Participants

Caspar Tudor; Director of Investor Relations; Waters Corp

Udit Batra; President, Chief Executive Officer, Director; Waters Corp

Amol Chaubal; Chief Financial Officer, Senior Vice President; Waters Corp

Tycho Peterson; Analyst; Jefferies

Vijay Kumar; Analyst; Evercore ISI

Puneet Souda; Analyst; Leerink Partners LLC

Eve Burstein; Analyst; Bernstein Institutional Service LLC

Brandon Couillard; Analyst; Wells Fargo Securities LLC

Dan Arias; Analyst; Stifel Nicolaus & Company, Incorporated

Daniel Brennan; Analyst; TD Cowen

Catherine Schulte; Analyst; Robert W. Baird & Co., Inc.

Presentation

Operator

Welcome to the Waters Cooperation fourth-quarter 2024 financial results conference call. (Operator Instructions) This call is being recorded. If you have any objections, please disconnect at this time.
It is now my pleasure to turn the call over to Mr. Caspar Tudor, Head of Investor Relations. Please go ahead, sir.

Caspar Tudor

Thank you, Danny. Good morning, everyone, and welcome to the Waters Corporation fourth quarter earnings call. Today, I'm joined by Dr. Udi Batra, Waters President and Chief Executive Officer; and Amol Chaubal, Water's Senior Vice President and Chief Financial Officer.
Before we begin, I will cover the cautionary language. In this conference call, we'll make forward-looking statements regarding future events or future financial performance of the company. We will provide guidance regarding possible future results as well as commentary on potential market and business conditions that may impact Waters Corporation over the first quarter of 2025 and full-year 2025.
These statements are only our present expectations and actual events or results may differ materially. Please see the risk factors included within our Form 10-K, our Form 10-Qs, and the cautionary language included in this morning's earnings release.
During today's call, we will refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are attached to our earnings release and in the appendix of the slide presentation accompanying today's call.
Both are available on the Investor Relations section of our website. Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the fourth quarter of fiscal-year 2023. In addition, unless stated otherwise, all year-over-year revenue growth rates and ranges given on today's call are on a comparable organic constant currency basis.
Finally, we do not intend to update our guidance, predictions, or projections, except as part of a regularly scheduled earnings release or as otherwise required by law. Now, I'd like to hand the call over to Udit to deliver our key remarks, a more we'll then present a more detailed overview of our results and guidance, and then after, we'll open the phone lines for questions. Over to you, Udit.

