Waters Corp (WAT) 2006 Q1 法說會逐字稿

Good morning and welcome to the Waters Corporation first-quarter financial results conference call. All participants will be able to listen only until the question and answer session of the conference. This conference is being recorded. If you have any objections, you may disconnect at this time.

I would like to introduce your host for today's conference, Mr. Douglas Berthiaume, Chairman, President and Chief Executive Officer of Waters Corporation. Sir, you may begin.

Thank you. Good morning and welcome to the Waters Corporation first-quarter financial results conference call. With me on today's call as usual is John Ornell, Waters' Chief Financial Officer and Gene Cassis, the Vice President of Investor Relations. As is our normal practice, I will provide an overview of the first quarter's results and then John will take you through the financial details and lay out our second quarter and full year 2006 outlook. Finally we will open it up for Q&A. Before I begin, however, I would like John to cover the cautionary language. John?

During the course of this conference call, we may make various forward-looking statements regarding future events or future financial performance of the Company. In particular, we will provide guidance regarding possible future income statement results of the Company, this time for Q2 and full year 2006. We caution you that all such statements are only predictions and that actual events or results may differ materially. For a detailed discussion of some of the risks and contingencies that could cause our actual performance to differ significantly from our present expectations, see our 10-K annual report for the fiscal year ended December 31, 2005, and Part I under the caption Business Risk Factors.

We further caution you that the Company does not obligate or commit itself by providing this guidance to update predictions. We do not plan to update predictions regarding possible future income statement results except during our regularly scheduled quarterly earnings release conference calls and webcast. The next earnings release call and webcast is currently planned for July 2006.

During this call, we will refer to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable to GAAP measure is attached to the Company's earnings release issued this morning. In our discussion of the results of the operations, we will refer to pro forma results which exclude the impact of the restructuring or other onetime charges.

Thank you, John. Well I am pleased to report to you that we had another quarter of stronger than expected performance. You may recall that when we last spoke in January, I reported that our business improved in the fourth quarter of 2005 with strong demand for our products from worldwide industrial labs, along with overall robust sales growth in Asia as the key factors in driving our fourth-quarter '05 growth.

Well these trends continued into the first quarter of '06 and enabled us to grow sales organically by 12%. At the same time, our disciplined approach to controlling expenses and the continued impact of our share repurchase plan allowed us to leverage this topline expansion to achieve superior earnings growth, over 25%. John will cover these figures in more detail shortly.

We started the year and we were keenly watching for indications that our large pharmaceutical accounts would begin to resume investment in new instrumentation. Feedback from this customer segment earlier this year suggested to us that 2006 would be stronger than 2005. I must tell you though that while we did observe a pickup in European large pharmaceutical accounts, most of our U.S.-based large pharmaceutical customers are continuing to hold back their spending. We remain optimistic that budgets will be released as we move through this year, however, results that we have observed so far from this important market segment continue to affect our expectations for topline growth in the upcoming quarters.

Our Chromatography business, led by ACQUITY UPLC, recorded strong topline growth in the first quarter. The growth in ACQUITY is particularly encouraging, given broad acceptance of UPLC technology across nearly all markets. We believe that during 2006, we will see our pharmaceutical customers more broadly adopt ACQUITY technology within their development and QAQC operation, and demand from these labs will further accelerate ACQUITY growth rates over and above the impressive expansion that we have witnessed so far.

At this year's Pittsburgh conference, we showcased several key advancements to our ACQUITY product line, including new systems for peptide and amino acid analysis, new compact and high sensitivity mass spectrometry detection capabilities and additional column chemistries. We feel with ACQUITY, we're clearly leading our industry in advancing separation science.

Our business operations in Asia had a very strong first quarter with India and China leading the way. Pharmaceutical companies in India, large and small, continue to expand and update their laboratories while the growth in China is more broad-based with a higher level of investment by government-funded labs. Needless to say, growth in Asia is a key component of our business strategy and is an indicator of our future commitment to this region, and I am pleased to tell you that we've enhanced our operations in Asia to include an expanded partnership to manufacture instrumentation in Singapore. Earlier this month, we initiated this program and expect that the manufacturer of our Alliance HPLC system will transfer completely to Singapore by the end of 2006. This plan benefits Waters on many fronts. By bringing manufacturing operations close to a growing market, we demonstrate a long-term commitment to our customers in this region and in the intermediate term, expect efficiency gains through supply chain leverage. Additionally, the transfer of Alliance to Singapore frees up manufacturing capacity at our Milford, Massachusetts site for ACQUITY UPLC assemblies, our fastest growing chromatography platform.

