Thank you, Operator. Good afternoon, everyone. I'm Derik de Bruin, the Senior Life Sciences and Diagnostic Tools Analyst at Bank of America, joined today by my colleague, Mike Ryskin. Welcome to the 2021 Viva Virtual Las Vegas Bank of America Health Care Conference. Hopefully, we can do this in person next year. But just want to welcome our next company, which is Waters Corp, and with us is President and CEO Udit Batra. Udit, welcome to our conference. Thank you, Derik. Can you, I guess, set the stage? Do you like me to open remarks, or I can go off and start doing things immediately, whatever you'd like to do? I'll say for maybe 10 seconds that I want to thank my colleagues. And this is the most important thing. If I don't do anything else today, I want to thank my colleagues for their deep commitment, especially during the pandemic, to welcome a new CEO about eight months ago, to get me coached, to get me ready, make me less silly and stupid about what Waters stands for. And I think the results are starting to speak for themselves. We've had a good run over the last two quarters to start to rebuild the strength of Waters. And I'll let you take it from there and ask questions. Perfect. You set me up very nicely, Udit. I appreciate that. So let's do a State of the Union on Waters. When you took over, the company had been underperforming peers, losing some share for a while. I guess, what were some of the issues you saw weighing on Waters when you joined? I think three fundamental things, right? The first, that we had lost focus on operational execution, both on the commercial side, but to some extent, taking new products and launching them excellently, right? So launch excellence and commercial execution all in one. Second, I think the culture had become one of ideas as opposed to one of focus and urgency. And this is something I think you will remember from the old Waters. It was focused, urgent, and clear on what we were trying to execute. And that had somehow traversed towards following very interesting trends, but not necessarily executing with excellence and the focus. And the third is, as we compare ourselves to some of the other incumbents and some that I've been at as well, you see that our portfolio is somehow focused on mid-single-digit growth areas, whereas many of our competitors have started to traverse into higher growth areas. And that's something that would be the third observation. But overall, very solid and robust financial picture, very robust technology base, deep, deep customer relationships, and most importantly, highly, highly technical teams. So that was the starting point. And I guess, so how are you addressing some of these issues? Obviously, going in with the, I mean, you've discussed some of these, but I think if you give us a little bit of a quick synopsis on what you've done since taking over to address this, that'll set the stage for the rest of the conversation. Sure. Again, let's break it into three parts with the three problem sets, right? So commercial execution and launch excellence. So we launched, I would say, a five-part program, and we said, "Look, let's refocus on winning back our position on instruments." Right? So this is. We We started an LC-MS mass spectrometry initiative. I'm happy to dive deeper into it. It's off to a great start. Second, we said, "What can we do on the aftermarket? Can we increase our attachment rates on service, on consumables, on informatics?" Right? Third and fourth, we said, "Look, let's look at other channels." I mean, consumables businesses have about 50% going through e-commerce. How come we have only 20%? What can we do rather quickly and then over the midterm to improve that? So investing in e-commerce and e-procurement. Fourth is another channel play, but looking at more contract organization, contract research, and contract manufacturing, and contract food testing, especially in China, and how to penetrate that customer set and develop a unique value proposition for that faster-growing segment for us versus many of our competitors where they've been focusing on it for a while. So we were underweight in that segment. And then the fifth one is launch excellence. I mean, Waters is known for developing innovative products, first-in-class products. And I'm sure you know this from your history with the company. But I think we've started a little bit in getting market traction with some of our more recent launches. And I think that was the other piece to start fixing. And in all of those five, we've seen some meaningful progress. So that was the first bucket. The second was looking at the culture, both from a performance management perspective, but also leadership, right? To start coming up, start developing a leadership team and building a leadership team that would stay with us for many, many years. I'm deeply thankful to Mike Harrington and Ian King for delaying their retirement, helping me come up to speed with the company, and also rebuilding the momentum in no small part. But I'm equally excited to welcome Amol Chaubal as CFO and Jon Pratt and Jianqing Bennett to take over as business head. So that to start to kind of take the momentum we built and sustain it and then take the two data points and make it into 10 data points over time. And the third piece is strategic, which we've