Waters (WAT) Q4 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Thursday, Feb. 12, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Udit Batra
• Chief Financial Officer — Amol Chaubal
• Senior Vice President, Strategy and Transformation — Dan Rush
• Prepared Remarks Leader — Caspar Tudor
• Operator

TAKEAWAYS

• Q4 2025 Sales -- $932 million, representing 7% growth as reported and 6% in constant currency.
• Q4 2025 Adjusted EPS -- $4.53, up 10% year over year; GAAP EPS was $3.77.
• Full-Year 2025 Sales -- $3.60 billion, up 7% both reported and in constant currency.
• Full-Year 2025 Adjusted EPS -- $13.13, up 11%; GAAP EPS was $10.76.
• Q4 2025 Gross Margin -- 61.1%; full-year gross margin was 59.3%.
• Q4 2025 Adjusted Operating Margin -- 35.2%; full-year margin was 30.5%.
• Free Cash Flow -- $125 million in Q4 after $39 million in capex and $15 million in transaction costs; $677 million for the full year after $113 million in capex and $29 million in transaction costs.
• Net Debt Position -- $820 million at year-end; post-acquisition, CFO Chaubal projected net debt to rise to $4.65 billion and net debt to EBITDA at about 2.4x.
• Division Growth by Q4 End Market -- Pharma up 7%; industrial up 8%; academic and government down 3%.
• Instrument Sales -- Up 3% in Q4, led by high single-digit LCMS growth; TA system sales declined low single digits.
• Recurring Revenues -- Up 9% in Q4, comprising 8% service growth and 12% chemistry growth.
• 2026 Standalone Organic Constant Currency Revenue Guidance -- 5.5%-7%, with FX translation expected to contribute a 0.5% tailwind.
• 2026 Acquired Business Revenue Guidance -- $3 billion from Biosciences and Diagnostic Solutions, assuming 2.5% constant currency growth (owned-period), risk-adjusted.
• 2026 Total Company Revenue Guidance -- $6.41 billion to $6.46 billion, implying about 5.3% year-over-year growth at the midpoint.
• 2026 Adjusted Operating Margin Guidance -- 28.1%, comprised of Waters standalone at 31.3% and acquired businesses at 22.4%.
• 2026 Adjusted EPS Guidance -- $14.30 to $14.50, reflecting 8.9%-10.4% growth and $0.10 accretion from the transaction before achieving a full year of ownership.
• 2026 Cost Synergy Target -- Approximately $55 million of adjusted EBIT, focused on restructuring, procurement, and network optimization.
• 2026 Revenue Synergy Target -- Approximately $50 million in incremental revenue and $25 million in corresponding adjusted EBIT, mainly from commercial execution, instrument replacement, e-commerce, and service attach initiatives.
• Instrument Replacement Opportunity -- 22,000 flow and BACTEC instruments identified; synergy modeled on replacing 100 units annually to deliver $20 million by year five.
• Empower Subscription Transition Impact -- CFO Chaubal cited a low single-digit percentage growth headwind in Q4, with several large pharma transitions completed; described as a “fantastic problem to have” due to future recurring revenue benefit.
• First-Quarter 2026 Revenue Guidance -- $1.20 billion to $1.21 billion, including $718 million to $731 million standalone reported revenue (7%-9% organic constant currency growth) and an expected $480 million from acquired businesses (projected low single-digit decline).
• First-Quarter 2026 Adjusted EPS Guidance -- $2.25 to $2.35, flat to 4.4% growth; includes $2.50 standalone EPS (10% growth at midpoint).
• Operating Tax Rate -- 15.7% for 2025; expected 16.6% for 2026.
• Share Count Outlook -- Approximately 94.3 million average shares in 2026; 98.4 million at closing; EPS guidance notes change in average share count over the year.
• Organizational Restructuring -- Waters has reorganized into four divisions (Analytical Sciences, Biosciences, Advanced Diagnostics, and Material Sciences) to align key businesses, enhance accountability, and provide segment transparency.
• Cost Synergy Baseline -- Leadership targeted cost synergies below 5% of the combined cost base, with “potential to exceed that level, consistent with market benchmarks for deals this size.”

