01—Abstract
Summary
Summary of the 10-K filed February 25, 2020. Cited figures are marked; the original filing is the authoritative source.
Waters Corporation (WAT) reported net sales of $2.41 billiona for 2019, down about 1% from $2.42 billion in 2018, with foreign currency translation reducing sales by 2%.
Operating income was $708 millionb, a decrease of 4% from 2018, and net income was $592 million, or $8.69 per diluted share, compared with $7.65 in 2018. The decline in sales was driven by weaker instrument system demand tied to macroeconomic uncertainty, Brexit, and governmental policy changes in China, partly offset by growth in recurring revenues (consumables and services), which rose 3%. Services remain a key franchise, representing over 35% of Waters sales in 2019.
The balance sheet shifted substantially during 2019. The company repurchased 11.1 million shares for $2.5 billionc under a $4 billion authorization approved in January 2019, and issued $500 million of senior unsecured notes. Total debt rose to $1.68 billion, cash and investments fell to $337 million, and stockholders' equity moved to a deficit of $216 million.
Operating cash flow was $643 milliond. The company remains exposed to a remaining U.S. transition tax liability of $404 million under the 2017 Tax Act.
Looking ahead, management announced a workforce reduction affecting 3% of employees in January 2020, with about $25 million of related costs expected in 2020, and agreed to acquire Andrew Alliance for approximately $80 million. The filing notes that the company is building a $215 million chromatography column manufacturing facility in Taunton, Massachusetts, with $85 million incurred through 2019.
02—Key points
Key Highlights
- Net sales of $2.41 billion in 2019, down about 1% from 2018; foreign currency translation reduced sales by 2%.
- Net income of $592 million, or $8.69 per diluted share, versus $7.65 in 2018; operating income declined 4% to $708 million.
- Waters service sales rose to $761.6 million and total service sales reached $839.4 million; service represented over 35% of Waters sales in 2019.
- Instrument system sales declined 4% in 2019, with TA instrument systems down 6%, driven by macroeconomic uncertainty, Brexit, and China policy changes.
- Repurchased 11.1 million shares for $2.5 billion in 2019 under a $4 billion authorization; stockholders' equity moved to a deficit of $216 million at year-end.
- Total debt of $1.68 billion at December 31, 2019, including $1.1 billion of senior unsecured notes, after issuing $500 million of notes in September 2019.
- January 2020 workforce reduction affecting 3% of employees, with approximately $25 million of costs expected in 2020, and a definitive agreement to acquire Andrew Alliance for about $80 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Waters kept $0.25.
- Revenue$2.41B100.0%
- Cost of revenue−$1.01B42.0%
- Gross profit$1.40B58.0%
- Operating costs−$687.4M28.6%
- Operating income$708.5M29.4%
- Interest, other & tax−$116.3M4.8%
- Net income$592.2M24.6%
Where FY2019 revenue went
$2.41B- Cost of revenue: $1.01B, 42% of revenue
- Net income: $592.2M, 25% of revenue
- SG&A: $534.8M, 22% of revenue
- R&D: $143.0M, 5.9% of revenue
- Interest, other & tax: $116.3M, 4.8% of revenue
Kept 25% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 25, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $2.41B$2.42B | −0.6% |
| Cost of Revenue | $1.01B$992.56M | +1.8% |
| Gross Profit | $1.40B$1.43B | −2.2% |
| R&D Expenses | $142.96M$143.40M | −0.3% |
| SG&A Expenses | $534.79M$536.90M | −0.4% |
| Operating Expenses | $1.70B$1.68B | +1.1% |
| Operating Income | $708.46M$739.77M | −4.2% |
| Interest Expense | $48.69M$48.64M | +0.1% |
| Net Income | $592.20M$593.79M | −0.3% |
| EPS (Basic) | $8.76$7.71 | +13.6% |
| EPS (Diluted) | $8.69$7.65 | +13.6% |
| Shares Outstanding (Basic) | 67.63M76.99M | −12.2% |
| Shares Outstanding (Diluted) | 68.17M77.62M | −12.2% |
05—Questions
Frequently Asked Questions
How did Waters perform financially in 2019?
Net sales were $2.41 billion, down about 1% from $2.42 billion in 2018. Operating income fell 4% to $708 million, and net income was $592 million, or $8.69 per diluted share, up from $7.65 in 2018. The company attributed the sales decline mainly to weaker instrument demand and a 2% negative effect from foreign currency translation.
Why did sales and instrument demand weaken in 2019?
The filing cites weaker customer demand from macroeconomic uncertainty, Brexit, governmental policy changes in China, and lower sales in Latin America. Waters instrument system sales fell 4%, and TA instrument system sales fell 6%. Recurring revenues from consumables and services grew 3%.
What did Waters do with its capital in 2019?
The company repurchased 11.1 million shares for $2.5 billion under a $4 billion authorization approved in January 2019, leaving $1.7 billion available for future repurchases. It also issued $500 million of senior unsecured notes in September 2019, with $200 million maturing in seven years and $300 million in ten years.
What is Waters' debt and liquidity position?
Total debt was $1.68 billion at December 31, 2019, and cash, cash equivalents and investments were $337 million. The company had $1.2 billion available to borrow under its 2017 Credit Agreement and reported compliance with all debt covenants. Stockholders' equity was a deficit of $216 million, reflecting share repurchases.
What significant future obligations or events does the filing disclose?
The filing discloses remaining U.S. transition tax payments under the 2017 Tax Act totaling $404 million, with about $38 million per year due over the next three years. It also reports a January 2020 workforce reduction with about $25 million of costs expected in 2020, and a planned acquisition of Andrew Alliance for about $80 million.
06—Continue