started to now think through. How do we think through access to faster growth segments? And so those are the three buckets, right? And there's significant movement on the first two in the last few months. So let's talk about the last few months. So in the first quarter, 27% organic revenue growth, very little related to the COVID pandemic, unlike some of your peers, although it was off of some of the easier stack comps given the growth, and some extra selling days. But clearly, you've seen some real progress and pickup in the business. So I think one of the questions that we got on the quarter was trying to understand a normalized growth rate for instruments. And specifically, the question is like, how much of this was catch-up spending, pent-up demand from customers? And let's just start there first, and I've got a couple of follow-ons. Yeah. Yeah. I mean, so Derik, as you know, okay, so I'm not in a truck, right? I can just tell you. If somebody's on in the background, it's difficult to parse out analytically pent-up demand, catch-up, COVID, etc., etc. As you can imagine, it's the same customers. But I mean, we did a very simple analytical comparison, right? If you just take 2019 as a starting point, I mean, no 2020, because that's easy for us to do because we saw no real impact of COVID on revenues. 2019 - 2021, growth rate is 9%. So the stacked comp is 9%. I think you calculated that as well. But if you compare that to what our peers saw, who had the same pent-up demand, who had the same extra days of selling, they were between 4% and 6%. If I'm being generous, on the 6%, it's usually 4%-5%, right? So there is a delta that has opened up. And it was also true in Q4, but definitely in Q1, there's a delta that's there between our growth and what you can calculate as a stacked comp for many of our competitors, right? So that's where I'll start my description and explanation. So then you say, "Okay, if that is the case, how do you explain the difference?" Right? And the difference is explained by two factors. One is how much traction we're getting on initiatives. And you'll say, "Well, okay, fine, you're getting traction on these initiatives. And then, of course, we should be excited and we should project it for the future." No, not so fast, because these initiatives, in some cases, are a catch-up on the sins of the past, right? So when I joined, one of the simple analytical calculations I did is I said, "Look, what has been the growth rate of Waters?" And you know this well for the last few years. And if I do a straight-line projection, how much have I lost because I lost market share? And I told the team, I said, "This is what we have to recapture." And we had said we would recapture it in, let's say, 18 months to two years. And that's happening way faster than that, right? But that said, if you set that up and say, "Now these initiatives are going to hit against this to catch up from the sins of the past and more," right? So that's why that delta is easy to understand because we're catching up on the replacement cycle. We were not replacing our instruments for the last few years. We're now replacing them left and right, right? That's the starting point. We were not working on the e-commerce piece. We're now working on e-commerce. We're not looking at the expansion of our customer base. We're now looking at it, right? Which other competitors were? So it's a bit of a catch-up. And the second is new products. And the two are co-mingled. The new products are in no small part on mass spec in the tandem quad portfolio. In 2019, we introduced quite a few new products. That has helped us on the replacement cycle on mass spec, which incidentally grew faster than LC in this quarter. And on the LC side, Arc HPLC as a general-purpose HPLC is a wonderful replacement for Alliance and many other general-purpose LCs. And we've seen great traction, especially in China. Now with the launch of the ACQUITY Premier, that has grown as well. So those two pieces, these initiatives, which are a bit of a catch-up from the past and accelerated by new product introduction, give us that sort of cushion. So I hope that clarifies the delta. And I mean, we can get caught up in a whole bunch of variables. I thought that is the simplest way of understanding it over a two-year period. Exclude COVID and just compare us to the rest of the folks, see if there's a delta in one way or the other. Let's explain the delta. That's what we did. Cross-examined our team pretty deeply on this. So I mean, the replacement part is interesting because when you historically looked at the LC market, there were replacement cycles. There were five-to-seven years in Pharma QA/QC, then those core labs. I guess, why were they not replaced? Why were they not upgrading? Why are they replacing prior to this? I mean, what happened? I mean, there just is this—I mean, my understanding of the business, having covered in this sector for a long time, there's just sort of like this natural rhythm to replacements, particularly in the QA/QC, the regulatory laboratories. What stopped? Why did that stop? So I think, look, I cannot judge exactly what happened. And it didn't go to zero. So it was not a binary event. And we were still replacing it, but at a much lower pace than probably in the past, with a much lower focus from top