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Operator noted Q4 results in BD Biosciences and Diagnostic Solutions “came in below expectations due to impacts that became apparent during the quarter,” specifically citing weaker demand in China, U.S. government shutdown-related export delays, and a milder flu season affecting point-of-care testing.
• CFO Chaubal said, "we are baking in primarily a headwind from China DRG, and at this point, it is only prudent to bake that in," along with continued slowness in China and academic/government markets for the acquired businesses.

SUMMARY

Waters (NYSE:WAT) set combined 2026 revenue guidance at $6.41 billion-$6.46 billion, targeting 5.3% growth at the midpoint, and reported risk-adjusted assumptions incorporate headwinds from China and academic/government markets into the baseline for acquired assets. The company detailed $55 million in cost synergies and $50 million in revenue synergies for 2026, with integration of BD Biosciences and Diagnostic Solutions positioned as major structural enhancements to recurring revenue, execution discipline, and market position. New organizational segmentation into four divisions and deployment of centralized deal desk pricing and commercial teams were introduced as capital allocation and accountability upgrades.

• Recurring revenue continues to accelerate, underpinned by high chemistry growth and multi-point pricing discipline—CFO Chaubal cited "close to 400 to 450 basis points on chemistry" for like-for-like SKU/geography price realization.
• Leadership emphasized that synergy and margin guidance are conservatively set, not yet reflecting upside from planned execution improvements or new product launches in the acquired divisions.
• Full-year 2026 EPS is guided for 8.9%-10.4% growth, with projected $0.10 accretion from the transaction before a full year of ownership, and quarterly EPS is expected to be non-additive due to large share count shifts upon deal close.
• Leadership stated organizational redesign provides "a clear, transparent view into the performance of all our key segments," with Waters Analytical Sciences, Biosciences, Advanced Diagnostics, and Material Sciences separately led by experienced executives from both legacy and acquired businesses.

INDUSTRY GLOSSARY

• DRG (Diagnosis-Related Group): A medical reimbursement classification used in China and other regions; policy changes in this area can impact diagnostic testing demand.
• LCMS: Liquid Chromatography-Mass Spectrometry, a key analytical instrument line for Waters used in various applications, including pharma and diagnostics.
• Empower: Waters' informatics and data management software platform, referenced here undergoing a transition from on-premises licensing to recurring subscription revenue.
• Service Attach: The percentage of instrument sales bundled with service plans, a tracked synergy lever for growth and margin capture.
• BACTEC: A branded line of microbiology testing instruments acquired as part of the BD Diagnostic Solutions division.

Full Conference Call Transcript

Operator: Cumulative subscription revenue equals the prior license value in approximately 18 months. From that point forward, it adds incremental, high-quality recurring revenue with long-term visibility and margin benefits. We are executing this change gradually and expect it to become a more positive structural driver in the years ahead beginning in 2027. Taken together, these drive 200 basis points of annual revenue growth accretion on a standalone basis between now and 2030. Turning now to our integration of BD Biosciences and Diagnostic Solutions. This combination is a significant value-creation opportunity that further adds to our trajectory across two main dimensions. Firstly, it strengthens our position in high-growth adjacencies across bioseparations and bioanalytical characterization by adding critical technologies and expertise.

It also adds to our LCMS diagnostics business with day one commercial-scale customer channel access and automation capabilities. Secondly, it provides a meaningful execution uplift opportunity. By applying our operating discipline across instrument replacement, e-commerce adoption, and service attachment, we expect to replicate the same growth acceleration that we have successfully achieved in our existing businesses. Together, this positions Waters Corporation for sustainable, high single-digit growth over the long term and well beyond the current instrument replacement cycle. The transaction also yields attractive cost synergies.