Turning to Mass Spectrometry, we expect that the first half of 2006 will be an exciting time as we introduce a series of new high-performance instruments. In March at the Pittsburgh conference, we introduced two new products -- the Waters SQD, a single quadrupole device tailored for ACQUITY UPLC, and the Waters LCT Premier, a research time of flight instrument -- new levels of both qualitative and quantitative capabilities.

At ASMS in late May, we plan to launch to still more new mass spectrometry instruments, paired with ACQUITY-based inlet technologies. The performance benefits of combining these instrument- and chemistry-based technologies uniquely demonstrates the advantages of our complete systems approach to LCMS instrumentation.

In the first quarter, our shipments of mass spec instruments were about flat with those of the first quarter of 2005. This softness is due to the weakness in the U.S. big pharma market, to some customers delaying orders due to our new product launches and to heavier ordering for larger systems that occurred late in the quarter too late for us to deliver to customers' in the first quarter of '06.

If you late more closely at our mass spec product lines, demand for our Q-Tof Premier continues to indicate both acceptance of its new performance features and relatively healthy spending by a Proteomic Labs. Our Quattro Premier sales also grew nicely in the quarter, driven by food and environmental testing labs. On the other hand, orders and sales for our low-end mass spectrometry systems were down. We feel that in many cases, customers delay orders for these systems in anticipation of new product launches. Overall, we are optimistic that 2006 will be an upbeat year for mass spec as we expect to stronger pharmaceutical demand and orders for our new products to stimulate sales growth in the second half of the year.

Our industrially focused TA Instruments division had another successful quarter as demand from the chemical industry remains strong and the division continues to offer superior instrument systems. New products included a successfully launched high-performance [reometer], high demand for advanced tools for material characterization in the electronics, defense and petrochemical industries; and continued geographical expansion of the TA business, all contributed to strong performance.

For the past few quarters, I have remarked on an increase in demand associated with food testing applications. As governments continue to recognize the direct effect of nutrition on health, we anticipate continuous increases in laboratory testing to ensure food safety. Accordingly, we have developed instrument systems, primarily LCMS systems, tailored to food safety applications. At the same time, we have been looking to acquire technologies and companies to further strengthen our business in this area. We successfully acquired such a business in the first quarter. The company is called VICAM and it's headquartered here in Massachusetts. VICAM has a unique portfolio of testing kits and instrument systems for microtoxin analysis. Microtoxin compounds are recognized as being highly carcinogenic and are a commonly found contaminant in agricultural products. Most of the testing kits and sample prep kits offered by VICAM are based on proprietary chromagraphic media and are often used ahead of HPLC and LCMS experiments. So on many fronts, VICAM is a natural fit for Waters and can potentially strengthen both our -- and indirectly our instrumentation business and food testing lab. In 2006, we anticipate that VICAM products will add about $8 million in sales revenue and be slightly accretive to earnings.

I would like to say a few words about our outlook for the rest of 2006 before I pass you onto John. We have now reported two quarters in a row of strong sales and earnings and we feel there is a positive overall business momentum that's building. So our outlook for 2006 is for stronger business performance than 2005.

On the product side and across our instrumentation and chemistry offerings, we feel we have strong competitive positions. With the planned introductions at ASMS near at hand, the majority of our product lines will soon be refreshed and ready to compete globally. From a geographic perspective, we expect the momentum in Asia to continue through the year and we also see positive signs for continued growth in Europe. Our primary concerns involve pressures, restricting spending by our large pharmaceutical accounts, primarily in the United States. So we feel that our business with these accounts will strengthen as we move through 2006. Our financial forecast will remain a bit cautious as we will continue to control our expenses and conservatively forecast our revenue growth.

We have seen periods of slower growth by our large pharmaceutical accounts before and we expect that a more normal spending pattern will ultimately resume. In the meantime, we will continue to promote the advantages of our new products and technologies, we will provide superior customers aboard and I think we will well position our company for future growth.

Now here is John to review the financials.

