# Waters Corporation (WAT) — Narrative, FY2026 Q3 Waters' fiscal year ends December 31. Its fiscal quarters end on the thirteenth Saturday of each quarter, so the third quarter of 2026 ended October 3, 2026 (prior-year quarter: September 27, 2025), and the first nine months of 2026 had six more calendar days than the same period of 2025. ## Business *Source: FY2025 Form 10-K (accession 0001193125-26-062604), Item 1; segment descriptions updated from the Q3 2026 Form 10-Q (accession 0001193125-26-455594), Notes 1 and 13.* Waters makes and services the instruments, consumables and software that laboratories use to separate, identify and measure molecules, and since February 2026 it also sells flow cytometry and infectious-disease diagnostic systems. Its historic franchise is liquid chromatography (HPLC and UPLC) and mass spectrometry, frequently sold together as integrated LC-MS systems, plus the chromatography columns and chemistry consumables those systems use and multi-year service plans. Pharmaceutical customers bought 59% of 2025 net sales, industrial customers 30%, and academic and government customers 11%. No single customer was more than 2% of sales. A large share of revenue recurs: service was over 35% of Waters-division sales in 2025, and consumables are replaced at regular intervals. On February 9, 2026 Waters completed its acquisition of the Biosciences and Diagnostic Solutions businesses of Becton, Dickinson and Company (BD), which roughly doubled the company. The 10-K puts the total purchase price, including assumed debt, at $16.8 billion. Waters now has four operating segments, reported as three reportable segments: - **Analytical & Materials Sciences.** Two operating segments are reported together here. *Analytical Sciences* is the former Waters Division without its clinical unit: LC and MS instruments, light-scattering and field-flow fractionation instruments from Wyatt, columns and other precision-chemistry consumables, and service. *Materials Sciences* is the former TA Instruments: thermal analysis, rheometry and calorimetry instruments for polymers, chemicals, metals, pharmaceuticals and battery research. - **Biosciences.** This is the former BD Biosciences: flow cytometry instruments, software, reagents and single-cell multiomics tools for immunology, oncology and infectious-disease research and related clinical diagnostics. Customers include academic and government institutions, pharmaceutical and biotech companies, and clinical laboratories. - **Advanced Diagnostics.** This combines the former BD Diagnostic Solutions business with Waters' own clinical LC-MS business. It sells instruments, assays, consumables, automation and informatics for detecting and identifying infectious organisms and testing their drug susceptibility. Its focus areas are sepsis, tuberculosis, sexually transmitted infections, healthcare-associated infections, women's health and cervical cancer screening. Customers are hospitals, clinical laboratories, public-health agencies and integrated delivery networks. Waters says it is one of the world's largest makers and distributors of LC and LC-MS systems, columns and related services, and one of the few column suppliers that manufactures its own silica and polymeric resins. Its main competitors in LC and MS are Agilent, Shimadzu, Bruker, Danaher and Thermo Fisher Scientific. In thermal analysis they are NETZSCH, Malvern Panalytical, Spectris, Anton-Paar and PerkinElmer. For the acquired businesses they are Danaher, Revvity, Cytek Biosciences and bioMérieux. At year-end 2025 Waters had 82 sales offices and about 4,300 field sales and service representatives. It made LC instruments in Milford, Massachusetts and through contract manufacturers in Singapore, columns in Taunton, Massachusetts and Wexford, Ireland, MS products in Wilmslow, England and Wexford, and TA products in Delaware, Minnesota, Utah and Germany. The 10-Q adds Switzerland and Puerto Rico to the company's major manufacturing locations after the acquisition. Before the deal Waters had about 7,900 employees, 39% of them in the U.S. The Q3 2026 earnings release puts the combined workforce at about 15,000. Research and development spending was $196 million in 2025. **How the BD deal was structured.** It was a Reverse Morris Trust: - BD moved the businesses into Augusta SpinCo Corporation and distributed SpinCo's shares to BD shareholders. - A Waters subsidiary then merged into SpinCo. SpinCo's shares were converted into 38,541,852 Waters shares. - After closing, BD's former shareholders owned about 39.2% of Waters on a fully diluted basis and existing Waters shareholders about 60.8%. - Before closing, SpinCo borrowed $4.0 billion and paid it to BD as a cash distribution. Waters assumed that debt. The 10-Q values the consideration Waters transferred, excluding the assumed debt, at $12.899 billion. Nearly all of that ($12.807 billion) was stock, valued at $332.29 per share. The preliminary purchase-price allocation records $8.384 billion of intangible assets (mostly customer relationships amortized over 15 years) and $8.037 billion of goodwill. Some BD operations, mainly in China and Italy, could not legally transfer at closing. BD runs these "deferred close" businesses on Waters' behalf and for its economic benefit under an interim operating agreement, and Waters records their revenue on a gross basis. ## Risk factors *Source: FY2025 Form 10-K (accession 0001193125-26-062604), Item 1A. The Q3 2026 10-Q reports no material changes to these risk factors.