Our baseline plan represents less than 5% of the combined cost base with the potential to exceed that level, consistent with market benchmarks for deals this size and prior large-scale integrations that our leadership team has successfully executed. To ensure we capture this value quickly and consistently, we have aligned the organization around a new operating structure. We have organized Waters Corporation into four divisions where each follows our repeatable business model, with simple yet sophisticated instruments, compliance software, customized consumables, and world-class service. This structure enhances accountability and will provide investors with a clear, transparent view into the performance of all our key segments across the company.

First, Waters Analytical Sciences, formerly known as Waters Division, will continue to be led by Rob Carpio, who you all know well. The division comprises LC, mass spec, light scattering, and particle analysis, together with our Empower informatics platform, chemistry consumables, and our service team. Going forward, revenue from Waters Clinical business will be reported within our Advanced Diagnostics division. Waters Biosciences, formerly BD Biosciences, will be led by Steve Conley, who has led the business for the past three and a half years and has played a key role in the launch of its next-generation flow cytometry platforms.

The Waters Biosciences division consists of leading flow cytometry brands like FACSDISCOVER and FACS Lyric, the Horizon Real Dyes brand of fluorescent dyes and reagents, and FlowJo software. Waters Advanced Diagnostics will be led by Jiangqing Bennett, who has been running our Clinical and TA business unit over the past several years and has transformed the top-line growth profile of these businesses. Jiangqing has a strong background in diagnostics, having served as Senior Vice President of High Growth Markets at Beckman Coulter Diagnostics before joining Waters Corporation.

The Waters Advanced Diagnostics division consists of leading microbiology testing brands, including BACTEC, Phoenix, and CareStar, as well as molecular diagnostic solutions with the BD MAX and BD COR platforms, LCMS-based solutions, and point-of-care testing. Waters Material Sciences, formerly TA Division, will be led by Dan Rush on an interim basis while we appoint a successor to Jiangqing. Dan is our Senior Vice President of Strategy and Transformation and has a long track record of leading commercial and strategy teams. He served as Vice President of Worldwide Commercialization Strategy and Innovation at Bristol Myers Squibb before joining Waters Corporation in 2021.

The Material Sciences division consists of products, services, and informatics spanning a diverse range of materials characterization techniques, including thermal analysis, rheology, and microcalorimetry. These are used in a range of applications such as battery testing for electric vehicles, pharma, and medical devices. Together, these businesses bring leading scientific capabilities serving customers in high-volume regulated applications. They are anchored by a shared operating model that leverages category-defining brands and a universal culture of pioneering innovation. In parallel, we have aligned early execution priorities to hit the ground running now that we are gaining full operational control of the Biosciences and Diagnostic Solutions business.

With several months of integration planning behind us, we have clear line of sight to the initiatives that will drive the most value in the early innings of the integration. In the most recent quarter, BD Biosciences and Diagnostic Solutions results came in below expectations due to impacts that became apparent during the quarter. In China, demand weakened due to increased focus on reducing consumption in diagnostics testing, while the U.S. government shutdown affected the Biosciences business as export approvals got delayed. At the same time, the point-of-care business was impacted by a milder flu season compared to the previous year. As we look ahead, our cost and revenue synergies are firmly on track.

In 2026, we will make swift and decisive progress towards achieving the objectives we have laid out. On cost synergies, restructuring, procurement savings, and network optimization are key vectors that we expect to begin realizing this year. As a prudent starting assumption, we expect to realize approximately $55 million of adjusted EBIT from cost synergies in 2026. On revenue synergies, while there is meaningful opportunity across each of our workstreams over time, our first priority in 2026 is enhancing commercial execution and forecasting discipline. We will quickly begin to leverage untapped growth vectors in instrument replacement, e-commerce, and service attachment and will immediately establish a deal desk to manage pricing discipline.