Udit Batra

Thank you, Caspar, and good morning, everyone. We delivered an excellent finish to 2024 in the fourth quarter, achieving high single digit constant currency revenue growth and low-teens adjusted EPS growth. In Pharma, which is our largest end market, sales grew low double digits.
Before diving into the details, I want to thank my colleagues at Waters for their resilience, innovative spirit, and collaboration. This fuels our strong sales performance and operational achievements as we accelerate the benefits of pioneering science.
Throughout the year, our message has remained clear and consistent. We are executing well in an analytical instruments and systems market that is beginning its recovery.
The innovation in our revitalized portfolio is well aligned with customer unmet needs at a time when instruments are ripe for replacement. Our focus and leadership position in downstream high volume life science applications has earned us a unique exposure to an exciting mix of fast growing high volume testing opportunities. This includes GLP-1 testing, PFAS testing, and the genetics market in India.
Today, I'm pleased to share the latest proof points that demonstrate our favorable position right at a time when a recovery in customer CapEx spending and instrument replacement is beginning to kick into gear. I expect the strength and momentum to continue into 2025, and we will cover this later in the call. Turning now to our results, in the fourth quarter, sales grew 6.4% as reported and 8% in constant currency.
Sales exceeded the high end of our guidance range as growth accelerated across all our three reported regions. Instruments grew 8%, outpacing our expectations as LC mass pack, light scattering, and TA system sales each grew high single digits or better.
Recurring revenues grew 9%, also marking an improvement from the previous quarter with chemistry and service, both up high single digits. We continue to build momentum, delivering a high-teens quarter-over-quarter revenue ramp while funnel activity remains strong.
We also achieved outstanding results within our P&L. With our sustained focus on operational excellence, our non-GAAP earnings per share was $4.10 reflecting 13% EPS growth. Excluding the impact of FX, our adjusted EPS grew 22%. On a GAAP basis, EPS was $3.88.
Turning now to the full year, sales were flat as reported, and in organic constant currency, as our quarterly growth performance improved every quarter. Recurring revenue grew 6%, once again, underscoring the unique resilience of our recurring portfolio across various market conditions. With a strong EPS result in Q4, our full year non-GAAP earnings per fully diluted share was $11.86.
This reflects 1% growth and includes a 5% decline due to foreign exchange headwinds. On a GAAP basis, EPS was $10.71 per share. Breaking out our results in more detail.
We saw strong broad-based growth in the fourth quarter. Strength was led by our pharma and academic end markets, both of which grew double digits. In pharma, sales grew 10%, led by low double digit growth in Europe and Asia and high single digit growth in the Americas. In particular, spending amongst large pharma, contract manufacturing organizations, and generics customers continued to recover, where our revenue is tied to high volume regulated QA/QC applications.
In our non-farmer segments, sales grew 6%, led by low double digit growth in Europe, mid-single digit growth in Asia, and low single digit growth in the Americas. We saw strong growth in the A&G segment across Asia, including China, Japan, and India, as well as in Europe. By geography, Europe grew 11%, Asia 9%, America 6%. In China, overall sales returned to positive growth in China and was up low single digits.
Although -- altogether these results reflect excellent momentum into the year end, I would now like to share more in depth commentary on what drove our strong performance.
With our commercial focus and disciplined execution, we continue to deliver impressive outcomes driving like for like pricing gains. We also capitalized on the success of our new product launches, achieved strong placement of our new flagship products that command a price premium due to their unmatched benefits in solving customer unmet needs.
Within LC, Alliance iS has paved the way for smarter, more capable liquid chromatography separation that minimizes user errors. In the fourth quarter, sales more than doubled quarter over quarter. Alliance iS constituted 20% of our HPLC revenue in the fourth quarter after adoption continued to scale throughout the year.
Within Mass Spec, The Xevo TQ Absolute system remained our best-selling Mass Spectrometer with its market leading sensitivity and sustainable design. In the fourth quarter, unit sales grew 40% year over year and constituted 50% of our Tandem Quad revenue.
As a reminder, Tandem Quad are the most suitable mass specs for high volume quantitative measurements in compliant settings.
The Xevo TQ absolute has been a key driver of the strong results we've achieved in PFAS testing and in clinical applications. Our PFAS revenue grew over 40% in the fourth quarter and for the year. PFAS testing is a 400 million global market growing at 20% annually, so this represents growth at approximately twice the market for the second consecutive year.
For clinical, total clinical revenue grew low-teens in the quarter, driven in part by strong sales of the IVD version of the Xevo TQ absolute. Within our chemistry consumables business, our newer column launches aimed at separating larger, more complex molecules like biologics and novel modalities continue to perform ahead of expectations.
Max Premier columns sales grew over 30% in the quarter and over 40% for the year. The success of our new column launches, our exposure to higher growth, large molecule applications has risen. Large molecule applications are now approximately 40% of our pharma chemistry revenue and growing. Our service team has continued to make strides in increasing plan attachment. For the first time, over 50% of our active install base has a service plan in place.
SDI recently recognized our service team for delivering the highest service satisfaction scores among all instrument vendors. At the same time, our Net Promoter Scores lead the industry according to technology and services industry associations.
During the quarter, our unique exposure to new, high-volume testing drivers also contributed to our growth. This includes novel therapeutic areas such as GLP-1 testing, PFAS testing applications in food and environmental testing and the expanding generic drug market -- generic stock market in India. All three represent a compelling growth opportunity for Waters based on our leadership position in downstream, high-volume life science applications.
In 2024, we performed very well against our growth expectations in each of these areas. In the near to midterm, we continue to expect 30 basis points annual average growth accretion from both GLP-1 testing and PFAS testing, while India is expected to add 70 to 100 basis points to the growth.
Now, I will talk more about our operational performance. Our team faced numerous margin challenges throughout the year, including FX, inflation and the normalization of annual incentive compensation. Despite a rapid strengthening of the US dollar during the fourth quarter, our unwavering focus on operational excellence allowed us to counteract the currency headwinds. We achieved a 60 basis point increase in adjusted operating margin to 35.5% after absorbing 220 basis points of FX impact.
Offsetting currency and macroeconomic headwinds is something our team has gotten very good at. For the full year, we achieved year over year adjusted operating margin expansion, closing the year at 31%. This is after absorbing 130 basis points of FX-related impact.
As we look ahead, while no [to] macroeconomic environments are the same, instrument down cycles have historically been followed by an up cycle as a new instrument replacement cycle emerges. During these uptrends, instrument growth has typically been 2% to 3% higher than the long-term average of 5%.
Currently, our instrument growth sits at 2% on a five-year CAGR basis versus 2019. This comes after weak macroeconomic conditions put temporary constraints on customer CapEx spending for downstream instrumentation in recent years. The growth catch-up opportunity from this deferred instrument replacement is beginning to kick into gear.
Meanwhile, in the longer term, we expect the average growth rate of instruments to actually trend higher than the historical 5%, driven by higher volume trends, new application areas like large molecules and better pricing dynamics.
Together, with the progress we have made in our high-growth adjacencies, Waters is well positioned for an exciting new era of growth as the analytical instrument market continues to recover. This also coincides with the launch of a new wave of commercial and value creation initiatives that we look forward to discussing in detail at our upcoming Investor Day.
I will now cover the 2025 full-year guidance. Customer spending has shown steady signs of recovery in analytical instruments, particularly in the downstream, high-volume settings that we serve. We expect these positive trends to continue into 2025.
Our team continues to execute well with our revitalized portfolio at a time when instrument replacement is beginning to pick up. Together, our resilient recurring revenue growth and the ongoing impact of our idiosyncratic growth drivers, we anticipate continuing our strong momentum into 2025. These dynamics support full-year 2025 constant currency sales growth guidance of 4.5% to 7%.
Within the P&L, the recent strengthening of the US dollar introduced additional foreign exchange headwinds. Nevertheless, we plan to counterbalance these impacts with robust operational performance, sustaining our margin expansion trends into 2025.
This translates to a full-year 2025 earnings per fully diluted share guidance of $12.70 to $13. On a non-GAAP basis, this is a 7% to 10% growth versus our 2024 -- versus 2024, and includes an estimated headwind of approximately 4% due to unfavorable foreign exchange.
Now, I will pass the call over to Amol to cover our financial results in more detail and provide further details on our guidance. Amol?

