Waters Corporation Management Presentation. July 2018

Waters Corporation Management Presentation July 2018

Cautionary Statements This presentation may contain forward-looking statements regarding future results and events. For this purpose, any statements that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words, may, will, should, feels, believes, anticipates, plans, expects, intends, suggests, appears, estimates, projects, and similar expressions, whether in the negative or affirmative, are intended to identify forward-looking statements. Forward-looking statements are based on current expectations and assumptions and currently available data, and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof and should not be relied upon as representing the Company s estimates or views as of any date subsequent to the date of this presentation. We do not undertake to update or revise any forward-looking statements after they are made, whether as a result of new information, future events, or otherwise, except as required by applicable law. The Company s actual future results may differ significantly from the results discussed in the forward-looking statements within this presentation for a variety of reasons, including and without limitation, foreign exchange rate fluctuations potentially affecting translation of the Company s future non-u.s. operating results; the impact on demand among the Company s various market sectors from economic, sovereign and political uncertainties; the effect on the Company s financial results from the United Kingdom voting to exit the European Union; fluctuations in expenditures by the Company s customers, in particular large pharmaceutical companies; introduction of competing products by other companies and loss of market share; pressures on prices from competitors and/or customers; regulatory, economic and competitive obstacles to new product introductions; other changes in demand from the effect of mergers and acquisitions by the Company s customers; increased regulatory burdens as the Company s business evolves, especially with respect to the U.S. Food and Drug Administration and U.S. Environmental Protection Agency, among others; impact of the newly enacted tax reform in the United States; shifts in taxable income in jurisdictions with different effective tax rates; the outcome of tax examinations or changes in respective country legislation affecting the Company s effective tax rate; the effect of the adoption of new accounting standards; the ability to access capital, maintain liquidity and service our debt in volatile market conditions, particularly in the U.S., as a large portion of the Company s cash is held and operating cash flows are generated outside the U.S.; environmental and logistical obstacles affecting the distribution of products and risks associated with lawsuits and other legal actions, particularly involving claims for infringement of patents and other intellectual property rights. For discussion of these and other risks that we face, please consult the Risk Factors section of the Company s most recent Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on February 27, 2018. This presentation contains certain non-gaap measures, which are provided to assist in an understanding of the Company s business and its performance. These measures should always be considered in conjunction with the appropriate GAAP measure. Reconciliations of non-gaap amounts to the GAAP amounts are available in the appendix of this presentation, on the Company s website, or in the Company s historical Form 8-K filings with the SEC. 2

Building on a Strong Foundation of Values 60 Years of Sharp Focus on Serving our Key Stakeholders Deliver Benefit Deliver Benefit comes in a whole lot of different ways. You deliver benefit to your customers; you deliver benefit to your employees; you deliver benefit to your stockholders; you deliver benefit to the world. The secondary benefit, if the customer is having success, is that benefit is being delivered to somebody else. So, in effect, you change the world. James L. Waters, Founder 3

Our Purpose Inspires Innovation that Matters Advancing Human Health and Well-Being Through Advanced Analytical Measurement Can I sell this coffee to the EU? Does this new composite have the right mechanical properties? Does our new drug give us the results we expect? What poisoned this patient? Will this ADC deliver its cytotoxic payload effectively? Is my water safe to drink? Can we release this batch? 4

Waters Today High Performing and High Potential Global Technology Leader $13 Billion market served $2.3B annual sales $612M free cash flow 1 31% operating margin 1 15% ROIC 1 Company figures reflect full-year 2017 financial results. R&D Centers 1 Non-GAAP measure: see reconciliations on Company s website. Manufacturing Major Sales Offices 7,000 employees worldwide active in 125 countries 52% technology sales and services employees 38% employees with 10+ years of service 5

Q2 2018 Results Q2 2017 Q2 2018 Growth Constant Currency Sales (millions) $558 $596 7% 5% Earnings Per Share 2 $1.76 $1.95 11% N/A Growth by Product & Markets 1 +4% +12% Instruments & Software 0% Consumables +6% Services +9% Waters Instruments +12% Services +11% TA Instruments +5% Pharma +4% Pharma + Industrial 6 % +3% Industrial Government + 6 % & Academic +13% Gov t/acad. + 6 Total % Growth by Major Geography 1 U.S. (2%) 1 Sales, product, and geography growth rates are in constant currency. See GAAP to non-gaap reconciliations in the appendix and on Company s website. 2 Stated as non-gaap adjusted earnings per share. See GAAP to non-gaap reconciliations on the Company s website. Europe + 5% India 0% China + 14% Japan + 2% 6