As a prudent starting assumption, we expect to realize approximately $50 million in revenue and $25 million in corresponding adjusted EBIT from revenue synergies in 2026. Let me now describe the first phase of revenue synergy realization in a little bit more detail. These are the same levers you have seen us execute successfully at Waters Corporation over the past five years. Starting with instrument replacement, there are approximately 22,000 flow and BACTEC instruments that are ripe for replacement. At the same time, a meaningful wave of new products are being launched, such as FACSDISCOVER A8, S8, A7, and BACTEC FXI.

To achieve our revenue synergy target of $20 million by year five, we need to drive an incremental 100 instrument replacements per year. To put that into perspective, during our prior indomitable replacement initiative at Waters Corporation, we delivered double that target in half the time. For service plan attachment, our $20 million revenue synergy target can be achieved by increasing attachment by approximately one percentage point per year, a rate that is more than consistent with our historical performance of more than 2% annually over the past five years. For e-commerce, our target is to increase adoption by approximately 4% annually, which, too, is a more measured growth trajectory compared to our historical performance.

I will now cover our 2026 guidance. Across our existing businesses, the team is executing well with a revitalized portfolio, leveraging instrument replacement and realizing benefits from our idiosyncratic growth drivers. As a prudent starting point, these dynamics support organic constant currency revenue growth of 5.5% to 7%. Turning to the acquired business contribution, following today’s expected close of the transaction, we expect the Biosciences and Diagnostic Solutions businesses to contribute $3,000,000,000 of revenue in 2026. While the majority of headwinds that impacted the business in 2025 are already in the baseline, we have further risk-adjusted our outlook to ensure a prudent starting point.

We are assuming approximately 2.5% underlying growth in 2026 on an owned-period basis before any benefit from execution and pricing improvements or planned organizational simplification. Taken together, with revenue synergies I just mentioned, this results in total 2026 reported revenue of approximately $6,405,000,000 to $6,455,000,000. These starting assumptions imply a blended year-over-year revenue growth of approximately 5.3% at the midpoint for the combined company in 2026. This is an industry-leading growth guidance and carries clear potential for outperformance as the year progresses. From a profitability perspective, we expect to deliver a 2026 adjusted operating margin percentage of approximately 28.1%, which is already more than 100 basis points of margin expansion compared with our deal model in 2025.

This translates to full-year 2026 adjusted EPS of $14.30 to $14.50, which is also an attractive starting point reflecting 8.9% to 10.4% growth. It includes $0.10 of accretion from the transaction versus Waters Corporation’s adjusted EPS on a standalone basis even before reaching a full year of ownership. I will now turn the call over to Amol Chaubal to review the financials and walk through our guidance in more detail.

Amol Chaubal: 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 $932,000,000 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 the 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 continued to recover. In academic and government, strong double-digit growth in some regions was offset by year-over-year spending declines in other regions. By region, Asia grew low double digits, while the 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 LCMS 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 customer adoption of our bioseparations columns, which have been a vertical success in the market. Adjusted earnings per share grew 10% to $4.53. GAAP earnings per share were $3.77.

For the full year, sales grew 7% on both a reported and constant currency basis. By end market, pharma grew 9%, industrial grew 6%, while academic and government declined 1%. In pharma, all regions delivered high single-digit growth or better, led by Asia, which grew low double digits. In industrial, Waters Division grew low double digits with broad-based double-digit strength across chemical analysis, food, and environmental testing. This was partially offset by a 1% decline in TA Division. In academic and government, the Americas and China grew mid single digits, while Europe declined 5%. By region, Asia grew low teens, while the Americas and Europe grew mid single digits. Within Asia, India grew high teens, and China grew 9%.

Our strength in China was driven by broad-based growth across pharma, industrial, and academic and government. This was supported by share gains in biotech and CDMOs, chemical and environmental workflows, and academic and government. By product line, instrument sales grew 5%, led by high single-digit LCMS growth. Recurring revenues grew 8% with 7% service growth and 12% chemistry growth. For the full year, adjusted earnings per share grew 11% to $13.13. On a GAAP basis, EPS was $10.76. Within the P&L, gross margin was 61.1% for the quarter and 59.3% for the full year, which was better than expected. Adjusted operating margin was 35.2% for the quarter and 30.5% for the year.