Amol Chaubal

Thank you, Udit, and good morning, everyone. In the fourth quarter, we delivered a strong finish to the year. Sales of $873 million grew 6% as reported and 8% in constant currency as both instruments and recurring revenues grew high single digits.
With our strong commercial execution and new product portfolio, we benefited from budget flush as overall sales ramped up $132 million or 18% quarter over quarter. This was meaningfully higher than the mid-teens ramp assumption in our guidance.
In constant currency terms, by end market, Pharma grew 10%, Industrial grew 2% and Academic and Government grew 16%. In Pharma, sales grew 12% in Asia, 10% in Europe and 9% in Americas. Instrument sales grew high single digits, led by liquid chromatography as deferred customer spending continued its early stages of recovery.
In Industrial growth was led by our TA division, which also grew high single digits amidst strength in batteries, advanced materials and chemical testing. Within our Waters division, we continue to see strong growth in PFAS-related applications, which grew over 40% in the quarter.
In Academic and Government, the strong performance was driven by 35% growth in Asia and 20% growth in Europe. Within Asia, growth was broad-based.
By geography, each of our three reported regions saw significant growth acceleration versus the prior quarter. Europe grew 11%, Asia grew 9% and Americas grew 6%, each with broad strength across our end markets. In China, sales returned to growth, up low single digits.
By products and services, Instruments grew 8%, reflecting broad strength across our instrument portfolio, including LC, Mass Spec, light scattering and TA. In recurring revenue, chemistry grew 7% and service grew 9%, as customer activity remained strong, with high utilization of our installed base. Our robust growth has been supported by our commercial initiatives in areas such as service plan attachment, e-commerce adoption and launch of our new bio separation columns.
Turning now to full-year results. Sales of $2.96 billion were flat as reported and flat in organic constant currency terms. By end market, Pharma grew 1%, Industrial was flat and Academic and Government declined 7%.
By geography, Europe grew 2%, while Americas and Asia both declined 1%. Asia ex China grew high single digits, while China declined low double digits as expected. By products and services, instrument growth rates recovered throughout the year and declined 7% overall. Recurring revenues grew 6%, reflecting the resilience of our chemistry consumables and service businesses.
Now I will comment on our fourth quarter and full-year non-GAAP financial performance versus last year. During the fourth quarter, the US dollar strengthened significantly. With our focus on operational excellence, including pricing, productivity and cost management, we were able to offset the impact. Gross margin was 60.1% for the quarter and 59.4% for the full year. Excluding FX, gross margin expanded 60 basis points and 80 basis points, respectively.
For the quarter, adjusted operating margin expanded 60 basis points to 35.5%. For the full year, adjusted operating margin expanded to 31% after absorbing 130 basis points of adverse FX impact as well as the normalization of annual incentive compensation. As we look ahead, we are well positioned to continue our margin expansion journey through our productivity initiatives and take our profitability to new heights.
Together with better-than-expected sales volume, our strong operational performance drove 13% growth in non-GAAP earnings per fully diluted share to $4.10. This landed at the high end of our guidance range even with an FX headwind that was $0.23 greater than anticipated. On GAAP basis, EPS was $3.88. For the full year, non-GAAP EPS grew 1% to $11.86. This includes a decline of approximately 5% due to foreign exchange headwinds.
On a GAAP basis, EPS was $10.71. Our effective adjusted operating tax rate was 16.9% for the quarter and 16.4% for the full year. Our average share count was 59.6 million for the quarter and for the full year.
Turning now to free cash flow, capital deployment and our balance sheet. We define free cash flow as cash from operations, less capital expenditures, and excludes special items. In the fourth quarter of 2024, free cash flow was $188 million after funding $52 million of capital expenditures, including the purchase of $13 million manufacturing facility in Colorado. For the full year, free cash flow was $744 million or 25% of sales, resulting in a free cash flow to adjusted net income conversion ratio of 105%.
With the strong free cash flow generation in our business model, we've made solid progress delivering our balance sheet, and our net debt position is now approaching [pre-wired] acquisition levels. In the fourth quarter, we reduced debt by approximately $200 million, resulting in approximately $900 million of debt repayments made in 2024. At the end of the quarter, our net debt position was approximately $1.3 billion, which is a net debt-to-EBITDA ratio of about 1.3 times.
We maintain a strong balance sheet, access to liquidity and a well-structured debt maturity profile. This strength allows us to prioritize investing in growth. We continue to evaluate M&A opportunities that will enhance value creation for our shareholders. We'll also evaluate the resumption of our share repurchase program during the course of 2025.
Now, I would like to share further commentary on our 2025 outlook. Customer spending has shown steady signs of recovery in analytical instruments, particularly in downstream, high volume settings that we serve. We expect these positive trends to continue into 2025.
Our team is executing very well with our revitalized portfolio. Together with our resilient recurring revenue growth and supported by our ongoing impact of our idiosyncratic growth drivers, we anticipate achieving strong results again in 2025.
These dynamics support full year 2025 constant currency sales growth guidance of 4.5% to 7%. At current exchange rates, currency translation is expected to result in a negative impact of 2% on full-year sales. Therefore, our total reported sales growth guidance is approximately 2.5% to 5%.
Within the P&L, we plan to counterbalance the impact of foreign exchange headwinds through continued robust operational performance, sustaining our strong margin performance into 2025. We expect to deliver a gross margin of 59.6% and an adjusted operating margin of 31.2% for the full year. In both cases, this represents 20 basis points of net year-over-year expansion, net of 40 basis points of FX headwind.
We expect our full year net interest expense to be approximately $46 million. Our full year tax rate is expected to be largely consistent with 2024 levels at 16.5% as we anticipate mitigating the incremental effects of [Pillar 2] including those relating to Singapore. Our average diluted share count is expected to be approximately 59.3 million.
Rolling all this together, on a non-GAAP basis, our full-year 2025 earnings per fully diluted share guidance is projected in the range of $12.70 to $13, which is approximately 7% to 10% growth, and includes an estimated headwind of approximately 4% due to unfavorable foreign exchange.
Looking to the first quarter of 2025, our constant currency sales growth guidance is projected in the range of 4% to 7%. At current rates, currency translation is expected to subtract approximately 3%. Therefore, our total first quarter reported sales growth guidance is 1% to 7% -- 1% to 4%.
The first quarter of 2025 has two fewer days than the first quarter of 2024. At the same time, the fourth quarter of 2024 had two additional days than the fourth quarter of 2023. Based on these dynamics, together with our 4% to 7% constant currency sales growth guidance and an expected 7 percentage points of currency headwind on earnings, first quarter non-GAAP earnings per fully diluted share is estimated to be in the range of $2.17 to $2.25.
Now, I would like to turn the call back to Udit for our closing comments. Udit?