Year-to-Date Q2 2018 Results Q2 2017 Q2 2018 Growth Constant Currency Sales (millions) $1,056 $1,127 7% 3% Earnings Per Share 2 $3.22 $3.54 10% N/A Growth by Product & Markets 1 +3% +9% Instruments & Software (2%) Consumables +7% Services +7% Waters Instruments +10% Services +8% TA Instruments +3% Pharma +4% Pharma + Industrial 6 % 0% Industrial Government + 6 % & Academic +10% Gov t/acad. + 6 Total % Growth by Major Geography 1 1 Sales, product, and geography growth rates are in constant currency. See GAAP to non-gaap reconciliations in the appendix and on Company s website. 2 Stated as non-gaap adjusted earnings per share. See GAAP to non-gaap reconciliations on the Company s website. Europe U.S. + + 2% 4% India (5%) China + 11% Japan 0% 7

Focused on Long-Term Value Creation 1 2 3 4 5 Highly Differentiated Strategic Position in Structurally Attractive Markets Clear Growth Strategy Driven by Organic Innovation Opportunity for Continuous Operational Improvement Committed to Judicious Use of Capital Performance-Oriented Culture and Management Team 8

Strategic Position Very Selective About Where We Compete Waters competes in 20% of the $57B global analytical instruments market Specialty segments growing faster than the total market $44B Analytical Instruments Market $13B Analytical instrument market is based on industry data and management estimates. 9

Strategic Position High-Value Technology Portfolio Sophisticated, high-precision specialty measurement technologies for the most demanding applications 10

Strategic Position Increasingly Attractive Business Mix 52% 53% 56% 41% 47% 49% 26% 34% 37% 2007 2012 2017 2007 2012 2017 2007 2012 2017 PHARMA RECURRING REVENUES ASIA Government/ Academic 13 % Pharma 56 % Recurring Revenue Instruments & Informatics 49 % 51 % Asia 37 % Americas 35 % Industrial 31 % 2017 sales numbers: 100% = $2.3B Reporting Mix Product Mix Europe 28 % Geographic Mix 11

Strategic Position Strategic Context The Broad Outlook for Advanced Measurement Technologies is Very Promising! 6.0% of Global GDP Up from 5.2% in 2000 (WHO report, 2015) 160 million people added to global middle class each of the next five years (Brookings Institute, 2017) The world is demanding more and better measurement by 2050, the world population will increase by 28% 12

Strategic Position Global Trends Shaping Our Strategy Global expansion of patient access to medicines Increasing complexity of biologic molecules Rising standards for materials performance and quality Increasing regulation and safety standards for food Growing medical research funding Unmet measurement needs in clinical diagnostics Increasing Customer Needs in High-Value Measurement Data security and integrity More accessible technologies Better, complete systems Applications expertise 13

Innovation Strategy Waters Vision and Corporate Strategy Waters is the world s leading specialty measurement company, delivering benefit through innovations and people that enable customer success in the life, materials, and food sciences. WHERE WE COMPETE: Serve the most demanding markets and customers HOW WE COMPETE: Compete on the basis of focus, innovation and quality of the total customer experience 14

Innovation Strategy Organic Innovation is our Core Growth Strategy Three Elements of Waters Innovation Innovation to Drive the Core Aimed at the near-term product pipeline Focused and disciplined Innovation that keeps us competitive Transformational Engineering Redefining innovation for next generation systems Informed by strategy Innovation that will change the basis of competition Breakthrough Innovation Thinking differently Harnessing the limitless potential of mass spectrometry Innovation that will one day change the world 15