This reflects the deliberate acceleration of strategic R&D investments in chemistry and informatics along with the impact of regional sales mix and tariff surcharges. Our operating tax rate came in at 15.7% for both the quarter and the year. The full-year rate includes approximately 50 basis points of discrete benefit related to a change in U.S. tax legislation enacted in 2025. Turning to cash generation and the balance sheet, free cash flow was $125,000,000 in the quarter after funding $39,000,000 of capital expenditures and $15,000,000 of transaction-related costs. For the full year, free cash flow totaled $677,000,000 after funding $113,000,000 of capital expenditures inclusive of tariff-related mitigation actions and $29,000,000 of transaction-related costs.

Our net debt position at the end of the year was $820,000,000. Now I will share further commentary on our 2026 outlook and provide our first-quarter guidance. We are executing well with a revitalized portfolio leveraging instrument replacement and benefiting from our idiosyncratic growth drivers. We expect this momentum to continue into 2026. As a prudent starting point, these dynamics support standalone full-year 2026 organic constant currency revenue growth of 5.5% to 7%. We expect favorable foreign exchange translation to provide a 0.5% tailwind to organic sales, which translates to organic reported revenue of $3,355,000,000 to $3,405,000,000 in 2026.

Turning to the acquired business contribution, following today’s expected closing of the transaction, we expect the acquired Biosciences and Diagnostic Solutions businesses to contribute $3,000,000,000 of revenue in 2026. In setting this expectation, we have risk-adjusted the underlying growth assumptions, even though most of the headwinds that impacted the business in 2025 are already in the baseline as we enter 2026. Our guidance prudently assumes approximately 2.5% underlying constant currency growth for these businesses in 2026 on an owned-period basis before any benefit from execution and pricing improvements or our organizational changes. In addition, we expect to realize approximately $50,000,000 of revenue synergies in 2026 reflecting the initial contribution from the first wave of excellence initiatives discussed earlier.

Taken together, this results in a total reported 2026 revenue of $6,405,000,000 to $6,455,000,000. These starting assumptions imply blended year-over-year constant currency growth of approximately 5.3% for the combined company in 2026. From a profitability perspective, we expect to deliver an adjusted EBIT margin of 28.1% in 2026, consistent with our deal model. This reflects approximately 80 basis points of adjusted operating margin expansion at Waters Corporation on a standalone basis consistent with our Investor Day algorithm to approximately 31.3%; an adjusted operating margin percentage of approximately 22.4% for Biosciences and Diagnostic Solutions; a $25,000,000 contribution from the $50,000,000 revenue synergies; and a $55,000,000 contribution from anticipated cost synergies.

Below the line, net interest expense is expected to be approximately $179,000,000, and our full-year tax rate is expected to be approximately 16.6%. From a share count perspective, our updated capital structure results in approximately 94,300,000 shares outstanding on a full-year average basis in 2026. At closing, our new share count is 98,400,000 shares. This translates to full year 2026 adjusted earnings per fully diluted share of $14.30 to $14.50 and represents 8.9% to 10.4% growth. It includes $0.10 of adjusted EPS accretion versus Waters Corporation’s standalone non-GAAP EPS profile due to the transaction, already before a first full year of ownership.

It is important to note that quarterly EPS figures are not additive to the full-year EPS due to a significant change in average shares outstanding between the first quarter and the remainder of the year. For the first quarter of 2026, we are beginning the year with strong momentum across our core businesses. We expect standalone organic constant currency revenue growth of 7% to 9%. With tailwinds from favorable foreign exchange translation, reported standalone revenue is expected to be approximately $718,000,000 to $731,000,000. Turning to the acquired business contribution, we expect the Biosciences and Diagnostic Solutions businesses to contribute $480,000,000 of revenue in the first quarter of 2026. This calls for a low single-digit revenue decline.