Udit Batra

Thank you, Amol. 2024 was a defining year for Waters. We delivered excellent sales and operational performance, capitalized on the momentum of our new product launches and saw a strong contribution from our idiosyncratic growth drivers. We also made continued progress in our high-growth adjacencies.
As we look to 2025, there is a lot to be excited about. We're coming out of the gate stronger than ever in market conditions that are beginning to recover. We are confident in our ability to deliver enhanced value for our shareholders.
With that, I will turn the call back over to Caspar.

Caspar Tudor

Thanks, Udit. That concludes our formal comments. Danny, we are now ready to open the phone lines for questions.

Question and Answer Session

Operator

We will now begin the Q&A. (Operator Instructions)
Tycho Peterson, Jefferies.

Tycho Peterson

All right, Tycho Peterson. Hey, So Udit, I'm wondering if you could talk a little more just on a couple of things. One, budget flush dynamics, to what to really thought you had pulled forward here with the new administration and quantify any budget flush impact?
And then on replacement cycle, just talk a little bit about where we are in the process. You've talked in the past about customers bringing IT and procurement to the table. How widespread is it among your pharma customer base? And where do you think you go in terms of iS mix by the end of the year. I know you talked to it was 20% in the fourth quarter.
And then the follow-up is just capital allocation. You're down to 1.3 times leverage. What's the appetite to resume share repurchases versus look at M&A? And what's the appetite, if it's the latter for larger deals, what can you say about max leverage thresholds and appetite to issue stock? Thanks.

Udit Batra

Thank you, Tycho, and good morning again. Look, firstly, on the budget flush, 2024 was really almost a typical year. We saw a high-teens ramp from Q3 to Q4, and that was helped by the sales momentum that we saw at the end of the year. So rather a typical budget flush, if you want to call it that.
Now to your question on the replacement cycle. Look, we finished the year extremely strong, right? So high single digit of instrument growth. And LC, as you mentioned, Alliance iS is now 20% of our HPLC sales, really, really solid performance. Pharma grew double digits to finish the year and driven by large pharma, where the replacement cycle has begun and the conversations, as I mentioned in the last quarter, are not quite widespread.
So the double-digit growth in pharma -- the pharma segment, driven by large pharma, initiating replacement, CDMOs which are also starting to see good momentum and, of course, continued good performance in India in the generics market.
And all of it as I mentioned earlier, is, of course, driven by our late-stage focus in QA/QC in manufacturing, where instruments are tied to instrument replacement is tied to sort of the usage and that scales with the volume.
And it's really helped in no small part due to our strong new portfolio, especially driven by Alliance iS in the HPLC space. So feel very good about where we stand on the instrument replacement cycle. And the funnels going into the year are very strong. So I expect really no change in what we are seeing from our customers.
So, I'll hand over now to Amol to talk a bit about the capital allocation.

Amol Chaubal

Yeah. Look, I mean, we continue to look at assets that sort of align with our value acceleration goals. Clearly, we've said we don't mind going up to 2.5 times because we can deliver pretty quickly, as you've seen with Wyatt. And most critically, we want to be financially disciplined when we look at these targets and make sure sort of these assets are EPS accretive and create a good high single-digit ROIC at least by year five.

Udit Batra

Thank you all.

Operator

Vijay Kumar, Evercore ISI.

Vijay Kumar

Hi Udit, good morning and, thank you for taking my question. Congrats on a really nice print here. But maybe before I get to my questions, I just want to, maybe a small clarification. I would characterize Tycho as a friendly crazy scientist. I think it has a better ring to it. So, there you go, Tycho. I guess a few Udit on the guidance here, this 4.5% to 7%, It's best in class so far, right, relative to tools, some of your peers.
How are you incorporating some of the macro-related risks, when you think about tariffs, perhaps NIH, spending cuts, perhapsrudential cuts to agencies like EPA, I'm just curious on how, that was based in the guidance and I had one follow up?

Udit Batra

Sure. So thanks, Vijay. I think as you start talking about sort of Tycho, I should also say, and I forgot to say it in the prepared remarks, go Eagles. We're big Eagles fans here. So I just wanted to insert that before answering your question.
On the guidance itself, look, now we finished the year with high single-digit growth, right. And we saw strength in Pharma, double-digit growth in Pharma. We saw strength in A&G. New products, with the Alliance iS, now almost 20% of the total revenue in Q4 for HPLC, Xevo TQ absolute, now almost 50% of the total revenue in quantitative Mass Spec. New products are doing extremely well, and they're serving these idiosyncratic growth drivers, GLP-1s, PFAS testing, the India generics market. So it's a very good setup as we go into 2025. We expect the same sort of trends to continue.
Now, if you just look at the guidance, it's 4.5% to 7%. Recurring revenues have grown 6% to 7% through all sorts of macro cycles, right. So there's not much more evidence required there on what's going to happen there. So we -- let's assume that that's the higher end of the guidance.
Then instruments need to grow roughly 4%, 4.5% for us to get to the midpoint of the guidance. Finishing the year of instruments at high single digits, with the replacement cycle really beginning in earnest across large pharma where we see really good strength.
Funnels are very strong. I spent some time with our sales team across the global sales meetings are ongoing. And there's a lot of excitement with our new portfolio. There's a lot of excitement in the discussions that are taking place, especially with large pharma and the CDMOs. So feel very good about what we see in the funnels.
New products are gaining traction. So same sort of trends are moving into 2024. And there is no reason why we should not be able to meet and exceed the lower end of the guide with all the positive trends that we're seeing. So we've built a bit of prudence on the lower end of the guide at 4.5%. And we will start to get more constructive as the year progresses.
So I hope that gives you some flavor of what we're thinking about in the full year. So 4.5% in the lower end sort of measures -- has some measure of prudence and as we see any sort of headwinds, we should be able to more than combat it and meet the guidance.

