Udit Batra
President and Chief Executive Officer at Waters
Thank you, Caspar, and good morning, everyone.
Our team delivered very strong results, third -- very strong third quarter results with revenue, margin performance and earnings per share, all significantly ahead of our expectations. Sales were well above the high-end of our guidance range, as each of our three reported regions returned to positive growth. Strength was led by our pharma and industrial end markets, both of which saw liquid chromatography return to positive sales growth. Together, with an improvement in mass spec, instrument growth turned positive in the quarter, which exceeded our pace of recovery.
We also built excellence -- excellent momentum as we delivered mid-single-digit quarter-over-quarter revenue growth, while orders outpaced sales for the second quarter in a row. In addition to the positive strength in instruments, we saw an acceleration in recurring revenue growth, which grew a healthy high-single-digits. This was led by 8% growth in our chemistry consumables portfolio.
Within our P&L, our sustained focus on operational excellence led to better-than-expected gross margin and operating margin results. Coupled with the strong top-line performance, we achieved adjusted EPS growth, that was over 10% higher than the midpoint of our guide. Results like this in a dynamic market -- in dynamic market conditions take exceptional dedication from all our colleagues. I would like to take a moment to commend our team for their commitment to commercial execution, operational management and innovation. This enables us to deliver enhanced performance and accelerate the benefits of pioneering science.
On the subject of innovation, we too made excellent progress and further strengthened our alignment with higher growth testing areas, that will augment our future growth. We continue to expand our innovative portfolio with new product launches that solve customer unmet needs in both our core markets and in our high growth adjacencies.
Turning now to our results. In the third quarter, sales grew 4% as reported and 4% in constant currency. Our non-GAAP earnings per share was $2.93, up 3% year-over-year. On a GAAP basis, EPS was $2.71. In the quarter, market conditions and customer spending trends further improved. We continued our path of strong commercial execution and converted opportunities well. We drove strong results as customers were drawn to the innovative new products in our revitalized portfolio. After seven quarters of LC decline, instruments grew 1% as pharma and industrial LC growth turned positive. Mass spec also performed well in the quarter and grew low-single-digits, led by strength in industrial and applied applications, like PFAS testing. Recurring revenues grew 7%, led by 8% growth in our consumables business.
Breaking out our results by end market, we saw a broad improvement in sales growth, as each of our end markets turned to positive growth. In particular, we observed large pharma spending -- better large pharma spending, where our revenue is tied to QA/QC applications and capex spending trends. By geography, each of our reported regions grew. While China was a slight headwind to sales, we still grew mid-single-digits on a both China and ex-China basis as further stabilize -- further stabilization in China posed less of a headwind to our overall results, this is while not yet seeing sales contribution from stimulus.
I would like to share more in-depth commentary on what drove these strong results. Within LC, orders of Alliance iS significantly increased as our new flagship HPLC product grew to a greater percentage of our HPLC volume. This occurred not just within replacement, but within opportunities tied to installed base expansion, particularly among those in large pharma. We've continued to expand capabilities on Alliance iS by adding new detectors like the Photodiode Array, or PDA, and by introducing the Alliance iS Bio earlier this year. Alliance iS has already been trialed by most large pharma customers over the past 18 months. With the improvement in customer capex spending, we've noticed a notable upshift in the speed of adoption, indicating a promising future for this instrument system.
Within mass spec, the Xevo TQ Absolute saw a significant ramp-up in customer adoption. With unit sales growing more than 70% year-over-year, this system was our best-selling mass spectrometer in the quarter. Impressively, it exceeded the combined sales volume of our other tandem quad mass spectrometers for the very first time. The Xevo TQ Absolute's rapid success has been a three-fold dynamic. First, strength has been driven by continued rapid growth in PFAS applications. We see PFAS testing as a $300 million to $350 million global market opportunity, growing 20% annually. Meanwhile, our PFAS-related revenue has grown by over 40% this year. This is attributed to the competitive strength of this system, which is known for its sensitivity in the market.
Second, we've also seen strong adoption of Xevo TQ Absolute in quantitative pharma applications such as for impurity quantitation. This includes analysis of genotox, impurities, proteins and peptides. Similar to PFAS applications, its value proposition of leading sensitivity, together with its sustainable design, is resonating well with our customers. It is 45% smaller and uses 50% less nitrogen and electricity than comparable tandem quads. This has opened up new opportunities for us in this segment and enabled us to expand our market position.
Third, the IVD version of our Xevo TQ Absolute instrument has seen strong growth within clinical applications after we launched it into that space last year. With its ability to analyze trace-level analytes at lower detection limits, it has been an instant success. It has achieved notable traction across a number of testing areas, but especially in endocrinology and for the development of high-value complex tests. This is part of a very deliberate push as we expand the competitive position of our mass specs, consumables and software within clinical testing workflows. In the quarter, total clinical revenue grew low-double-digits, driven, in part, by strong sales of this system within the segment. Our results were supported by the strength of our innovation in chemistry.
In the quarter, MaxPeak Premier Columns, which are relevant for large and more complex molecules, grew over 40%. The benefits of our MaxPeak Premier technology are unique to the market and were a key driver of us winning multiple GLP-1 related opportunities. As we previously mentioned, our columns have been specked into methods for majority of the commercially available GLP-1 related injectables on the market today. We're extremely pleased with how well our chemistry portfolio aligns with the expected volume growth of large and small molecules.