Quarter-to-date trends reinforce our confidence in this outlook. Taken together, this results in a total reported first-quarter 2026 revenue of $1,198,000,000 to $1,211,000,000. For modeling purposes, first-quarter average share count is expected to be 82,000,000, and tax rate is expected to be consistent with our full-year outlook. While the transaction is expected to be EPS accretive for the full year 2026, the first quarter will reflect the full burden of interest expense and the higher share count, with synergies beginning to ramp up in subsequent quarters. As a result, the first-quarter adjusted earnings per fully diluted share is expected to be in the range of $2.25 to $2.35, which is flat to 4.4% growth.

Embedded within this guide is standalone EPS of $2.50, or 10% growth versus prior year at the midpoint. With that, I will now hand the call back to Udit.

Udit Batra: 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. I will now turn the call over to Caspar Tudor.

Caspar Tudor: Thanks, Udit. That concludes our prepared remarks. We are now

Operator: happy to open the lines and take your questions.

Operator: We will now begin Q&A. If you would like to ask a question, please use the raise your hand feature at the bottom of your screen. If you are dialed in by phone, press 9 to raise your hand and 6 to unmute. Please accept the prompt and unmute your audio when called upon. As a reminder, we are allowing one question and one follow-up. We will wait a moment to allow the queue to form.

Operator: Our first question

Operator: will come from Tycho W. Peterson with Jefferies. Your line is now open. Please go ahead.

Tycho W. Peterson: Hey. Thanks. Udit, I think the two things people really want to dig into here are the BD results this morning and, you know, the numbers obviously have deteriorated 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, you know, 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 is, you know, call it, 250 basis point headwind this quarter, but do we think about the go-forward P&L impact on instruments from this Empower transition? Thanks. Yeah. So, Udit, thanks for the two questions.

Udit Batra: So let me start with the BD Diagnostic Solutions and Biosciences 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 will 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 Corporation almost five years ago. Right?

You couple this with a host of innovative new products in both Diagnostic Solutions and in Biosciences 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 are now ready to deliver the synergies, be it around instrument replacement, e-commerce, or service attach.

And look, with service attach, we are starting at a low-40s number, and you have seen what we already did in 2025 alone. So we are very confident to deliver the $50,000,000 in revenue synergies and more. You add this to what our standalone guidance is, you end up with over 5%, close to 5.3% at the midpoint of the guide for the combined business. So we are 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?

Amol Chaubal: Yeah. 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 one-time 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.

From a baseline point of view, it is 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 a reasonable guide.

Udit Batra: So now turning to your second question on instruments. Really happy with instruments performance. LCMS grew high single digits again, and this is through the year; every quarter has been high single digits to double digits for LCMS 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 is great news—something that we have 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, LCMS high single-digit growth; TA was a low single-digit percentage headwind just given the challenges in the U.S. and Europe.

Operator: And

Udit Batra: Empower is really a wonderful transition that we told you we would talk about 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 are starting and the guide we have given for Q1 and the full year. All the drivers are currently fully intact, and we have also accounted in the guidance that we have given for the Empower headwinds that we expect during the year as customers transition from the CapEx to recurring revenue model.

So all going according to plan and really happy with, especially, the Empower transition. It is a fantastic problem to have. Right?

Amol Chaubal: Two of the top five pharmas converted. And, I mean, you know, Q1 funnel is strong. So we are not less.

Operator: Thank you.

Operator: Your next question will come from Catherine Schulte with Baird. Hey, guys. Thanks for the questions. Maybe

Catherine Schulte: first, just for the full-year guide of 5.5% to 7%, 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?

Udit Batra: 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 have given a lot of detail to Tycho’s question on that front already. We feel very good about where we are 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 have not baked into the guide itself.