Vijay Kumar

That's helpful Udit. And maybe one a follow up on, when you think about the components of guidance, PFAS, GLP-1, are we still assuming, 30 basis points of contribution? How are you thinking about China, India within that guidance framework and pricing contribution?

Udit Batra

Yeah, a big question. Let me try to address the idiosyncratic pieces, the GLP-1 and PFAS. First, GLP-1s, I mean we're going from strength to strength. As you know, we have 100% of our, call it, 100% share in the columns usage. We have a significant share in instrument usage, and we are the number one player in online testing for GLP-1.
So we do expect the 30 basis points to continue. We have good line of sight on it. PFAS testing, we finished the year with 60 basis points of contribution to the overall growth. But we're assuming for -- in the 2025 guidance, a 30 basis points accretion.
So both of them are 30 plus 30. And India is -- has contributed over 100 basis points in 2024, finishing the year -- finishing Q4 at over 30% growth, right. For the full year, India on a constant currency basis was over 25% growth, right?
So we've assumed India will be at least 70 to 100 basis points accretive to the growth going forward. China, we've sort of maintained our low single-digit posture there, right? So China, Q4, came in as expected. Low single-digit growth, a modest contribution from stimulus. We expect the same in 2025. So China could -- as the stimulus comes in, could give us a bit of an upside.

Amol Chaubal

And the last one on pricing closer to 200 basis points.

Operator

Puneet Souda, Leerink.

Puneet Souda

Yeah, thanks for the questions here. So, first one, just want to touch on the first quarter guide, 4% to 7%, a little bit wider than historical patterns. Just want to clarify, I know you talked about the full year guide, but just, given the recent NIH cuts and, potential for academic freezing there and instrumentation in the near term, sort of just help us understand how are you taking that in for the US academic side and how should we think about the 4% versus the 7%, I mean, the dynamics that need to play out in the quarter. Already we are in Q1, so I'm sure you've thought about, before setting the guide as to on the lower end versus the higher end, if you could elaborate a bit?

Amol Chaubal

Yeah. So look, I mean, in Q4, we grew 8% constant currency. Keep in mind, Q4 benefited by two extra days, which is roughly 1% extra growth. And then Q1 this year has two less days. So sort of has the reverse dynamic. So net-net, where we are guiding at the midpoint, roughly is in line with how we performed in Q4 due to the days impact, right?
Now the guidance range is slightly larger than usual, which, as you can appreciate, given all the uncertainties sort of that overhang the situation. And with Q1 being our smallest quarter, we've given ourselves some prudence and cushion in a situation where some of these uncertainties were to materialize. And if they do materialize, we end up at the lower end of the guidance. If they don't, we end up at the higher end of our guidance. And that's on the sales side.
And then keep in mind, I mean, dollar strengthened so significantly through the course of Q4. It now creates a 7% earnings headwind in Q1. And so when you grow 4% to 7% and have a 7% FX headwind on earnings, you sort of at EPS that's flat or slightly better than flat, and that's where the EPS guide is.

Udit Batra

And maybe just to embellish a little bit on EPS in Q1, Puneet. I mean, as I mentioned earlier, I mean, this is the time for growth for Waters. We're seeing incredible growth across. Our key customer segments, our sales meetings are back, and we want to invest in training our folks. People are very excited about the traction that new products are gaining.
They're very excited about the chemistry piece, and we're investing in ensuring that our folks are trained, our sales teams are trained. So we're continuing to invest even in Q1, and Q1 is, again, as I mentioned, is the smallest quarter. So the sales meetings are back, and we're basically investing for growth starting already in Q1.

Puneet Souda

Got it. That's helpful. And then if I could double-click on both Europe and India. Europe, if you could just elaborate some of the dynamics there, budget flush, pharma versus non-pharma. And then also specifically on India is, I would love to get your thoughts on 70 to 100 bps contribution, again, strong throughout 2024.
How do you -- how are you at India team and yourself, how are you thinking about the [pattern cliff] opportunity here? And how should we think about that opportunity getting layered into the growth algorithm over the next few years?

Udit Batra

Yeah. Let me start with India, and then we'll do Europe a second. Very pleased with both of those end markets. But looking at India, like I said, India Q4 was 34% constant currency growth, and for the year, 27%. India is now a meaningful contributor to Waters at over 8% of our total sales.
So really feel good about what the team has been doing on the ground. We are the market share leader in the key generics companies in India and our columns. Our instruments are used there. Alliance iS is also doing well. We have the highest service attachment rate there. So really feel good about what we're doing on the ground from an execution standpoint.
Looking ahead, the genetics -- the genericization opportunity is very significant, right? So $240 billion of revenues will go off patent over the next five to seven years. India continues to supply roughly 50% of the global generics market. And over half of that $240 billion, $250 billion is a small molecule. So that fits right into the current business model that exists, and half of it is biosimilars, which is now developing in many of these markets.
So feel good about the opportunity going forward. And just to give you a case in point, semaglutide genericization is expected to hit some time in 2026. And the top generics players are already working with us to adapt and adopt the processes that the key innovators have been using.
Amol, you want to start with Europe?