Thank you, Doug, and good morning. Our first quarter results exceeded our expectations with non-GAAP earnings per diluted share of $0.50 this quarter compared to earnings of $0.39 last year, an increase of 28%. On a GAAP basis, earnings this quarter included a restructuring charge of 3.6 million after-tax and a FASB 123(R) stock option expense of 5.6 million after tax. Including these expenses, first quarter 2006 earnings-per-share were $0.42 per share on a GAAP basis.

Sales grew 12% for the quarter versus last year on a constant currency basis and currency translation reduced reported sales growth by 4%. Looking at sales grows in constant currency terms, our sales results were positively influenced by strong sales in Asia outside of Japan where we saw 39% growth in the quarter. Sales within Europe were up 26% and Japan and the U.S. sales were about flat. Sales to large pharmaceutical accounts remained weak, particularly in the U.S., while global sales to small pharma and industrial-based customers continued their positive momentum.

Looking at quarterly product line revenues in constant currency terms, sales of LC products led by the fast growth of our ACQUITY UPLC technology, grew by 16% versus the prior year and mass spectrometry product shipments were about flat. Our thermal analysis business continued its positive performance with revenue growth of 10%.

Now I would like to comment on the non-GAAP margins and expenses which will exclude FAS 123(R) expenses and restructuring charges. Gross margins were up 50 basis points from Q1 last year. This quarter's product mix was more heavily weighted towards LC products, including service and chemistry. This mix resulted in improved overall margin. SG&A expenses were flat this quarter to prior year. You may recall that in 2005 that we overestimated sales growth early in the year and had to recalibrate SG&A spending later in the year as a result. Coming into 2006, we continued to hold back on discretionary spending as we waited to assess the strength of the current business climate. Q1 results reflect the benefits of these collective actions. At this point, we do need to make investments largely in additional service and support personnel in Asia and we will therefore plan to see modest SG&A in the upcoming quarters of 2006.

R&D spending grew about as expected in the quarter. Operating income for the quarter showed strong growth with operating margin approaching 25%, a positive first quarter results that provides an excellent start to the year. Our effective tax rate before FAS 123(R) this quarter was 18.2%. On a GAAP basis, our effective rate was 17.2%.

During the first quarter, we purchased 2.1 million shares of our common stock for $90 million against our authorized share repurchase program, leaving a remaining balance of $194 million to complete this program. Cash and short-term investments totaled $481 million, bringing us to a net debt position of about $357 million. With our strong balance sheet and liquidity, we believe we have adequate flexibility to fund our future needs.

Cash from operations after funding $10 million of capital spending this quarter was $68 million excluding a $9 million tax payment associated with the American Jobs Creation Act (indiscernible) and a $3 million (technical difficulty) payment, cash from operations net of capital spending was a strong $80 million. Accounts receivable days sales outstanding stood at 78 days this quarter, down three days versus Q1 last year.

Now I would like to turn to our updated outlook for 2006. First, I will talk about the year without including FAS 123(R) expense, then I will layer on the anticipated FAS 123(R) impact. We expect a continued tight spending environment within our large pharma accounts as these customers continued to control costs and prioritize development projects. On the other hand, smaller pharma accounts in biotech and our industrial end markets still look positive and we think that with strong performance by our ACQUITY product offerings in all of our markets, we can increase sales this year by 9% before the impact of foreign currency translation. Currency at today's levels should reduce 2006 sales growth by about 1%, resulting in reported sales growth of 8%. This sales expectation includes about $8 million of sales from newly acquired VICAM this year.

We have examined our SG&A spending to best align our resources with business opportunities around the world. This activity resulted in a reorganization of our European operations and a modest reduction of resources in the U.S., resulting in a restructuring charge this quarter. There will be onetime costs associated with these actions throughout the remainder of the year as well of approximately 4 to $5 million. Without these onetime restructuring charges, SG&A is likely to grow around 5% in 2006. This projection includes about $4 million of SG&A expense from the addition of the VICAM business. For this year, R&D expenses are likely to grow at a rate slightly less than sales growth. And we presently expect our effective tax rate to be around 18% for 2006 before FAS 123(R) costs. Rolling all of this together, we currently expect earnings to grow 18% in 2006 and come in at $2.35 per fully diluted share with the normal tolerance of $0.01 to $0.02 each quarter and before unusual charges, or FAS 123(R) expense.