* **Risks from the BD acquisition** - **Integration and synergies.** Waters' results now depend on integrating a business about as large as its own. The 10-K targets about $200 million of cost synergies within three years of closing and about $290 million of revenue synergies within five years. The risk factors name customer and employee attrition, systems integration, Sarbanes-Oxley controls, and regulatory conditions as threats to those targets. - **Restructuring.** Site rationalization, supply-chain and commercial streamlining, and moving work to non-U.S. capacity centers bring restructuring charges, and the savings may not arrive. - **Debt.** Total debt was about $1.4 billion at year-end 2025, before Waters assumed $4.0 billion of SpinCo debt at closing. It stood at $5.1 billion at October 3, 2026. The credit agreements carry financial covenants, and higher leverage could lower Waters' credit ratings and limit investment and acquisitions. - **Tax Matters Agreement.** For two years after the SpinCo cash distribution, Waters is restricted in transactions such as share issuances or repurchases and certain business combinations that could jeopardize the spin-off's tax-free treatment. If Waters causes the spin-off to become taxable, it bears BD's resulting tax liability, which the 10-K expects would be material. - **Dependence on BD.** BD provides back-office services under transition services agreements and makes certain products for the acquired businesses under manufacturing and supply agreements. Replacing these services could cost more or take longer than planned. - **Goodwill impairment.** Goodwill and intangibles were about $1.9 billion at year-end 2025. The acquisition raised them to $9.4 billion of goodwill and $8.3 billion of net intangibles at October 3, 2026, increasing exposure to impairment charges if results fall short. **Market and operating risks** - **International exposure, China and tariffs.** About 69% of 2025 net sales came from outside the U.S. China sales fell 10% in 2024 and rose 10% in 2025. The 10-K cites weak Chinese economic conditions, U.S.–China tariffs, local competition and tighter procurement rules for government-funded buyers. Tariffs and retaliatory measures raise import costs. A February 2026 Supreme Court decision invalidating tariffs imposed under the International Emergency Economic Powers Act (IEEPA) left refunds and future trade policy uncertain. Protectionist tender rules in China, India and Russia can exclude suppliers without local manufacturing. - **Customer spending and funding.** Instrument demand depends on customers' capital budgets. Pharmaceutical accounts (59% of 2025 sales) go through downturns and consolidation. Academic customers depend on grants from bodies such as the U.S. National Institutes of Health, and U.S. funding cuts and grant cancellations are cited directly. - **Reimbursement and healthcare cost control.** These risks are new with the diagnostics business. They include payer reimbursement decisions, group purchasing organizations, and volume-based procurement and pricing controls in China and other countries. - **Competition and technology change.** Rivals are often more diversified and better funded. Products can become obsolete quickly, and new products such as microbiology systems may take three to five years to generate significant sales and may need FDA clearance. - **Product quality and recalls.** Diagnostic and clinical uses raise the stakes of defects: recalls, product-liability claims and faulty clinical decisions. - **ERP transition.** A multi-year move to a new global ERP system is expected to cost about $130 million, of which $52 million had been spent through 2025. A failed cutover could disrupt ordering, shipping, invoicing and financial controls. - **Supply and outside contractors.** Some components come from single or limited sources. LC instruments are partly built by contract manufacturers in Singapore. - **Tax.** Pillar Two global minimum tax rules, audits, and shifts in the jurisdictional mix of earnings all affect the tax rate. The concessionary 5% Singapore tax incentive ran through March 31, 2026, and in 2025 Pillar Two had already cut into its benefit. - **Other.** Cybersecurity and data privacy, AI-related legal and regulatory risk, labor disruptions where foreign employees are represented by works councils or unions, and anti-takeover provisions in the charter and bylaws. ## Management's discussion — fiscal year 2025 *Source: FY2025 Form 10-K (accession 0001193125-26-062604), Item 7. These results exclude the BD businesses, which were acquired after year-end.* 2025 was a year of recovery for the legacy business. Net sales rose 7% to $3.165 billion after flat sales in 2024, and growth was broad across regions and product lines. Currency had little net effect: it added 6% to growth in Europe and took 5% off growth in Asia. - **By product.