01—Abstract
Summary
Summary of the 10-K filed February 27, 2023. Cited figures are marked; the original filing is the authoritative source.
Waters Corporation (NYSE: WAT) reported net sales of $2,971,956 thousanda in 2022, up 7% from $2,785,874 thousand in 2021, with net income of $707,755 thousand, or $11.73 per diluted share, compared with $11.17 in 2021.
Operating income rose to $873,395 thousandb, a 6% increase, and operating margin was 29.4% of sales. Growth was broad-based across geographies and end markets, though foreign currency translation decreased total sales growth by 5% in 2022 as the U.S. dollar strengthened significantly. Pharmaceutical customers accounted for 59% of net sales, other industrial accounts for 31%, and academic and governmental institutions for 10%.
Instrument system sales increased 11%, while recurring revenues (consumables and services) rose 3%. Cash generation weakened in 2022: net cash provided by operating activities was $611,661 thousandc, down from $747,274 thousand in 2021, driven by higher inventory, slower cash collections and higher incentive compensation payments. At December 31, 2022, the company had $1.6 billion in total debt and $481 million in cash, cash equivalents and investments, and it repurchased $616 million of common stock during 2022.
The repurchase authorization was increased by $750 million to $4.8 billiond and extended to January 21, 2024. The company has not paid cash dividends in its past three fiscal years.
A significant subsequent event is the February 14, 2023 agreement to acquire Wyatt Technology for $1.4 billion in cash, expected to close in the second quarter of 2023 and to be financed with balance sheet cash and revolver borrowings. Management also flagged risks including foreign currency exposure (about 70% of 2022 net sales were outside the United States), China, which accounted for approximately 19% of total net sales, and the ongoing COVID-19 pandemic and supply chain disruption.
02—Key points
Key Highlights
- Net sales grew 7% to $2,971,956 thousand in 2022, with diluted EPS of $11.73 versus $11.17 in 2021.
- Operating income increased 6% to $873,395 thousand, with operating margin of 29.4% of sales versus 29.5% in 2021.
- Foreign currency translation decreased total sales growth by 5% in 2022 and reduced operating income by approximately $71 million.
- Operating cash flow declined to $611,661 thousand from $747,274 thousand, driven by higher inventory, slower collections and higher incentive payments.
- Share repurchases totaled $616 million in 2022; the authorization was increased by $750 million to $4.8 billion and extended to January 21, 2024.
- Pending $1.4 billion cash acquisition of Wyatt Technology, agreed February 14, 2023 and expected to close in the second quarter of 2023.
- Total debt was $1.6 billion at year-end 2022 against $481 million of cash, cash equivalents and investments, with $1.5 billion available under the revolving credit facility.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Waters kept $0.24.
- Revenue$2.97B100.0%
- Cost of revenue−$1.25B42.0%
- Gross profit$1.72B58.0%
- Operating costs−$850.4M28.6%
- Operating income$873.4M29.4%
- Interest, other & tax−$165.6M5.6%
- Net income$707.8M23.8%
Where FY2022 revenue went
$2.97B- Cost of revenue: $1.25B, 42% of revenue
- Net income: $707.8M, 24% of revenue
- SG&A: $658.0M, 22% of revenue
- R&D: $176.2M, 5.9% of revenue
- Other operating costs: $16.2M, 0.5% of revenue
- Interest, other & tax: $165.6M, 5.6% of revenue
Kept 24% as net incomeOther operating costs $16.2M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 27, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $2.97B$2.79B | +6.7% |
| Cost of Revenue | $1.25B$1.16B | +7.9% |
| Gross Profit | $1.72B$1.63B | +5.8% |
| R&D Expenses | $176.19M$168.36M | +4.7% |
| SG&A Expenses | $658.03M$626.97M | +5.0% |
| Operating Expenses | $2.10B$1.96B | +6.8% |
| Operating Income | $873.39M$821.71M | +6.3% |
| Interest Expense | $48.80M$44.94M | +8.6% |
| Net Income | $707.75M$692.84M | +2.2% |
| EPS (Basic) | $11.80$11.25 | +4.9% |
| EPS (Diluted) | $11.73$11.17 | +5.0% |
| Shares Outstanding (Basic) | 59.98M61.58M | −2.6% |
| Shares Outstanding (Diluted) | 60.33M62.03M | −2.7% |
05—Questions
Frequently Asked Questions
How did Waters perform financially in 2022?
Net sales reached $2,971,956 thousand, up 7% from 2021. Net income was $707,755 thousand, or $11.73 per diluted share, up from $11.17. Operating income was $873,395 thousand, up 6%, and operating margin was 29.4%.
What drove sales growth and what headwinds did the company face?
Growth was driven by strong customer demand across most geographies, end markets and product categories, with instrument system sales up 11%. Foreign currency translation reduced total sales growth by 5% as the U.S. dollar strengthened significantly, and higher electronic component and freight costs pressured cost of sales.
How is Waters funding its capital needs and shareholder returns?
The company had $1.6 billion in debt and $481 million in cash and investments at December 31, 2022, with $1.5 billion available under its credit facility. It repurchased $616 million of stock in 2022 and has not paid cash dividends in its past three fiscal years. The Wyatt Technology acquisition will be financed from balance sheet cash and revolver borrowings.
What is the Wyatt Technology acquisition and what risks does it carry?
Waters agreed on February 14, 2023 to acquire all equity interests of Wyatt Technology, a light scattering and field-flow fractionation instrument maker, for $1.4 billion in cash, subject to customary adjustments. The sellers can terminate if the deal is not completed by June 14, 2023, extendable to August 14, 2023 if regulatory approvals are pending, and a $15 million fee applies if the agreement is validly terminated and not consummated under its closing conditions.
How concentrated is Waters' customer base and geographic exposure?
Pharmaceutical accounts represented 59% of 2022 net sales, and no single customer exceeded 2% of sales. About 70% of net sales were outside the United States, and China accounted for approximately 19% of total net sales in 2022.
06—Continue