Amol Chaubal

Yeah. I mean, look, Europe is executing super well, right, 11% growth. It's across the board, double-digit growth in Pharma, high single-digit growth in Industrial, double-digit plus growth in A&G, Instruments growing high single digit plus.
So between how our teams are executing, together with the refreshed portfolio, together with some of the idiosyncratic growth opportunities like PFAS and GLP-1s, the team is capitalizing really well in what's out there.

Udit Batra

Yeah. And I mean, just to sort of build on that, Europe is -- I mean, Europe has been doing extremely well for the full year, and finished the year extremely strong. The academic segment, at the end of the year, usually sees a significant budget flush, and we did.
And as I mentioned earlier to Tycho's question, look, I mean, 2024 was a typical year for us, right, with a budget flush sort of going back to what we've seen in historic times. So really good finish to the year in Europe, and very excited about how the year has started there with good conversations across different customer segments.

Operator

Eve Burstein, Bernstein.

Eve Burstein

Great. Good morning. Thanks so much for taking my question. We talked a lot about the replacement cycle and kind of the pent-up opportunity from 2019 to 2024. But at a conference in January, you said that the instrument replacement commercial initiative was progressing well with still 15% of lagged 2015 to 2019 replacement opportunity remaining.
So how does that number compare to average versus when you're coming out of a down cycle and starting an up cycle? Essentially, is that better or worse? And how much of that replacement opportunity is in China specifically?

Udit Batra

It's a good question, Eve, and thanks for paying specific attention to those separate drivers. So just to sort of clarify for everyone, there are two different instrument growth drivers. One is the pent-up demand for replacement, where there was deferred replacement that took place in the 2023, '24 time frame, and replacements were deferred from that time frame to a bit later. So that's what we're calling the replacement cycle. That is a standard cycle that occurs in the industry.
And during that time, we see a 2% to 3% outperformance in instrument growth rate versus the 5% average over the long term, right. So that's what we're calling the replacement cycle. The signs of that are rather clear when you talk to customers because the meetings that take place are with a larger number of people. They're planning a multiyear replacement. Procurement sits in that discussion.
IT sits in that discussion. The lab managers sit in the discussion and a whole bunch of folks from our sites sit in those discussions, and those are widespread across the industry right now. And so we're seeing very good traction on that.
What you asked about is the 15% that is pending from the transformation that we began in 2020 and 2021. And there, you'll recall we had said, look, there are roughly 13,000 instruments that should have been replaced in the 2018 to '20 time frame, that got deferred.
And we worked very hard to replace them in '21 and '22, but the macro cycle slowed down in 2023 and '24, and that 15% is still pending, right. So we have a database in our CRM system, and we track this diligently, right. So people don't forget that, that 15% is still pending.
So you can superimpose the two. I didn't want us to now go crazy sort of with instrument growth rates, I was trying to bring the two together. But in our CRM system, we have that track really diligently. So I hope that clarifies the replacement question.
On China, we've assumed a low single-digit growth. I mean market conditions have improved over the year, but we've assumed that it's still muted. There is an impact of the stimulus expected in 2025. Again, there, we've been modest. We've assumed a sort of a low to -- sorry, mid- to high single digit, single -- mid- to high single-digit million contribution for the year.
So we expect China to remain sort of, at least in the guide, remain the same. And if there's no stimulus and more replacement, we should see more dynamic growth.

Eve Burstein

That's great. Thanks a lot for clarifying. One clarification just on price. So you said in response to [BJ] pricing was closer to 200 bps. Just to clarify, was that the contribution for growth in 4Q? And if so, how much does pricing contribute to the '25 guide? And are you including the effect of a double upgrade in that contribution? And how much is that?

Amol Chaubal

Yeah. So look, I mean, when we got pricing, it's always like-for-like SKU, like-for-like geography. It does not include the benefits of the upsell. '24 was close to 200 basis points contribution, and that's in line with what we have in our '25 guide.

Operator

Brandon Couillard, Wells Fargo.

Brandon Couillard

Thank you very much. I think you talked about instrument growth, this year for 4.5%. Just curious how that compares between the LC, Mass Spec, and light scattering and any details you can kind of give us on what you've assumed in terms of growth across the three end markets?

Udit Batra

I think you should assume sort of mid-single digit-ish for all three. So Mass Spec at 4%, in that 4.5% number, LC at 5, TA at 5, and light scattering somewhere there or thereabouts also. A bit higher than that since it's accretive, probably closer to double digits, but it's such a small portion of the business. It doesn't make a huge difference at this point.
And Brandon even as we finish -- sorry, Brandon, just to clarify, even as we finish the year, all instrument segments grew, at minimum, high single digits. So LC, Mass Spec, TA and Wyatt was well into the double digits (inaudible)

Brandon Couillard

Got it. And your PFAS market sizing continues to walk up. Now you're talking about a $400 million opportunity, prior it was kind of $300 million to $350 million. What's enabling you to grow so much faster than the underlying market? Where is that developing most rapidly, either by application or region right now?

Udit Batra

Yeah. I think it's -- so the market itself has significant unmet needs, right. I mean, we started with the environmental market, then it's expanded into food testing step by step. The Academic customer segment also purchases instruments to quantify and assess PFAS. So very dynamic market. And you're right, the market size continues to increase as more and more applications come in.
We've grown almost double the market growth rate, and it's driven, I mean, first, by having the best-in-class instrument because PFAS testing, remember, is not just one molecule. It's over 40 already classified as PFAS. All of these need to be quantified, and the regulators keep increasing the sensitivity requirements. And we have the most sensitive instrument in the market with the lowest environmental footprint. And that's worked extremely well in the hands of our customers, right.
So the number one driver is the success of the Xevo TQ Absolute and which now is -- in Q4, was 50% of the revenue of quantitative Mass Spec. So highly, highly successful launch, driven not just by the differentiation, but also the commercial excellence.
And equally, our teams are investing a ton of energy in the compliant informatics segment, the waters_connect informatics software is doing very well in regulated settings. Remember, our history and legacy is in compliance settings where data integrity is of a premium. So we've taken what we learned from Empower, adopted it into waters_connect, and that's working very well in that -- in the PFAS regulated segment.
And then finally, chemistry and workflows. We continue to launch new chemistry and new workflows to really keep up with the complexity of different PFAS molecules. So across the board, and the market size is expanding largely because of application sets. So we feel very good about where we sit there.