** Instrument system sales rose 5% after a 6% fall in 2024. Recurring revenues (chemistry consumables plus service) rose 8%. Chemistry rose 12%, driven by columns and application-specific testing kits sold to pharmaceutical customers. Service rose 7%. - **By division.** Waters Division sales rose 8% to $2.813 billion: instruments $1.102 billion (+7%), chemistry $631 million (+12%), service $1.080 billion (+7%). TA sales slipped 1% to $352 million, as double-digit growth in Asia was offset by weak U.S. demand for TA instruments. - **By region.** China and Europe each grew 10%, Asia excluding China 5%, and the U.S. 3%. - **By customer.** Pharmaceutical sales rose 9%, industrial 6%, and academic and government sales were flat. Profit did not follow sales. Operating income fell to $803 million from $826 million, and operating margin fell to 25.4% from 27.9%. Higher volume was offset by sales mix, merit pay increases, about $82 million of transaction, integration and other costs for the BD acquisition, and $20 million of ERP implementation expense. Selling and administrative expenses rose 20%. Net interest expense fell $21 million as Wyatt-related debt was repaid, even though it included about $16 million of financing costs Waters paid on SpinCo's behalf. The effective tax rate was 14.9%, compared with 15.5% in 2024, helped by a $14 million discrete benefit from the U.S. One Big Beautiful Bill Act. Net income was $643 million and diluted EPS was $10.76, compared with $10.71 in 2024. Operating cash flow fell to $653 million from $762 million. The main causes were a $24 million final payment of the 2018 tax-reform transition tax, $52 million of ERP costs and $29 million of BD deal payments. Capital spending fell to $113 million as new manufacturing facilities were completed. In May 2025 Waters acquired Halo Labs, a maker of particle-imaging technology for cell, protein and gene therapies, for $35 million net of cash acquired. At year-end 2025 Waters had $1.4 billion of debt, $588 million of cash and investments, and a $1.8 billion revolving credit facility maturing in May 2030. It made no open-market share repurchases in 2024 or 2025, with $1.0 billion of authorization remaining through January 2028, and pays no dividend. ## Current quarter — Q3 2026 (ended October 3, 2026) *Source: Q3 2026 Form 10-Q (accession 0001193125-26-455594), Item 2 and Notes 4–6 and 13; guidance, division detail and adjusted measures from the Q3 2026 earnings release, Exhibit 99.1 to Form 8-K (accession 0001193125-26-444400).* **Revenue more than doubled because of the acquisition, and the legacy business also accelerated.** Revenue was $1.767 billion, up 121% from $800 million. The BD businesses contributed $896 million. Revenue from the legacy business, which the company calls organic, was $871 million, up 9% as reported and 10% in constant currency. By region, legacy revenue grew 15% in Asia, 10% in the Americas and 1% in Europe. Legacy instrument revenue rose 10%, legacy recurring revenue 8% and legacy chemistry consumables 10%. The CEO credited instrument replacement demand plus demand related to GLP-1 drugs, PFAS testing and Indian generics, and said LC-MS instrument growth was double-digit in constant currency. On BD's prior-year basis, the acquired businesses grew 1% in the quarter, to $896 million from $885 million. For the period Waters has owned them in 2026, they grew 4%, to $2.233 billion from $2.153 billion. The three reportable segments delivered the following revenue and segment operating income in the quarter: - **Analytical & Materials Sciences:** $796 million of revenue, up 8%. Segment operating income was $281 million and the margin fell to 35.3% from 37.9%, as currency, sales mix, merit pay and new-product development costs offset the higher volume. In the release's division detail, Analytical Sciences revenue was $703 million (+8%, +9% in constant currency), with instruments +9% and chemistry consumables +10%. Materials Sciences revenue was $93 million (+7%). - **Biosciences:** $396 million of revenue and a 36.6% segment margin. The release reports high-single-digit reagent growth on BD's prior-year basis. - **Advanced Diagnostics:** $575 million of revenue and a 26.4% segment margin. This includes $75 million from Waters' clinical business (up from $64 million) and $500 million from BD's former Diagnostic Solutions business ($498 million a year earlier). Microbiology grew mid-single digits. **GAAP earnings fell because of purchase accounting.