management than there was in the past, right? So you know Art Caputo and these other folks, they knew the number of instrument replacements. And when I talked to him, when I was about to join Waters, I mean, he's like, "Oh, this is how many instruments we had. This is our win-loss ratio. And this is how much I saw. And if you won here and lost here, I knew," right? And that gave me some clues on what you needed to do to create a certain culture in the organization, right? So I think that was one driver. Now, you would then say, "Okay, so how do you bring it? How do you bring it back?" I mean, the first thing I would correct is I don't think it's a five to seven-year replacement cycle. I mean, the teams tell me it's more close to eight years or even 10 years in some cases. And if you dig a bit deeper, I mean, we have our service engineers. The service engineers are not incentivized to replace anything. In fact, they are incentivized to extend the life of any instrument and every instrument. And they have parts in their car. And they say, and the first people we had to convince, by the way, is our own service engineers that these old instruments actually need to be replaced because they are out of service. And they said, "Oh, but I can service them. I have this part and that part." And we said, "Well, they'll be out of compliance because the Empower system now doesn't connect to them that easily." So they will not get Empower upgrades, right? So there was a whole bunch of logic that had to go through to convince our service engineers. And then the sales engineers had to go in and then start to redo this work. So part of it was the fact that our service engineers were so darn good and are so darn good that these instruments kept running beyond their life cycle. And second, we simply were not asking again and again, "Are you actually following the rhythm?" And now the question would be, "Can you keep this momentum?" Right? And there are three parts to it. Number one, the replacements, meaning nobody shall replace an LC that is a Waters LC with something else without us having a very deep conversation about it. Second, anything that is connected to Empower, we know. And if it is going to be replaced, Waters will be in that conversation. And third, Empower used to be almost free to connect from any of our competitors. That's no longer the case. Okay? So those are three defensive moves that are going to change the dynamics in the market. Second is new product introduction. Arc HPLC, an ACQUITY Premier, the Premier technology will now start going into the Arc and all the other battery of LCs that we have. And you'll see this start to enter the fray and help us replace instruments. And third, we have systematized the replacement cycle, right? So this is a cultural change, right? So we have a database. Database is now known to everyone in the company, including myself, and we know the age of these instruments, right, so it's not yet as sophisticated as I say it in this sentence. We don't have a data lake yet that has all these things and that get updated with the current time. The next step would be service upgrades. The next step would be service renewals and warranties, so you can see we have a bit of work to do in upgrading the data analytics, but it's rather logical, right, and the intention is for this to never go back, so there is a strong push in this direction. Okay. So two questions on the heels of this. So one would be, it's like Alliance has been around for a long time. I mean, Alliance has been around for as long as I've been coming to the company, which is 2001, right? So it's been a long time. So I guess at what point do you obsolete it and just basically force everybody to upgrade, right? That would be one question. Yeah. So Alliance is not Alliance, right? A Mercedes S-Class launched in 2021 is dramatically different than the 2001. Sorry, the 2001 is dramatically different than the 2021. So the Alliance itself has been upgraded. It's just named the same, right? So I mean, the Alliance 2019 version is completely different than the 2001 version. Incidentally, many of our customers have opted to stay with Alliance, even with the newer version of Alliance, even if Arc HPLC is a better performing instrument, okay? So it's a conservative industry, as you know. And so people are like, "You know what? It never broke for me. Just give me something that is called the same, even if all the software is upgraded, the speed of the elution, etc., is much faster. Just don't, I mean, don't give me another version," right? I think that's also a set of customers. Got it. it. Okay. And so just looking at the conversation, I mean, it sounds like in some of the share situations, it sounds like you're more losing share against yourself because you weren't upgrading and driving this versus maybe some of your peers were paying more focus on their internal base versus actually head-to-head share loss, right? Yeah. It was both, right? One was, I would say, the inertia of not replacing our own, right? At the end, the market growth rate is a market growth rate and the market size in the market. And so it doesn't matter where it came from. So our inertia was leading to a nominal market share loss. But you're right. Analytically, we were not losing those customers. In some cases, we