01—Abstract
Summary
Summary of the 10-K/A filed March 1, 2019. Cited figures are marked; the original filing is the authoritative source.
Waters Corporation reported net sales of $2.42 billiona for 2018, up 5% from $2.31 billion in 2017, with foreign currency translation adding 1% to growth.
Operating income rose 12% to $740 millionb, and operating margin reached 30.6% of sales, compared with 28.7% in 2017. Net income was $593.8 million, or $7.65 per diluted share, versus $20.3 million in 2017, which was depressed by a $550 million provision for the 2017 Tax Act. Net cash from operations was $604 million, down from $698 million in 2017, largely because of $103 million of U.S. income tax payments tied to the transition tax.
The company's capital allocation has shifted sharply. In 2018 it used repatriated cash to reduce debt by $850 millionc and repurchased $1,315 million of stock. In January 2019 the Board authorized up to $4 billion of share repurchases over two years, and management plans to raise outstanding debt to roughly 2.5 times its net debt-to-EBITDA ratio to fund a significant portion of those buybacks.
Total debt was $1.1 billiond at year-end, against $1.735 billion of cash, cash equivalents and investments. The company also expects to pay a transition tax of $433 million over eight years. Risk factors highlighted by the filing include exposure to non-U.S. operations, which generated 72% of 2018 net sales, currency fluctuations, and customer demand tied to capital spending.
Pharmaceutical customers accounted for 56% of net sales. Service revenue rose 8% to $814.9 million and is described as over 30% of Waters sales. The company is also building a $215 million chromatography column manufacturing facility in Taunton, Massachusetts, with $11 million spent through 2018.
02—Key points
Key Highlights
- Net sales rose 5% to $2.42 billion in 2018, and operating income rose 12% to $740 million, with operating margin of 30.6% versus 28.7% in 2017.
- Diluted EPS was $7.65 in 2018, compared with $0.25 in 2017, which included a $550 million provision for the 2017 Tax Act (reducing EPS by $6.82).
- Operating cash flow fell to $604 million from $698 million, reflecting $103 million of U.S. tax payments tied to the 2017 Tax Act.
- The Board authorized up to $4 billion of share repurchases over two years in January 2019, and management plans to increase debt to about 2.5 times its net debt-to-EBITDA ratio to fund a significant portion.
- In 2018 the company repurchased $1,315 million of stock and reduced debt by $850 million using repatriated cash.
- Pharmaceutical customers were 56% of 2018 net sales, and no single customer exceeded 2% of sales.
- Non-U.S. operations generated 72% of 2018 net sales, exposing results to foreign currency movements.
- Service sales grew 8% to $814.9 million, and the filing describes service as over 30% of Waters sales.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Waters kept $0.25.
- Revenue$2.42B100.0%
- Cost of revenue−$992.6M41.0%
- Gross profit$1.43B59.0%
- Operating costs−$687.6M28.4%
- Operating income$739.8M30.6%
- Interest, other & tax−$146.0M6.0%
- Net income$593.8M24.5%
Where FY2018 revenue went
$2.42B- Cost of revenue: $992.6M, 41% of revenue
- Net income: $593.8M, 25% of revenue
- SG&A: $536.9M, 22% of revenue
- R&D: $143.4M, 5.9% of revenue
- Interest, other & tax: $146.0M, 6.0% of revenue
Kept 25% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2018filed March 1, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $2.42B$2.31B | +4.8% |
| Cost of Revenue | $992.56M$947.07M | +4.8% |
| Gross Profit | $1.43B$1.36B | +4.8% |
| R&D Expenses | $143.40M$132.59M | +8.2% |
| SG&A Expenses | $536.90M$544.36M | −1.4% |
| Operating Expenses | $1.68B$1.65B | +2.0% |
| Operating Income | $739.77M$662.20M | +11.7% |
| Interest Expense | $48.64M$56.84M | −14.4% |
| Net Income | $593.79M$20.31M | +2823.5% |
| EPS (Basic) | $7.71$0.25 | +2984.0% |
| EPS (Diluted) | $7.65$0.25 | +2960.0% |
| Shares Outstanding (Basic) | 76.99M79.79M | −3.5% |
| Shares Outstanding (Diluted) | 77.62M80.60M | −3.7% |
05—Questions
Frequently Asked Questions
How did Waters perform financially in 2018?
Net sales increased 5% to $2.42 billion, operating income increased 12% to $740 million, and net income was $593.8 million, or $7.65 per diluted share. Foreign currency translation added 1% to sales growth.
Why was 2017 net income so low compared with 2018?
The 2017 provision for income taxes included a $550 million estimate for the impact of the 2017 Tax Act, which reduced 2017 net income per diluted share by $6.82 and left net income at $20.3 million.
What is the company doing with its cash and capital?
The company repurchased $1,315 million of stock and reduced debt by $850 million in 2018. In January 2019 it authorized up to $4 billion of buybacks over two years and plans to increase debt to about 2.5 times its net debt-to-EBITDA ratio to fund a significant portion of them.
What are the main risks to Waters' business?
Key risks include international operations (72% of 2018 net sales), currency fluctuations, customer demand dependent on capital spending and funding, intense competition, and the need to develop and commercialize new technologies. Manufacturing disruption and cybersecurity risks are also cited.
What is the company's debt and liquidity position?
At December 31, 2018, the company had $1.1 billion in debt and $1.735 billion in cash, cash equivalents and investments, with $1,208 million available to borrow under its credit agreement. It stated it was in compliance with all debt covenants.
06—Continue