** Operating income was $128 million, or 7.2% of revenue, down from $192 million (24.0%). The quarter absorbed: - $232 million of amortization on the acquired intangibles; - $80 million of inventory and fixed-asset fair-value step-up expense; - $54 million of transaction and integration costs; - $12 million of severance; - $7 million of ERP expense. Net interest expense rose to $53 million from $22 million because of the acquisition debt. Discrete tax benefits produced a negative effective tax rate of 9.6%. Net income was $81 million, compared with $149 million. Diluted EPS fell to $0.82 from $2.50, also reflecting the rise in diluted shares to 98.7 million from 59.6 million. On the company's adjusted basis, EPS rose 21% to $4.10 and adjusted operating margin was 30.1%, compared with 30.3%. For the nine months, revenue was $4.678 billion, the operating loss was $6 million and the net loss was $127 million ($1.37 per share), compared with net income of $417 million ($7.00 per share). Adjusted EPS was $9.96, compared with $8.60. The acquired businesses contributed $2.2 billion of revenue and a $386 million pre-tax loss since closing. On a pro forma basis, as if the deal had closed on January 1, 2025, nine-month revenue would have been $4.951 billion, compared with $4.695 billion, with net losses of $68 million and $42 million. **Restructuring.** In the second quarter of 2026 Waters cut about 3% of its workforce, at a cost of $64 million in severance for the year to date. Management expects annual salary savings of about $120 million, of which $39 million had been realized through the third quarter, and about $67 million for 2026. Waters also pays BD about $90 million a year for transition services, for up to three years. It incurred $58 million of these costs in the first nine months. **Cash flow and balance sheet.** Nine-month operating cash flow fell to $315 million from $488 million. The 10-Q attributes the decline to $142 million of BD transaction and integration payments and $46 million of restructuring payments. Receivables also rose $260 million, of which $183 million was owed by BD. Capital spending was $150 million, compared with $74 million. The preliminary cash flow statement furnished with the November 3 earnings release showed $296 million of operating cash flow and $131 million of capital additions for the same nine months, and the company's adjusted free cash flow figures ($228 million for nine months, $68 million for the quarter) were computed from those preliminary figures. At October 3, 2026, total debt was $5.133 billion and cash was $593 million. The debt consisted of: - $3.5 billion of senior notes issued in March 2026 to repay the $3.5 billion 364-day tranche of the SpinCo term loan. They carry coupons of 4.321%–5.245% and mature from September 2027 ($650 million, the current portion) to March 2036. - $425 million left on the $500 million SpinCo term loan due February 2028. - $530 million drawn on the revolving credit facility. - $700 million of older private-placement notes. The weighted-average interest rate rose to 4.55% from 3.35% at year-end, and Waters reported compliance with all covenants. Goodwill was $9.4 billion and net intangibles $8.3 billion, against total assets of $24.1 billion and equity of $15.3 billion. Waters expects intangible amortization of $954 million in 2026 and $1.078 billion in 2027. It made no open-market share repurchases and has $961 million of authorization remaining. **Guidance.** The Q3 earnings release raised every component of full-year 2026 guidance and set fourth-quarter guidance: - **Full-year 2026:** reported revenue of $6.479–$6.497 billion (a $43 million increase at the midpoint). That comprises organic revenue of $3.429–$3.447 billion, up 9.1%–9.7% in constant currency, and about $3.050 billion from the acquired businesses for the period owned. Adjusted EPS of $14.60–$14.70, up 11%–12%. - **Fourth quarter 2026:** reported revenue of $1.801–$1.819 billion, with 7%–9% organic constant-currency growth and about $817 million from the acquired businesses. Adjusted EPS of $4.58–$4.68, up 1%–3%. Management said it is ahead of schedule on synergy and integration commitments and planned to give a starting framework for 2027, built around reshoring, synergies and AI-related demand, on its earnings call. **Tariffs.** After the Supreme Court invalidated the IEEPA tariffs, the Court of International Trade ordered refunds on March 4, 2026. Waters may be eligible for refunds of tariffs it paid but has recognized no material amount because recovery and timing are uncertain. The U.S. government has since imposed new tariffs under other statutory authority. ## Subsequent events *Source: Q3 2026 Form 10-Q (accession 0001193125-26-455594), Note 1, "Subsequent Event"; product description from the Q3 2026 earnings release (accession 0001193125-26-444400).* - **Acquisition of MOBILion Systems, Inc.** On November 2, 2026, after the quarter closed, Waters acquired MOBILion Systems, Inc. for $108 million in cash, subject to customary adjustments. MOBILion developed SLIM, a high-resolution ion mobility technology that separates molecules by size, shape and charge in milliseconds. Waters expects the deal to strengthen its mass spectrometry portfolio and broaden its entry into the proteomics market. The 10-Q discloses no other post-quarter events. The events the FY2025 10-K reported after year-end are already reflected in the 2026 results above: the February 9, 2026 closing of the BD acquisition, the $4.0 billion of SpinCo term loans, the cancellation of the $1.8 billion bridge commitment at closing, and new interest-rate and cross-currency swaps.