were. In some cases, the competitors went in and replaced Waters instrument with theirs, right? I mean, given that Waters was one of the first in the industry, that has actually happened, right? So we know that. So that's the first thing to stop, to stop the leak. And the second thing to do is to say, "Okay, if you are on Empower, I'll be there," right? Right? So don't expect that Waters is going to just not be there. So I think that's the crux of the matter is that that inertia is gone or is slowly going away. And then in terms of market share, I mean, SDI reported in Q4. And I'm deeply aware that nobody in this market, except for me who came in fresh out of the field, said that we've lost market share. Nobody seems to admit that they've lost market share. But I can tell you SDI says that Waters has gained market share in Q4 across LC, across mass spec and materials. And in Q1, we look at win-loss ratios. In Q1, our win-loss ratios are even higher than Q4. So I mean, and when I compare core growth rates, I mean, ours seem to be a bit higher. So we're gaining share from somewhere. I don't know where, or if it's the mass balance issue. I have no idea. I have no interest in kind of digging left and right into it. But that goes back to one of the earlier questions on just the overall market growth. It just seems to be picking up. So I mean, you could be. I mean, look, the way I sort of looked at this was Waters was underperforming in China when China was booming. And so even though that market was growing, you just were not getting your fair share of it. And now that the market's growing, you're getting your fair share and maybe a little bit more of that, but it's like that versus things being swapped out. But let's stick on China for a second. So look, I remember when they first launched the ACQUITY and Doug Berthiaume would talk about Waters was the Louis Vuitton of the LCs and he went to the market as a premium-priced product. Have you sort of had to give up some pricing power in that? I mean, just particularly given some of the competition from Agilent and Shimadzu and some of these other ones that may be a little bit more price-conscious. I think my experience, right? And you would argue that some of the CDMOs should be price-sensitive. And I want to focus on that for a minute, is that that's far from the truth, right? I mean, Arc HPLC was designed for China. And I can tell you we have not discounted it. It was designed for China as a general-purpose HPLC. And it has done super well in China itself, right, without discount. So I don't, and I've heard this before as well. It has at least not been borne out by facts, okay? So I've heard, "Well, you know, low price competition here and there, and you're losing share." The facts don't bear that out. And with our new launch of Arc HPLC, it would not have done well at that price point. We did not give heck of a lot of discount. It's a product that works better with better injection precision and higher back pressure tolerance. And customers wanted that product from Waters. It's appreciated, especially by our CDMO customers, right? And that particular segment, and now I wanted to emphasize this as well, that particular segment, you would say, "Well, these should be highly price-sensitive customers because they're doing contract manufacturing." Again, if you speak to the CEOs of these companies, and I know them from my military times as well pretty well, they would tell you that, in fact, they said, "Look, Udit, we want you to send your technical experts to help us do the method transfer from originators because we're losing time on that as opposed to running these products. We're running these LCs more efficiently because anytime there's an increase in cost on the LC side, we pass it on," right? So that's not their issue. Their issue is in getting method transfer and not having downtime on the existing systems. And that's where they perceive us as very helpful. And they don't perceive us as a competitor. And I think you've picked up on this in some of your reports as well. They don't perceive us as a competitor because we're not competing with them directly with our businesses. So thanks for that. Can we talk a little bit about consumables? 15% growth in the first quarter. You did get some tailwind from some of the extra days in the quarter. How should we sort of think about the normalized growth rate for consumables? I mean, it sort of hovered around the 5%-6% range. Is that a sort of a good way to sort of look at this from a normal growth perspective going forward? Yeah. No, again, I mean, you have a lot of history with the company. And you know 6-ish% was the growth rate for consumables for a long period of time. And then it fell over the last two, three years to a lower number. On a stacked basis, we are seeing 7%-8%, right? So is that normalized already? I don't know. And let's let the dust settle. But the ambition would be that consumables grow, one, because they are already installed with the number of batches that are manufactured for small molecules and large molecules, so at least at that growth rate. And second, with new product introduction, you get a bump, right? And that number is not 4% and is not 5%. Is it 6% or is it 7% or 8%? I cannot judge yet. I don't have enough data points. But it's in that