Now, I will talk more about our operational performance. Margins remained resilient as we maintained a successful focus on operational management. Our gross margin expanded 20 basis points to 59.3% and our adjusted operating margin was a solid 30.8%. Looking forward, we feel very good about our future margin opportunity given our recent success in preserving and expanding our margins during a -- during challenging business conditions. We remain on-track to deliver adjusted operating margin expansion this year. We also expect our 2024 results to be a good base for future long-term margin expansion. We also have long-term margin expansion opportunities from our strategic operational initiatives, which are focused on areas such as productivity enhancement, cost management and pricing.
As we look ahead, Waters is well-positioned in attractive markets where testing plays a pivotal role in driving long-term growth. This volume growth is expected to accelerate in the future, led by: first, continued growth in GLP-1 adoption within pharma and PFAS-related testing within our non-pharma segments; second, new volume growth from an increased incidence of drug development and novel drug approvals as new molecules progress through the pharma pipeline; and third, future volume growth drivers for generic molecules are becoming more pronounced, particularly due to the aging global population. In addition, a number of key blockbuster drugs will soon be reaching patent expiration. So, this gives us a tremendous long-term opportunity for installed base expansion as we sell new testing capacity associated with these growth vectors in years to come.
Separately, customer fleets have aged after weak macroeconomic conditions have put temporary constraints on customer capex spending for downstream instrumentation. This deferral of routine instrument replacement within our existing installed base has created a catch-up opportunity that lies ahead of us. Expected instrument growth for 2024 still equates to a low-single-digit CAGR versus 2019 levels. This is significant -- significantly below the 5% long-term average growth rate that we've observed on a pre-COVID basis.
So, looking at the facts, while no two macro environments are the same, instrument down-cycles have lasted between four quarters to seven quarters. A catch-up in growth has then subsequently followed as new instrument replacement cycle emerges. As I mentioned earlier, last quarter marked the seventh consecutive quarter of LC instrument decline. Market conditions remain dynamic and it is still early days, but our third quarter results and improving funnel trends, especially conversion, indicate that we have taken a further step towards recovery. With our strong commercial execution, category-leading portfolio, better pricing levers and exposure to pharma QA/QC, we are in an excellent position to capitalize on these future growth opportunities.
Turning now to our new product launches in the quarter. We continued a steady stream of new product launches in our core markets, addressing top customer needs. This includes a high throughput rapid scan calorimeter, that enables precise thermal stability of high concentration biologic formulations. We also launched the TA Instruments Compact Discovery Rheometer. This expands our rheology portfolio with an easy-to-use product for routine quality-control testing within manufacturing test -- manufacturing settings such as batteries, pharmaceuticals and food. It offers similar performance to viscometers used in R&D settings, but at a price point that is competitive with those in downstream settings.
In our high growth adjacencies, we are actively shaping the Waters of the future and increasing our alignment with nascent, higher growth testing applications where we have a unique right to win. Today, I will share an update on bioseparations. Approximately 50% of the drugs in the pharma pipeline are now large molecules, which includes a wide range of novel modalities beyond monoclonal antibodies that each have their own unique challenges. Given the high future growth potential and significant unmet needs that exist within separating and purifying these molecules, we have directed organic investment to solve these challenges. With the initial progress we've made over the past few years aligning our overall chemistry business to biologics, approximately 40% of our pharma chemistry revenue now comes from large molecules. As we continue to gear our business towards future growth in novel modalities, we expect this number to rise further, particularly as we now spend approximately 70% of our chemistry R&D dollars on large molecule-related applications.
Last year, we launched our first set of in-house developed enzymes for antibodies in areas such as peptide mapping and antibody drug conjugates, which have achieved great initial success. Last month, we expanded our offering further launching our first enzymes and reagents for novel modality related applications. This includes areas like cell and gene therapy and RNA-based therapeutics such as CRISPR, oligonucleotides and mRNA. We continue to build key capabilities across each class of next-generation therapeutics with the objective of building a comprehensive portfolio that is molecule agnostic and can support the journey of any modality into high volume settings.
I will now cover our 2024 full-year guidance. While market conditions remain dynamic, customer capex spending has continued to improve, especially in pharma QA/QC. With our strong funnel, we expect these trends to progress into the fourth quarter and result in 5% to 7% constant currency growth. This is while still making prudent assumptions around fourth quarter seasonality at equivalent levels to last year and well below typical levels. Given our raised outlook for the fourth quarter and better-than-expected third quarter results, we are raising -- we're increasing our full-year guide. Our updated full-year 2024 organic constant currency sales growth guidance is now negative 0.9% to negative 0.3%. We are also increasing our full-year 2024 adjusted earnings per share guidance to reflect our improved sales growth expectations and continued strong margin performance. The midpoint of our full-year 2024 adjusted EPS guide is now $11.77, which is flat to slightly positive versus last year and is a 1.4% growth rate improvement compared to our previous guidance.
Now, I will pass the call over to Amol to continue covering our financial results in more detail and to provide further details on our guidance. Amol?