And now to layer on the impact of FAS 123(R) -- we expect FAS 123(R) expense to be about $0.21 per fully diluted share in 2006. Additionally, we expect to incur about $0.07 of restructuring costs this year, resulting in GAAP earnings of $2.07 for 2006, again, with a normal tolerance of $0.01 to $0.02 each quarter. For Q2, we expect currency neutral sales growth of 8% before a negative currency impact of 1%, bringing sales growth down to 7%. At this sales level, we expect earnings per fully diluted share of $0.52 with the normal tolerance of $0.01 to $0.02 for the quarter and before any unusual charges and before FAS 123 expenses. FAS 123(R) will reduce EPS by approximately $0.05 and EPS on a GAAP basis, including estimated FAS 123(R) costs and estimated restructuring costs of $0.02, are expected to be $0.45 with the normal tolerance of $0.01 to $0.02 for the quarter. Doug?

Thanks, John. Operator, I think we can now open it up for Q&A.

(OPERATOR INSTRUCTIONS). Darryl Pardi, Merrill Lynch.

Hi, good morning. What was the mix of ACQUITY sales you think in the quarter for evaluation versus full implementation?

I'm sorry, what do you mean?

In the past, you've talked so the fact that the majority of your ACQUITY sales to date have been for evaluatory purposes, either one-off sales within an (indiscernible) lab, or sales to your core chromatography lab.

Okay, let me answer it this way. I think what we've talked about in the past is that a great many of our ACQUITY systems are still being sold in ones and twos, and we are not seeing wholesale 10 or 15 systems going in to totally replace and HPLC configuration in a pharmaceutical lab. And I would characterize our current business as still being more of that nature. Most of the sales that we are getting are not in large unit sale orders. So we are still getting penetration into the new labs and new applications. And I think some of this has to do with the general state of the large pharmaceutical labs who have those multi-unit installations in their QC/QA applications.

So we're very I'd say enthused about the feedback we're getting in those applications, but I wouldn't say that the current run rate that we're seeing is fueled by much of that sort of characteristic.

John, you mentioned that services and consumables were particularly stronger in the quarter. What was the growth rates of instrument services and consumables in Chromatography?

Within that 16%, instruments were up 19, service was up 10 and chemistry was up 16 (MULTIPLE SPEAKERS) see on the chemistry side is our proprietary position in ACQUITY as ACQUITY consumables are our fastest-growing area in chemistry.

Is that meaningful at this point from a dollar perspective?

Meaningful without being overpowering. You're still talking about a total chemistry business that's roughly 15% of our worldwide revenues. So ACQUITY, ACQUITY revenue is growing extraordinarily well on the consumables side, but I would say it is noticeable in that 16% piece, but not in terms of the overall in corporate revenue.

Thanks, that is helpful, I will get back in the queue.

Sarah Michelmore, Cowen & Company.

I think I just had a couple of questions. Could you help us get a sense in terms of the low-end mass spec in terms of your overall mass-spec revenue, typically how much on a percentage basis have those products represented of that product line? And maybe if you could just give us a sense of how much in terms of a percentage of total mass-specs they were this quarter just to give us a sense of what the drag has been from those products?

They've typically been a little bit less than half, Sara, of the low end. That has been going down in the last couple of years.

In terms of the -- if you guys can broad-brush who really the customers are that buy those products, because my guess is that it's a lot more diverse than just the --.

In the single-quad applications, those customers are overwhelmingly large pharma, or pharma discovery applications. The low-end, the triple-quad customers are more evenly distributed into academic labs, government labs, pharma. There's still a lot of pharma related in those applications, particularly in ADME and in discovery applications.

And then in terms of the organic growth sales guidance that you talked about for the year, the 9%, could you give us a sense of what you're thinking about for the LC growth versus the mass-spec growth there? My guess is that we're getting close, or that you've heard something kind of like double-digit growth for LC. But, could you just kind break out what your assumptions are there?

Yes. Sara, I would say that we're looking at HPLC growth (technical difficulty) now to be closer to 10%, mass-spec to be low- to mid-single for the full year as the second half picks up a bit and TA to be probably 7 to 8 full year.

And then just the last question for me, the guidance you had for Q2 is a little bit stronger than what we had in the model. And you are up against a tougher comparison than you were this quarter. So I'm just wondering if there is, in terms of some of the momentum you talked about, if some of the optimism in terms of that 8% growth is based on backlog or any trends that you have seen quarter to date? Thanks.