range, yeah? Got it. But the fundamental drivers are the consumption of these columns that are dictated by the pharma industry. And if you look at that, I mean, the proportionality should tell you that it's 6%-8% if you're not doing something silly, yeah? Yeah. So how should we sort of think about the margin structure of the company? I mean, I think the general thought was that margins were near peak, but the company didn't really invest in R&D. Obviously, you're seeing some bigger volume growth, so you can do a little bit more. So how should we sort of think about your balancing of investments in the company, new product innovation, and then sort of thinking about where the margins can go in the business? So for first thing, I would say is correlation does not mean causality, right? So even if you look at the historical data, if there was a correlation in reduction in R&D investment, that does not mean that our top line should have slowed, right, in the future years, right? So let me tell you, let me explain what I mean, right? So we formed an innovation board, and we assess unmet needs. We assess technology proof of concepts, and we monitor big programs as part of this team. And if there are good ideas, we will fund them. We will not manage the ratios. I mean, we're blessed to have a company, at least I'm blessed to inherit a company that has good cost consciousness. I'm not about to take it in the opposite direction. Second, if we grow the top line, we have a lot of room to invest. There is a ton of leverage in this P&L, right, and you saw it already in Q1. You saw it in Q4, and that can be reinvested, and if we need more, we will look at specific programs and invest in them, and there are many examples, right, so the example of LC-MS for diagnostics. That is, once the proof of concept is there, which is close to being there, then we really need to think through how we're going to take it to market. Who's going to foot the clinical bill, and how are we going to commercialize it? Is it a partnership? Is it our own, and that's significant spending, but we will not be shy, provided we are clear on the milestones, right, to take the REIMS technology into surgeries is also an investment to do the clinical program there. If we are convinced of the technology, which more and more we are, we will invest in it, right? So you will not see us be shy. And I will explain it to the investment community and the analyst community. But I will not manage the ratios, right? I think that's not—that makes no sense, right? So I think there might have been correlation, but I'm not convinced that there is causation. And when I look at what we are benefiting from now as we do the LC replacement initiative, the mass spec replacement initiative, it's in no small part to the new products, due to new products, right? It's much easier to have a conversation with a customer who's using a tandem quad with newer versions of tandem quads that were launched in 2019 than an older one to do a replacement. Much easier to do it with Arc HPLC and ACQUITY Premier and demonstrate the benefit, even if they opt to stay with the Alliance. But it's much easier to have that conversation. Let's talk a little bit about inorganic growth opportunities. I mean, you mentioned that as part of one of your pillars. I mean, the company has always been very focused on these sort of three focus areas with LC-MS and TA, and then all particularly on the pharma biotech space. How do we sort of think about the broader landscape? Is there a need to add incremental technologies, molecular spectroscopy, particularly to go after some of the biologic QA/QC opportunities? Yeah. It's a great question, right? And so with the operational changes starting to gain momentum, only starting, right? So we're not declaring victory by any means. Having a team that can carry it forward, at least I feel I can dedicate a little bit more time to the strategic aspects, right? And when I look at it, I mean, we must access high single-digit to double-digit growth segments. And when you break the $245 billion sort of tools market, which keeps expanding, you see when you look at Waters' center of gravity, it's towards the lower growth of mid-single-digit sort of growth end markets. And I think you've commented on that as well. And there are two, maybe three centers of gravity that are interesting on the high single-digit to double-digit area. One is generally everything biologics, right? So biologics reagents, bioprocessing, and I would lump molecular diagnostics, especially companion diagnostics into that space. That is high single-digit, double-digit, even high double-digit, right? If you put NGS into that space. So anything biologics. So we must increase our capability in that area, right? And how we do it through organic, through partnerships, through M&A, I mean, is being determined. Second is informatics and high tech in general, right? So informatics, data analytics, but also raw materials that are required and testing that is required in that space. This is semiconductor testing, and this is where our Thermal Analysis business and Mechanical Analysis business serves those industries quite well, but also expanding the informatics domain and not just Empower and waters_c onnect, but taking that concept into other regulated spaces. And