Innovation Strategy Waters Business Portfolio and Strategy Summary PHARMA MATERIALS FOOD & ENVIRONMENTAL CLINICAL BIOMEDICAL RESEARCH Total Market Size $16B $13B $14B $5B $9B Waters Chosen Market Chosen Market Growth MSD + MSD - MSD + MSD MSD+ Waters Business Strategy Fortify core Pharma position, and win BioPharma with innovation Build Materials leadership and scale by leveraging two valuable brands Build Food testing solutions and market focus to drive share gains Solidify general-use IVD, and nurture intended-use IVD innovations Focus on Metabolomics and targeted Panomics workflows 16

Operating Efficiency Specialty Model Drives Industry-Leading Margins Unique product mix gradually trending to more profitable, recurring service, chemistry and informatics lines Margin structure reflects differentiated product, market and geography mix, with ongoing opportunity for modest improvement Informatics 11 % Chemistry 16 % Service 33 % Product Mix Instruments 40 % 2017 numbers: 100% = $2.3B 17

Operating Efficiency Track Record of Consistent Growth and Earnings Leverage Revenue = 5% Operating Income = 7% EPS = 11% $2,309 $705 $7.49 $1,844 $542 $4.93 $1,473 $370 $2.75 2007 2012 2017 REVENUE (MILLIONS) 2007 2012 2017 OPERATING INCOME (MILLIONS) 2007 2012 2017 EPS Revenue and Operating Income Growth: 10-year CAGR is in constant currency (as reported 5% and 7%, respectively). See reconciliations in the appendix. Operating Income & EPS: exclude the after tax impact of special items disclosed. See GAAP to Non-GAAP reconciliations on the Company s website. 18

Operating Efficiency Driving Operating Leverage 10-year Operating Income CAGR 7% KEY DRIVERS 25.1% 29.4% 30.5% Business Mix Leveraging Growth 2007 2012 2017 OPERATING MARGINS Operating Improvement Initiatives Disciplined Expense Management Operating Margin and Operating Income: exclude the after tax impact of special items disclosed. See GAAP to Non-GAAP reconciliations in the appendix. Operating Income Growth: 10-year CAGR is in constant currency (as reported 7%). See reconciliations in the appendix. 19

Priorities for Capital Allocation Capital Discipline Free Cash Flow Balance Sheet Cash Debt Capacity Invest in growing the business Maintain financial strength and flexibility Return capital to shareholders Organic innovation Capital expenditure Acquisitions & investments Strong, flexible balance sheet Optimal capital structure Share repurchase 20

Waters is a purpose-driven company VALUES Winning Culture VISION Waters is the world s leading specialty measurement company, delivering benefit through innovations and people that enable customer success in the life, materials, and food sciences. Improve human health and well being through the application of the most advanced specialty measurement technologies 21

Execution Winning Culture Robust core management processes establish annual execution priorities Strategy Clear set of choices that establish Waters differentiation and pathway to superior value creation Annual Operating Plan Annual investment planning for product portfolio and commercial operations Integrated Talent Management Talent acquisition and development, structural alignment, performance management, and incentives Annual Priorities GROWTH is our mandate INNOVATION to change the world QUALITY is everyone s job CUSTOMER experience excellence PEOPLE create the Waters difference 22

Focused on Long-Term Value Creation 1 2 3 4 5 Highly Differentiated Strategic Position in Structurally Attractive Markets Clear Growth Strategy Driven by Organic Innovation Opportunity for Continuous Operational Improvement Committed to Judicious Use of Capital Performance-Oriented Culture and Management Team 23

Reconciliation of GAAP to Adjusted Non-GAAP Financial Measures

Non-GAAP Financial Measures This presentation contains financial measures, such as constant currency growth rate, adjusted operating income, adjusted earnings per diluted share and adjusted operating income, among others, which are considered non-gaap financial measures under applicable U.S. Securities and Exchange Commission rules and regulations. These non-gaap financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles (GAAP). The Company s definition of these non-gaap measures may differ from similarly titled measures used by others. The non-gaap financial measures used in this presentation adjust for specified items that can be highly variable or difficult to predict. The Company generally uses these non- GAAP financial measures to facilitate management s financial and operational decision-making, including evaluation of Waters Corporation s historical operating results, comparison to competitors operating results and determination of management incentive compensation. These non-gaap financial measures reflect an additional way of viewing aspects of the Company s operations that, when viewed with GAAP results and the reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting Waters Corporation s business. Because non-gaap financial measures exclude the effect of items that will increase or decrease the Company s reported results of operations, management strongly encourages investors to review the Company s consolidated financial statements and publicly filed reports in their entirety. Reconciliations of the non-gaap financial measures to the most directly comparable GAAP financial measures are included in the appendix of this presentation. Additionally, please refer to the Company s website or its historical Form 8-K filings with the SEC, for explanations as to why the Company believes that presentation of these non-gaap financial measures provide useful information to investors. 26

