And here, super excited about what's going to come from BD with the capability in biology and antibody preparation, so we can prepare specific antibodies to conjugate to our particle. So we feel very good about what's been happening and a nice momentum already at the start of the year. Amol, do you want to talk about pricing?

Yes. I mean on chemistry alone, Casey, as we had outlined, chemistry, we are able to get an amazing stick rate on our list price increases. So for like-for-like SKU, like-for-like geography, we are generating close to 400, 450 basis points on chemistry. On the overall portfolio basis, we're generating about 200 basis points of like-for-like SKU, like-for-like geography. That doesn't include upsell, and that's sort of running ahead of what we outlined at our Investor Day. But more critically, that's a significant opportunity that lies ahead of us for BD. Remember, because Waters back pre-COVID was 50-ish basis points of year-over-year price. And now we are consistently delivering 200 basis points plus. And BD is exactly that, right? Like historically, they've done somewhere between 40 to 50 basis points and a meaningful opportunity ahead of us to reapply our blueprint that has been so successful.

Your next question will come from Puneet Souda with Leerink.

If I could circle back to an earlier question around the conservatism you're taking in the acquired assets growth. Obviously, those numbers are lower versus the expectations you had earlier. I understand that you're baking in pricing and KPI discipline that you're going to bring about. But you are in markets that are different to what pharma QA/QC have been. So maybe just -- I would love to understand if you could, how much of a cushion there is in these numbers? How adjusted are they? If you could give us a sense, because I think that's the #1 question we're getting from investors as to the prudence you're baking in for the acquired portfolio.

So let me start, and then Amol will give you the parts. Look, I mean, we're not baking in, just to sort of correct the question itself. We're not baking in the pricing improvements, or the deal desk and the launch readiness into the numbers. Amol, do you want to describe the details?

Yes. I mean, look, we are baking in primarily the headwind from China DRG. And at this point, it's only prudent to sort of bake that in. And we are also baking in some continued slowness coming out of other elements that are associated with China, or the academic and government market. But again, when you look at our own, Water stand-alone U.S. A&G performance, it's tale of two worlds, right? So there is a clear meaningful upside. If we can reapply our success to some of these parts, like what we've done in China, like what we've done with U.S. A&G. But at the beginning of the year, right out of the gate, we want to be prudent.

Got it. That's helpful. And then was there any contribution from extra selling days in Q1 that you're contemplating?

So I mean, our Q1 guide reflects 4 extra working days.

Your next question will come from Subbu Nambi with Guggenheim.

Amol, what does operating margin progression look like this year with the addition to BD? What prudence is in those risk-adjusted assumption given it's a cleaner base?

Yes. Look, I mean, as we came into fourth quarter, we said we have few strategic R&D investments that could accelerate growth, particularly in bioseparations and informatics, and you're seeing the results of that growth on our top line. So we took the opportunity to accelerate some of those investments without changing our long-term margin algorithm, right? So coming into 2026, we're back to 31.3%, which we feel really good about. And the BD Biosciences and Diagnostic Solutions business is coming in at 22.4%. So net of revenue and cost synergies that allows us to deliver 28.1% margin, which is perfectly in line with how we announced the deal where we said, look, we'll expand the margin of the pro forma company from 27% to 32% over 5 years. And where we are coming in on 2026 is exactly in line with little over 100 basis points in the first year.

This concludes the Q&A portion of the call. I will now hand it back to Udit.

Thank you. Look, I mean guys, thank you very much for your attention today. As we get into the new chapter for Waters, we're starting our guidance for 2026, with, again, an industry-leading growth for the pro forma business. Really coming out of the gate strong on operational execution and synergies with $55 million on cost and $50 million on revenue side, which yields 100 basis points of margin expansion already in year 1, and almost a 1% accretion in less than a year. So I feel very good about where we're starting. Thank you very much for your support and look forward to talking to you again.