the third is the whole service segment, CRO, CDMO. That is growing faster than the rest of the market. Let me go in the reverse order. CRO, CDMO, less interesting because they're competing with our customers, right, and there's enough real estate outside of those for us to go, and you'll see us elaborate ideas on accessing biological reagents, bioprocessing, molecular diagnostics, and the general informatics space. So that's as much as I'll say to you about the areas that are interesting, and there are organic partnerships as well as inorganic, but capital allocation will be spread across all of this. Yeah, yeah, yeah. Can we talk just a little bit about the mass spec business in the last couple of minutes? I would say Waters always did well in the triple quad space. Absolutely. I think where Waters has suffered more recently has been into the higher ends of the market. At one time, the Q-Tof product was dominant, and there were some patent issues and blah, blah, blah. Things changed, and the market sort of shifted with Orbitrap and some other ones. But how are you sort of looking at the high-end mass spec market, particularly as there's a lot of new interest in proteomics and sort of growth in that area? It's like, what are you doing to sort of revamp the portfolio to sort of go after that? Talking about high-growth areas, that's clearly significant. It's a terrific question, right? So downstream tandem quads, hardware-wise, we are doing pretty well. Hardware-wise, I would argue even higher -res mass spec, especially with Cyclic, where this is the only instrument that can separate identical molecular weight species based on shape, right? So that's something that is pretty relevant for proteomics, and especially for SARS-CoV-2 in particular, right? So we have that space, and there's more work happening on the hardware side. I think the challenge has been on the software side, right? We need the software. And there is an imperative ongoing towards the latter half of the year. We will upgrade our tandem quads that are already in beta tests, that software is already in beta tests with many of our customers, plus internal labs. And we'll upgrade it to a waters_c onnect platform like you see with BioAccord, and then for higher-res mass spec, right? So don't ask me exactly the date, but we're not walking away from high-res mass spec, and we're not walking away from proteomics and imaging. You can be absolutely sure of that. It's very difficult to gain expertise in these spaces. It'd be a shame for us to walk away from it. So we're not reacting. And there is stiff competition there, I'm aware. But we also benefit from technology that we've actually developed, and others have been paying us licensing fees more recently in that space as well. So final question, Udit. What do you think has changed about the industry in general as you sort of look out sort of post-COVID? I mean, you're now coming from your prior life and now at—so now you've been a consumables company. Now you're at a hardware company. You sort of look at both of these. It's like, what's the biggest change? What's the biggest change that you sort of think is going to happen to the industry post-COVID, given your perspective? I think, look, first, the amazing collaborative spirit that emerged during the pandemic with our customers, with academic institutions, but with our competitors too, right? We all went and helped and tried to figure out how to solve the public health problem. As we go forward, I mean, we will continue to see a huge focus on safety of our employees and our colleagues, but we will also see a different way of working that is emerging now, right, and I don't mean just hybrid versus analog. I mean, many of the technologies that we implemented to help us bring the sales growth about, right, so our sales reps have not been able to visit many of our customers, yet our sales growth has grown dramatically, and they say, "Well, that's because they know you, and it's incumbent," but we've had to implement tools that are working pretty well. So the sales process is inherently different. We'll not be flying to silly meetings for one hour all the way to China and back anymore, right? And I don't have to go to every two weeks myself. I'm very thankful for that as well, right? So I think there's dramatic changes. From an overall perspective, I do believe the biggest change is that the barriers amongst companies to talk about non-competitive issues have been reduced dramatically. I've helped personally some other competitors when I was at MilliporeSigma to accelerate their products to the market. We had no benefit from it. Other competitors had called us to say, "Hey, can you ramp up on this?" And we are short of this ingredient, but this company needs it. This customer needs it. I mean, there was more to go around for everyone, more than enough to go around for everyone. We were just focused on the public health initiative. I think that's a pretty important thing to preserve. Udit, this has been great. Thanks for your time. Good luck in your ongoing transition of Waters. Investors, thank you for listening. We appreciate it, and we appreciate your support in the upcoming IR vote. Thanks, everybody, and have a great day and a great conference. Thank you, guys. Thank you, guys. Thank you. Thank you.