Non-GAAP Financial Measures Waters Corporation and Subsidiaries Reconciliation of Actual GAAP Sales and Operating Income to Constant Currency For the Twelve Months Ended December 31, 2017, 2012 and 2007 (Unaudited) (In thousands) 2017 2012 2007 Sales as Reported in Actual U.S. Dollars $ 2,309,078 $ 1,843,641 $ 1,473,048 Impact of Foreign Currency Exchange (14,506) 38,900 (50,252) Sales in Constant Currency $ 2,294,572 $ 1,882,541 $ 1,422,796 10 Year Compound Annual Growth Rate 5.4% 2017 2012 2007 GAAP Operating Income $ 661,858 $ 511,490 $ 348,879 Net Impact of Non-GAAP Adjustments as Previously Disclosed 43,084 30,084 20,862 Adjusted Non-GAAP Operating Income $ 704,942 $ 541,574 $ 369,741 Adjusted Non-GAAP Operating Income Percentage 30.5% 29.4% 25.1% 2017 2012 2007 Adjusted Non-GAAP Operating Income $ 704,942 $ 541,574 $ 369,741 Impact of Foreign Currency Exchange (7,820) 13,611 (13,053) Adjusted Non-GAAP Operating Income in Constant Currency $ 697,122 $ 555,185 $ 356,688 10 Year Compound Annual Growth Rate in Constant Currency 7.5% 27

Non-GAAP Financial Measures Waters Corporation and Subsidiaries Reconciliation of GAAP to Adjusted Non-GAAP Net Sales by Operating Segment and Products & Services For the Three Months Ended June 30, 2018 and July 1, 2017 (Unaudited) (In thousands) Constant Three Months Ended Percent Currency Currency June 30, 2018 July 1, 2017 Change Impact Growth Rate (a) NET S ALES - OPERATING S EGMENT Waters $ 527,305 $ 497,780 6% $ 10,067 4% TA 68,914 60,470 14% 1,217 12% Total $ 596,219 $ 558,250 7% $ 11,284 5% NET S ALES - PRODUCTS & S ERVICES Waters Instruments $ 239,928 $ 238,548 1% $ 2,421 (0%) TA Instruments 49,812 43,466 15% 928 12% Total Instruments 289,740 282,014 3% 3,349 2% Waters Service 188,248 168,408 12% 5,101 9% TA Service 19,102 17,004 12% 289 11% Total Service 207,350 185,412 12% 5,390 9% Chemistry 99,129 90,824 9% 2,545 6% Total Recurring 306,479 276,236 11% 7,935 8% Total $ 596,219 $ 558,250 7% $ 11,284 5% (a) The Company believes that referring to comparable constant currency growth rates is a useful way to evaluate the underlying performance of Waters Corporation's net sales. Constant currency growth rate, a non-gaap financial measure, measures the change in net sales between current and prior year periods, ignoring the impact of foreign currency exchange rates during the current period. See description of non-gaap financial measures contained in this release. 28