I mean, we have assumed that the academic and government drug discovery, pharma research segments do not recover. In China, we have assumed a mid single-digit growth versus what we have done this year, which is about 9%. I mean, a fantastic growth in China, but we have assumed mid single digit and not included any sort of stimulus revenue. We have 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 have assumed that chemistry is roughly 6% in our guide while finishing the year at 12% in chemistry growth rates.

So several areas to have risk on the upside, and we feel pretty good about where we are starting with the guide. On Q1, Amol, do you want to talk about the 7% to 9%?

Amol Chaubal: Yeah. I mean, in general, the momentum coming into Q1 is really strong, and that, coupled with four extra working days, sort of supports our guide. And that then sort of de-risks the remainder of the year.

Catherine Schulte: Okay. Got it. And apologies if I missed it in your response to Tycho’s question. But 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? The path to recovery?

Amol Chaubal: Yeah. I mean, look, we expect 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 when the DRG headwind is in the baseline as we enter Q3 and Q4.

Udit Batra: Yeah. 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 forecast accuracy in the business. There is pricing, not just on setting the price but also on discounting, which impacts both the top and the bottom line, and we have done that successfully at Waters Corporation. Also ensuring that the launches for the new products that are coming through go extremely well is something we have done by targeting very precisely for our Alliance iS and TQ Absolute products.

Equally, we are squarely focused on taking all the work that has 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 we feel very good about the starting point after a lot of planning.

Operator: Our next question will come from Jack Meehan with Nephron. Thank you. Good morning.

Tycho Peterson: Good.

Jack Meehan: For pricing, on BD you talked a couple of times about setting up a deal desk. Can you talk about which product areas are in focus and how you think that has been optimized in the past?

Udit Batra: Yeah. So, look, I mean, almost five years ago, we set up the same process at Waters Corporation, and it has two, maybe three parts. The first is a centralized examination of what the list 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 basically take away the ability for regions and sales teams to discount. So anytime there is 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 notable being the FACSDISCOVER line, S8, A8, as well as now the S7 and A7 that are coming up. And for instruments, it is extremely important to not lose the pricing discipline as you negotiate the deals. It is pretty easy to give away pricing on highly innovative products if you are 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 are 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 produces, and these are of 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. Mhmm.

Operator: Great. And then

Jack Meehan: for Amol, can you give us an update on the pro forma leverage for Waters Corporation and how you expect that to evolve over the year? And, similarly, what does the guide for interest expense assume for any refinancing? Thank you.

Amol Chaubal: Yeah. So, I mean, look, we will be roughly at a net debt of around $4,647,000,000. Right? And that would translate to roughly around 2.4 times 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 two times within an eighteen-month time frame. And then interest expense on a pro forma basis is about $179,000,000 for 2026.

Operator: Our next question will come from Douglas Schenkel with Wolfe. Good morning.

Douglas Schenkel: I actually just have one topic I would like to cover, just on the synergy targets. I think your initial year-one 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 one, and I think it is about twice what you previously outlined, what is driving this increase? And, you know, recognizing this is a pretty big number to start, just wondering how you are thinking about potential upside to that year-one target given what seems to be strong momentum in identifying opportunities in the early going. Thank you.

Amol Chaubal: Hi, Doug. So, look, I mean, our underwriting model assumed roughly 4% to 4.5% of the pro forma cost base of Waters Corporation standalone 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%. What Udit and Chris Ross achieved at Sigma was more like 8%.

We have not baked in that level of targets in our underwriting because, one, we want to give ourselves some space, and, two, we know for a deal of this size, there are always skeletons that you find, and it gives us room to cover for that. If you now look at our guide, we are 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.

Operator: Your next question will come from Matthew Larew with William Blair. Hi. Good morning.

Tycho Peterson: With BD, maybe thinking about the revenue synergy size, you know, 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

Matthew Larew: you know, perhaps works with the idea of the EBIT

Tycho Peterson: contribution you are hoping to get from revenue synergies.