Operator

Dan Arias, Stifel.

Dan Arias

Yeah, good morning, guys. Thank you. Udit, can you just maybe expand on that PFAS idea a little bit I mean, to what extent do you still see there being additional capacity needs in the lab based on the Waters testing side in the US?
Because I know, to your point, application expansion, geographic expansion is important, but I'm just sort of trying to understand what you've done in 2024 when it comes to scaling up these labs in order to test on the Waters side in the US specifically?

Udit Batra

So that's a good question, Dan. It's early days still, right? I mean when you look at PFAS testing, and this is something we'll spend some time at our Investor Day as well, breaking down the different segments that have constituted growth, right?
The academic segment, the first round spent a lot of time and energy, and we had very good sales in that segment. Helping people understand what the (inaudible) PFAS really is, developing methods that could get standardized, and then we disseminated second to public health laboratories to water testing laboratories.
And then the last piece is -- the second to last piece is water testing laboratories across the country and the final one is people who have to do remediation.
So when you think of PFAS testing, it's not just contract testing labs. It's also academic labs, which started first, then it's public health labs that's set standards, then its contract testing organizations like water testing, and then finally people who have to remediate PFAS out. So we're in the very early innings of the penetration. And as I said, we'll talk more about it at the Investor Day, but we're outpacing the market quite significantly.

Dan Arias

Okay. Thanks for that. Maybe just on the Mass Spec side. I mean, to what extent do you feel like the uptake there is partly a function of or being helped by the LC replacement cycle? In other words, if you look at healthy MS combo purchases now versus prior periods, what do you see and what is sort of embedded in that Mass Spec growth rate that you're talking about for this year, mid-single digits when it comes to just sort of that being driven by LC uptake versus performance and new platform introductions, et cetera. If that's something that you can kind of speak to?

Amol Chaubal

Yeah. Look, I mean, that Mass Spec uptake is not meaningfully impacted by LC replacement. A lot of LC replacement is happening in manufacturing QA/QC where LC sort of operates largely stand-alone.
What is helping Mass Spec meaningfully is various vectors that have come together based on our revitalized portfolio. As Udit mentioned, TQ Absolute is doing exceedingly well, not just in PFAS, but across the applications in food and pharma space as well -- as well as in clinical.
You have something like BioAccord doing well in bioanalytical characterization. You have some of the newer launches on the higher risk space that are catering to very specific needs and that they are doing exceedingly well on those applications. And that's why you see sort of the kind of growth you're seeing on Mass Spec not driven by LC replacement.

Udit Batra

Yeah. So I mean, just to elaborate on that a little bit. It's the two dimensions, right? So it's the different pieces of Mass Spec that are individually contributing due to innovation. So be it PFAS testing, be it Mass Spec usage in genotoxic purity testing in pharma, be it Mass Spec testing, and this is only Xevo TQ Absolute in clinical.
And then, of course, there's the BioAccord, which is doing extremely well and the Xevo MRT, which is our new product that is on the higher risk side. So you see the innovation contributing.
And then that has helped on the customer dimension by a strong growing segment like PFAS. It helped to some extent by late-stage development, where Mass Spec is used significantly for quantitative assessment of different types of biologics right.
So you see that two dimensions working very well from Mass Spec, the innovation as well as the different customer segments and not only due to the LC replacement cycle. As Amol mentioned, that's mostly [LCUP] link for small molecules.

Operator

Matt Sykes, Goldman Sachs.

Hi, this is Evian from Matt. Thanks for taking my questions. So the first one, you've seen impressive growth in services. Can you talk through the benefits of your empower software and then any particular applications areas where you see higher attachment rates and then any leverage you're using to improve that going forward?

Amol Chaubal

Yeah. I mean, look, no two recurring revenues are equal, and our recurring portfolio pro start, right? Because even in this downturn, when most other recurring portfolios have been flat or low single digits, we've been rock solid at 6% to 7% growth.
And what sort of contributing to that is our unique position with empower, coupled with how well we've done with service attachment rates where our Net Promoter Scores are on service, our launches in bioseparation columns as well as the progress that we've made on our e-commerce with chemistry consumables. And that's sort of what is driving this rock solid 6% to 7% recurring revenue growth.

Great. And then can you talk through the strength you saw in the academic and government section this quarter and then what your expectations are going into 2025? Any potential impact from NIH risk?

Amol Chaubal

Yeah. I mean, look, Q4 was very strong from an A&G perspective. It did benefit from the typical budget flush dynamics, particularly in markets like Europe. We also saw some initial orders getting converted on stimulus in China.
But again, longer term, this market has traditionally been low single digit at best mid-single-digit grower, right. And it's very choppy. So you can't really count on this trend. I think as we get into '25, we will benefit from the stimulus in China. But again, there are so many puts and takes there. So we've put a very prudent assumption in our guide. And if it plays out better, that will be an upside.
We don't have much direct exposure to NIH funding. Very little actually, less than 1%. So we're not exposed to that dynamic because our primary business is far more in industrial. It's a small portion of our business, less around 10%, and we continue to monitor the dynamics.