Non-GAAP Financial Measures Waters Corporation and Subsidiaries Reconciliation of GAAP to Adjusted Non-GAAP Net Sales by Operating Segment and Products & Services For the Six Months Ended June 30, 2018 and July 1, 2017 (Unaudited) (In thousands) Constant Six Months Ended Percent Currency Currency June 30, 2018 July 1, 2017 Change Impact Growth Rate (a) NET S ALES - OPERATING S EGMENT Waters $ 998,451 $ 941,206 6% $ 32,218 3% TA 128,438 115,013 12% 2,932 9% Total $ 1,126,889 $ 1,056,219 7% $ 35,150 3% NET S ALES - PRODUCTS & S ERVICES Waters Instruments $ 438,031 $ 436,337 0% $ 10,818 (2%) TA Instruments 92,116 82,070 12% 2,232 10% Total Instruments 530,147 518,407 2% 13,050 (0%) Waters Service 362,581 326,142 11% 14,055 7% TA Service 36,322 32,943 10% 700 8% Total Service 398,903 359,085 11% 14,755 7% Chemistry 197,839 178,727 11% 7,345 7% Total Recurring 596,742 537,812 11% 22,100 7% Total $ 1,126,889 $ 1,056,219 7% $ 35,150 3% (a) The Company believes that referring to comparable constant currency growth rates is a useful way to evaluate the underlying performance of Waters Corporation's net sales. Constant currency growth rate, a non-gaap financial measure, measures the change in net sales between current and prior year periods, ignoring the impact of foreign currency exchange rates during the current period. See description of non-gaap financial measures contained in this release. 29

Non-GAAP Financial Measures Waters Corporation and Subsidiaries Reconciliation of GAAP to Adjusted Non-GAAP Net Sales by Geography and Markets For the Three Months Ended June 30, 2018 and July 1, 2017 (Unaudited) (In thousands) Constant Three Months Ended Percent Currency Currency June 30, 2018 July 1, 2017 Change Impact Growth Rate (a) NET S ALES - GEOGRAPHY U.S. $ 161,485 $ 164,374 (2%) $ - (2%) Rest of Americas 36,641 32,212 14% 299 13% Americas 198,126 196,586 1% 299 1% Europe 161,188 145,961 10% 7,700 5% China 109,709 94,104 17% 2,558 14% Japan 43,183 41,559 4% 758 2% India 35,167 36,252 (3%) (1,069) (0%) Rest of Asia 48,846 43,788 12% 1,038 9% Asia 236,905 215,703 10% 3,285 8% Total $ 596,219 $ 558,250 7% $ 11,284 5% NET S ALES - MARKETS Pharmaceutical $ 338,354 $ 319,650 6% $ 6,228 4% Industrial 183,664 174,531 5% 3,078 3% Government & Academic 74,201 64,069 16% 1,978 13% Total $ 596,219 $ 558,250 7% $ 11,284 5% (a) The Company believes that referring to comparable constant currency growth rates is a useful way to evaluate the underlying performance of Waters Corporation's net sales. Constant currency growth rate, a non-gaap financial measure, measures the change in net sales between current and prior year periods, ignoring the impact of foreign currency exchange rates during the current period. See description of non-gaap financial measures contained in this 30

Non-GAAP Financial Measures Waters Corporation and Subsidiaries Reconciliation of GAAP to Adjusted Non-GAAP Net Sales by Geography and Markets For the Six Months Ended June 30, 2018 and July 1, 2017 (Unaudited) (In thousands) Constant Six Months Ended Percent Currency Currency June 30, 2018 July 1, 2017 Change Impact Growth Rate (a) NET S ALES - GEOGRAPHY U.S. $ 308,306 $ 303,608 2% $ - 2% Rest of Americas 71,530 67,628 6% 717 5% Americas 379,836 371,236 2% 717 2% Europe 309,868 274,174 13% 25,059 4% China 203,537 179,226 14% 5,208 11% Japan 85,948 82,856 4% 2,929 0% India 65,843 69,770 (6%) (757) (5%) Rest of Asia 81,857 78,957 4% 1,994 1% Asia 437,185 410,809 6% 9,374 4% Total $ 1,126,889 $ 1,056,219 7% $ 35,150 3% NET S ALES - MARKETS Pharmaceutical $ 643,682 $ 599,460 7% $ 22,013 4% Industrial 345,991 335,834 3% 9,198 0% Government & Academic 137,213 120,925 13% 3,939 10% Total $ 1,126,886 $ 1,056,219 7% $ 35,150 3% (a) The Company believes that referring to comparable constant currency growth rates is a useful way to evaluate the underlying performance of Waters Corporation's net sales. Constant currency growth rate, a non-gaap financial measure, measures the change in net sales between current and prior year periods, ignoring the impact of foreign currency exchange rates during the current period. See description of non-gaap financial measures contained in this 31