Udit Batra: So, Matt, that is a really good question and something that we invested a lot of time in during 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 have done in the past as well. So the pricing discipline that we have seen at Waters Corporation 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 have 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, which is enhancing HPV testing across the overall population, or on the flow cytometry side. We have taken specialists and moved them into the different businesses, equally investing further in commercial readiness. So we feel pretty good about the resources we have put against improving the execution rhythm but also getting a stronger uptake of the new products.

Operator: Thank you.

Operator: Your next question will come from Casey Woodring with JPMorgan.

Casey Woodring: Great. Thank you for taking my questions. So another strong quarter of chemistry performance.

Casey Woodring: 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 2026 guidance framework? Thank you.

Udit Batra: Let me start with this, Casey, and then Amol will elaborate. Look, very happy with what we are seeing on chemistry—12% growth for the year, seeing really nice momentum already in Q1 with the innovation. And, basically, it is 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 have built on the MaxPeak Premier technology, which is bioinert, so which targets bioinert surfaces of all types, with SEC columns, with oligonucleotides, with chiral chromatography, and the newest kid on the block is the affinity chromatography, where we are attaching antibodies to particles.

Here, super excited about what is going to come from BD with capability in biology and antibody preparation, so we can prepare specific antibodies to conjugate to our particles. So we feel very good about what has been happening and a nice momentum already at the start of the year. Amol, do you want to talk about pricing?

Amol Chaubal: I mean, on chemistry alone, Casey, as we had outlined, in 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 to 450 basis points on chemistry. On the overall portfolio basis, we are generating about 200 basis points of like-for-like SKU, like-for-like geography. That does not include upsell. And that is running ahead of what we outlined at our Investor Day. But more critically, that is a significant opportunity that lies ahead of us for BD. Remember, Waters Corporation back pre-COVID was roughly 50 basis points of year-over-year price, and now we are consistently delivering 200 basis points plus.

And BD is exactly that. Right? Historically, they have done between 40 to 50 basis points, and there is a meaningful opportunity ahead of us to reapply our blueprint that has been so successful.

Operator: Great. Thank you.

Operator: Your next question will come from Puneet Souda with Leerink. Yes. Hi, Udit, Amol, and Caspar. Thanks for taking my question.

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

Udit Batra: Yeah. So let me start, and then Amol will give you the parts. Look, I mean, we are not baking in—just to correct the question itself—we are 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?

Amol Chaubal: Yeah. I mean, look, we are baking in primarily a headwind from China DRG, and at this point, it is only prudent to 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 Waters Corporation standalone U.S. academic and government performance, it is a 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 have done in China, like what we have done with U.S. academic and government.

But at the beginning of the year, right out of the gate, we want to be prudent.

Puneet Souda: Got it. That is helpful. And then was there any contribution from extra selling days in Q1 that you are contemplating?

Amol Chaubal: So, I mean, our Q1 guide reflects four extra working days.

Operator: Mhmm.

Operator: Your next question will come from Subhalaxmi Nambi with Guggenheim. Hey, guys, thank you for taking my question.

Subhalaxmi Nambi: Amol, what does operating margin progression look like this year with the addition of BD? What prudence is in those risk-adjusted assumptions given it is a cleaner base?

Amol Chaubal: Yeah. Look, I mean, as we came into the fourth quarter, we said we have a few strategic R&D investments that could accelerate, particularly in bioseparations and informatics, and you are 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 are 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 will expand the margin of the pro forma company from 27% to 32% over five years. And where we are coming in on 2026 is exactly in line with the lower 100 basis points in the first year.

Subhalaxmi Nambi: Thank you so much.

Operator: 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

Udit Batra: today. As we get into the new chapter for Waters Corporation, we are 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 $55,000,000 on cost and $50,000,000 on revenue side, which yields 100 basis points of margin expansion already in year one, and almost a 1% accretion in less than a year. So we feel very good about where we are starting. Thank you very much for your support, and we look forward to talking to you again.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.