Yes. I think as we look at the second quarter, our thinking is that the business conditions are pretty consistent coming into this quarter as what we saw in Q1. Asia continues to look very, very strong. We're not thinking Europe perhaps continues at the same strength that we saw in the first quarter, but on the other hand, we're thinking that what we see in the U.S. is for improved conditions in the second quarter. So I think those offset. So I would say, we are looking in the second quarter at probably HPLC maybe being in the 10% growth range versus the 16 maybe that we saw in the first quarter, just given the comparison that you point out. Mass-spec being a little bit better and TA, I think I see a path to growth that is pretty consistent with the first quarter, 9 to 10. So overall, that gets me to about 8% organic growth in the second quarter.

Great, thank you so much.

John Sullivan, Leerink Swann.

Congratulations on a good quarter. I just wanted to ask about pricing in world markets for HPLC. I'm wondering if pricing is becoming a more important consideration, particularly in the U.S. market.

Do you mean is there more price competition, John?

Yes, please.

I would say no. Interestingly enough, I would say our average in-market price per instrument is higher, weighted by ACQUITY HPLC, and there is really nothing that competes with ACQUITY at this point in time. So we're not being faced with anything significant there. And interestingly enough, if you look at our other chromatography systems, we are not seeing average in-market prices be compromised in those. It's like two separate markets. There's the ACQUITY and then there's the chromatography business, and I'd say my answer is the same in both -- pricing is holding up pretty well.

Okay thanks very much. And my last question and I will get back in the queue --.

By the way, you can see that in the margin. We had thought that originally our margins would be under pressure, particularly because ACQUITY would be taking a larger piece of the mix, not because of price competition. And we are very encouraged by what we're seeing in terms of the business's ability to probably drive costs on ACQUITY a little bit faster than we expected.

You had traditionally described ACQUITY as having margins similar to legacy HPLC products. Is that still the case, or are the margins actually greater in ACQUITY?

No. What I said it is that, within a year or two, they will be the same. But ACQUITY coming out of the chute had lower gross margins. Higher margin dollars, because it's a higher price system, but lower percentage gross margins than Alliance. So on an apple and apples basis, for every Alliance you sold, you would get a lower gross margin percentage. Our plan calls for that to be a crossover point in the early 2007 timeframe. It's exactly what we saw with Alliance -- as the volumes go up and the learning curve builds, the costs on that new instrument come down. And I would say, if anything, we are a little bit further ahead of our expectations at this point than we thought we would be.

Okay. The strength of ACQUITY in Asia and India with the pharmaceutical industry in particular, what is the driver for adoption into the [ND] and generic pharmaceutical industry? Do you sense it's throughput, or do you sense it's some other metric?

I don't want to get too specific for competitive reasons here, but the generic industry in India has been, from my point of view, is largely standardized on our Alliance technology. It's a very strong Alliance marketplace, has adopted it pretty much across the board. So -- but they have also bought securities in specific applications. But the Asia business in pharma is not principally being driven by ACQUITY UPLC.

Last question, John, within the context of your comments regarding moving some manufacturing over to Singapore, is that a 2006 capital budget item, and is it contained in the current CapEx forecast?

Yes, that's a rather modest investment on our part from a capital perspective, and it is a 2006 expense, and it is within the cash flow that we talked about historically.

Thanks for taking my questions.

Jason Weiss, Robert W. Baird.

Actually a follow-up to the question on the manufacturing expansion in Singapore. As this comes out in 2006, are you [still] seeing any impact on your gross margins?

During 2006 as we ramp up production over in Singapore, there is probably going to be a little bit of duplicative cost associated with having production in two locations during this year. So there will be probably just a small penalty I will say this year as we ramp up production being eliminated certainly as full production is moved towards the end of the year. So for that reason, we are expecting gross margins in total this year to be about the same or maybe down a little bit from prior year.

Great. As far as the timing (indiscernible), is that a Q3-Q4 timing?

The move's underway as we speak, but the volume of production, yes, will be heavily weighted towards the tail end of the year. They will be ramping up across the quarters.

It should be noted here that we've been manufacturing through a partnership relationship in Singapore for a couple of years now. What this relates to is a ramp-up of our Alliance business, so it's a building a volume, but we have had very good multiyear evidence of how this works with our component HPLC systems. So this looks -- we kind low-key it a little bit here, but this long term offers us very good efficiency capabilities. In the long run, this is going to improve our cost position on these products and there are tax benefits that you will get from Singapore. So overall, my best guess is that in '06, it probably won't be noticeable to you; and in '07, you will be able to see the benefits flowing through.