Udit Batra

And just to sort of finish up, I mean for 2025 we've assumed low single digit growth in A&G, right, so not the dynamism that we saw in Q4, especially in pharma. We've not assumed that at all in A&G for the 2025 guide, so it's a low single digit growth.

Operator

Dan Brennan, TD Cowen.

Daniel Brennan

Terrific. Thank you. Thanks for the questions, guys. Maybe just the first one on instruments just for the guide. I think you said 4% for 2025. Just confirm that maybe feels a little conservative and if you could speak to, you've highlighted this five year CAGR and this 5% normalization, so, where did we end up '24 and kind of what's implied on '25 and kind of any reason why, the kind of the improvement you're expecting in '25, is that on the normal trend line or is it above or below?

Udit Batra

So thanks, Dan. Look, we've assumed the 4.5% -- the range is 4.5% to 7% for the full year. And just to repeat what I started with, the 7%-ish, 6% or 7% you should assume, is what we think is the recurring revenue. And you can see why that is a pretty stable and rock solid assumption.
Instruments need to grow 4%, 4.5% for us to get to the midpoint of the guide. Now your question is a good one. I mean, we finished the year with high single-digit growth in instruments. The funnel is extremely strong and the conversion looks extremely strong, especially led by Pharma, where we're seeing very good traction of our Alliance iS instrument to sort of support the replacement cycle we're seeing the idiosyncratic drivers contributing nicely.
I think as you look at 2025, the way I would look at it is we will start to get more constructive as the year goes on. We will start to reveal more information because at this point, we feel very optimistic. We see good funnels. Q1 is the smallest quarter. We just want to get more information before we start sort of saying, Hey, it's going to be another 8%, 9% a year for instruments.
Typically, and you're right again to point out. Typically when we come out of a trough in instrument replacement, we usually see a 2% to 3% outperformance versus the long-term average, which is 5%, right? So going back to the CAGRs, the long-term average is 5%. Usually, when you come out into the replacement cycle, you start seeing a 2% to 3% outperformance. All signs are pointing in that direction. We just want to start the year with a bit of prudence and de-risk it as the year goes on.
Amol, anything to add?

Amol Chaubal

Look, whichever way you look at it, area under the curve, CAGRs, average fleet life and even if you exclude China for US and European markets, there is a meaningful catch-up opportunity from each of these analytical viewpoints, right. And we see that in the dialogue with large pharma, the dialogue with CDMOs is starting to improve.
The one thing one has to keep in mind is not every part of our customer base is recovering to its healthy state, right. We still have biotechs, we still have biotech research. These things haven't recovered or China pharma hasn't recovered to a level it needs to.
So the ramp of this replacement cycle will not be as steep as historical. But the length or the duration of this replacement cycle is likely going to be longer just because eventually, all these lagging segments of the market have to come back and replace their aging instrument fleet.

Daniel Brennan

Great. And then I know there was one question on India, but maybe just one follow-up since it is so strong for you right now. I think I heard you say over 25% growth in '24 or 100 basis points contribution (technical difficulty)

Amol Chaubal

Did we lose Dan?

Udit Batra

Dan, we lost you.

Caspar Tudor

Let's proceed to our next question (inaudible) , please.

Operator

Sure thing. Catherine Schulte, Baird.

Catherine Schulte

Thank you. Hey guys, thanks for the questions. Maybe just first on Pharma, great to see that return to double-digit growth this quarter. Maybe just to go back to Tycho's questions, is there a way to quantify the stronger budget flush dynamic in the quarter? And what are you assuming for Pharma growth both for the first quarter and the full year?

Udit Batra

Yes. So Catherine, for the -- for Q4, I mean, it was, as I said, it's very strong growth. We're very happy with it. It really supports our late-stage focus. But as you look at Q4, the ramp was typical to prepandemic years, right?
So high-teens, almost 20% from Q3 to Q4. So normal budget flush dynamic, not more, not less, right, stronger than what we saw last year and the year before. But starting to trend towards a normal -- to a normal level, which is constant with how pharma -- late-stage pharma is behaving, QA/QC spending. So we start to see a normalization of behavior there.

Catherine Schulte

And then maybe just on the services side, you mentioned over 50% of your active installed base now has a service contract in place. I believe your target is to get back to 55%. So can you just talk to where you think that can go throughout the year?

Amol Chaubal

Yeah. Look, I mean, we are very happy with the progress that we've made. And every year, we start with the goal and we end up achieving double that goal in the year.
And keep in mind, this is just based on instrument installed base out there. It doesn't include the first year instruments in warranty. So when you add that, almost 60% of our installed base is either under warranty or under a service plan. 55% is a good goal to go with and we are starting to make progress in the last remaining areas like China.
And then again, a lot of the focus in power or service organization into the next big thing, which is sort of how do we get service lead gen, and we've made tremendous progress in markets like US and India, where the attachment rate is very high and these organizations have already pivoted to their next biggest goal, which is lead gen and revenue conversion.

Udit Batra

And thanks, Catherine, for that question. I think we're coming to the end of the call. I want to make sure everybody remembers that March 5 is the Investor Day in New York City, and we look forward to elaborating on the service question, use of AI in service, use of AI internally and externally and many other areas.
But let me conclude by saying we are very excited about how we finished 2024. We're entering this new phase of growth with a lot of momentum, especially on our instrument portfolio. The recurring revenues are growing like a Swiss clock. We've said that before.
The instrument revenues -- the instrument growth is now really kicking into gear with the replacement cycle beginning, with the new product portfolio gaining a ton of traction, with the idiosyncratic growth drivers contributing. And we feel very good about the way we're starting -- the way we're starting 2025.
Look forward to seeing you at the Investor Day, and thank you all for joining us today.