Waters Corporation (NYSE: WAT) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone Q4 filing; it also provides unaudited quarterly results. Waters is a specialty measurement company selling chromatography, mass spectrometry, thermal analysis instruments, consumables, software and services to pharmaceutical, industrial, academic and government customers.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $2.786 billion | $2.365 billion |
| Product sales | $1.822 billion | $1.497 billion |
| Service sales | $964 million | $868 million |
| Operating income / margin | $822 million / 29.5% | $645 million / 27.3% |
| Net income | $693 million | $522 million |
| Diluted EPS | $11.17 | $8.36 |
| Cash from operations | $747 million | $791 million |
| Capital expenditures and software capitalization | $161 million | $172 million |
- Approximate free cash flow, calculated as operating cash flow less the reported additions to property, plant, equipment and software capitalization, was $586 million in 2021 versus $618 million in 2020.
- At year-end, cash, cash equivalents and investments totaled $569 million; debt was approximately $1.514 billion. The company reported $1.6 billion of additional borrowing availability under its committed facility and compliance with debt covenants.
- Current assets were $1.629 billion and current liabilities $681 million. Deferred revenue and customer advances totaled $274 million.
- Q4 2021 unaudited net sales were $836 million versus $787 million in Q4 2020; net income was $216 million versus $218 million, and diluted EPS was $3.52 versus $3.49.
Changes versus the prior comparable period
- FY2021 sales rose 18% year over year, following a 2% decline in 2020. Management attributed the recovery to customers resuming laboratory and manufacturing operations and to pent-up demand; currency translation added approximately 2% to sales growth.
- Instrument system sales increased 23%; recurring revenues from services and chemistry consumables increased 13%. TA sales grew 26%, while Waters segment sales grew 17%.
- Sales increased across regions: Asia 20%, Americas 16% and Europe 17%. Pharmaceutical customers, about 60% of sales, grew 20%.
- Operating income increased 27% and operating margin expanded 2.2 percentage points. The comparison was affected by roughly $100 million of COVID-related cost savings in 2020 that were largely reinstated in 2021. Higher freight and electronic-component costs also weighed on second-half 2021 results.
- Operating cash flow decreased by $43 million despite higher earnings, chiefly reflecting the reversal of prior cost actions and working-capital improvements, as well as increased receivables and inventories.
Outlook, commentary and risks
- The filing provides no specific quantitative revenue or earnings guidance. Management stated that available financial resources and expected cash flows should be sufficient for at least the next 12 months to fund operations, debt service, capital spending, authorized repurchases and potential acquisitions.
- Management anticipated approximately $50 million of additional 2022 spending to complete the Taunton precision-chemistry manufacturing expansion. It also said prevailing exchange rates were expected to reduce 2022 sales and gross profit.
- Key risks include continuing COVID-19 effects, global logistics and supply-chain disruption, component availability and freight costs, foreign currency exposure, customer capital-spending variability, competition and product-development execution, cybersecurity, regulatory compliance and debt-covenant requirements. Approximately 72% of FY2021 sales were outside the United States.
- Unusual items included $10 million of 2021 income from a Bruker patent-litigation settlement, including minimum royalty payments, and a separate $10 million unrealized gain on an investment. The company also recorded a $5 million litigation provision. In 2020, it recorded a $7 million net impairment-related charge.
- The effective tax rate was 14.1%. Singapore tax incentives increased 2021 net income by approximately $20 million, or $0.32 per diluted share. Remaining transition-tax payments were $327 million, scheduled through 2025.
- The company repurchased $640 million of shares in 2021 and had $885 million remaining under its authorization at year-end. It reported no intention to pay cash dividends in the foreseeable future.
Important facts for investors to verify
- Whether revenue growth and margin performance persist after the post-pandemic recovery and the 2020 cost-saving comparison effect.
- How freight, component availability, inventory levels and working capital affect cash conversion and margins.
- The sustainability of earnings excluding the investment gain, litigation settlement income and Singapore tax benefits.
- Debt maturities, borrowing capacity and planned share repurchases relative to cash generation and the Taunton expansion.
- Exposure to international markets, foreign exchange movements, tax audits and changes to Singapore incentives.
- The filing’s reported quarterly results are unaudited; consult the full audited statements and notes for detailed definitions and reconciliations.