In terms of the tax benefits, we'll see those in 2007 as well?

Yes.

Okay, great. Congratulations on a great quarter.

Not that you should expect too much of a tax rate than 18%, but it will certainly go to preserve that as -- if we continue to grow our pretax income at the rate we're currently going, it will help preserve us on that tax rate environment.

Exactly.

Actually if I may, one more question. With regard to the ACQUITY SQB, the demand in orders that you're seeing for that, is it coming from what you might call the traditional LC customers interested in doing mass-spec?

Yes, I would say it comes from a full range of where we have seen single-quardupole customers in the past, heavily driven to -- I have people passing me notes here, so -- yes, it's in two places, I would say. It's aimed at the chromatography applications that currently utilize high-end detection capabilities. And so we continue to think we can make inroads there, as well as into the traditional discovery applications in both large pharma and specialty pharmaceutical applications. That has been a very strong application traditionally for single-quadrupole mass-specs for confirming libraries and that sort of application, and we think that will be a strong place for the new instrument.

Terrific. Thank you very much.

David [Duquesne], J.P. Morgan.

Hi, guys. Calling on behalf of Tycho this morning. A couple of quick questions. One, related to Pitt Con, have you guys seen any sort of increased interest or early demand coming out of that meeting for the ACQUITY?

Demand for the ACQUITY UPLC has remained very strong. I would say Pittsburgh conference is just another element of what helps to build demand for any of our instruments. So kind of it's hard to parse it into Pittsburgh-related versus everything else related. I would just say, the new instruments, the applications for peptides and amino acids, the interest was very strong coming out of Pitt Con. But just generally, I would say that the interest in terms of demonstrations and requests for quotations and actual orders for ACQUITY has just remained very strong.

And then related to environmental testing, any updates or color there related to maybe new regulations in Europe or drinking water testing in Japan or anything else on the environment?

I would tell you, in terms of specific regulations, there's nothing that I would point to right now, other down the overall general tenor of environmental testing is strong, specifically throughout Asia, but also pretty strong in Europe. And that has been a strong area for us, both in traditional chromatography and in LCMS systems. But environmental and food testing I'd say were the two particular areas that were very strong for us coming through the fourth quarter and in the first.

Okay, congratulations on the quarter and thanks.

Derik De Bruin, UBS.

Hi, this (indiscernible) for Derik. A couple of questions. First question, regarding the big pharma spending, is the U.S. weakness across the board, or is it more localized [to] your accounts?

It would be fair to say there were a couple of large accounts in the U.S. that are reasonably good. They're actually quite good in terms of growth. But if you'll look at the top 20 large pharma accounts in the U.S., overall there is no question that it's a weak market place and that the median account performance is poor, the average account performance is poor and you have a small number of accounts in the quarter that show good signs of life. I would say that's how I would characterize it.

And then for the HPLC, have you started to see any impact from [Agilent], the [1200] launch?

I don't really want to talk specifically about other companies and their instruments. We compete across the board with any number of competitors. I would say this -- if anybody else is doing as well as ACQUITY is, then this market is growing extraordinarily well. I can't say that we have seen anything in our head-to-head that we have lost in ACQUITY UPLC, and that is not to say it hasn't been done. But I don't think against anybody. And, there is no one in the market today who is actually even claiming to have a UPLC, including the one you mentioned. So nobody has the characteristics that the market place has defined UPLC with all of its advantages. So I think right now, we have a pretty open field for us. We expect long-term that we'll have some competition, but right now, it's a pretty good place.

And finally, you talked about shifting the manufacturing to Singapore. What is the long-term outlook on the gross margin as a result?

Long-term, we think this is going to lower our costs. So long-term, it ought to be beneficial to our gross margins. That is what we have seen in our component instruments, and we think we're pretty conservative and when we think that crossover point is, we're right now calling our crossover point to be 2007. But, I wouldn't be surprised if we were a little earlier than that.

So what percentage of the Waters products are currently manufactured in Asia?

I don't want to go into too much detail about that. It's not a huge percentage of our over all instrumentation though.

Okay, that's fine. Thank you.

At this time, sir, there are no further questions.

That's it, there are no more questions operator?

That is correct.

All right, thank you. We appreciate you taking the time today and look forward to talking to you next quarter.