# call

companyname: Agilent Technologies Inc.
symbol: A
date: 2019-08-14
year: 2019
quarter: Q3
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon, and welcome to the Agilent Technologies third quarter earnings conference call. [Operator Instructions]. And now I'd like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Mike, and welcome, everyone, to Agilent's third quarter conference call for fiscal year 2019. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Bob's comments will be Jacob Thaysen, President of Agilent's Life Science and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Mark Doak, President of Agilent's CrossLab Group.\\nYou can find the press release, investor presentation and information to supplement today's discussion on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year. References to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of July 31.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now I would like to turn the call over to Mike.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Ankur, and thanks, everyone, for joining our call today.\\nOur Q3 results exceeded our expectations. The Agilent team delivered total revenues of $1.27 billion, up 6% on a core basis.\\nOur EPS of $0.76 is up 13%. Both our top line revenue and EPS are above the high end of our guidance range. This marks our 18th consecutive quarter of adjusted operating margin expansion. In July, we also announced the pending acquisition of BioTek, which would be our largest acquisition since the 2015 launch of the new Agilent.\\nWe continue to invest for growth even amid market uncertainty. At the same time, our Agile Agilent business system continues to drive operational improvements.\\nOur excellent overall company growth is being driven by two factors.\\nFirst, strength in the global pharma market in both small molecule and biopharma.\\nSecondly, geographic strength in the U.S. across most end market segments. China growth was generally in line with expectations. Business unit performance is led by double-digit growth in our Agilent CrossLab and Diagnostic and Genomics Group.\\nLet's take a closer look at the performance of all 3 of our business groups. I will start with ACG, our Agilent CrossLab Group. The ACG business continues its trajectory of consistently strong results with 11% core growth. This growth was broad based across all market segments and regions.\\nOur service business grew at a double-digit rate as we continue to see higher demand for our expanding portfolio, both from current and new customers.\\nWe see a continued secular trend of customers seeking to drive increased productivity and to outsource non-core services in the lab.\\nOur services offering puts us in a leadership position to benefit from that trend.\\nOur consumables business also grew double-digit.\\nWe continue to introduce highly differentiated consumables and address important customer challenges and a significantly improved user experience, especially in high-growth markets like biopharma.\\nI'm very pleased with the continuing positive impact on total company results from the Agilent's CrossLab strategy.\\nOur consistent results speak to the strong execution from the Agilent team and the value we bring to our customers. We're meeting the ever-increasing demand from our customers, and we see the attach rates to our installed base of instruments consistently improving.\\nNow turning to DGG, our Diagnostics and Genomics Group business. DGG's growth momentum continues with strong 13% core growth. The growth is broad based across pathology, genomics, and our NASD businesses.\\nLet me share a few additional comments on our NASD business.\\nNASD turned in a very strong third quarter as we continued to see increasing demand from our customers' clinical trials.\\nAs a reminder, in June, we opened our second production facility located in Frederick, Colorado. We remain on track to start commercial shipments this quarter.\\nWe also announced that we purchased our previously leased site in Boulder, Colorado. These 2 facilities enable Agilent to meet the growing demand for development of RNA-based therapeutics and continue to be a partner of choice to both pharmaceutical and biotech companies.\\nNow moving on to our LSAG, our Life Sciences and Applied Markets Group business. LSAG's revenue is flat year-over-year on a core basis and in line with our expectations. Strength in the pharma, environmental, and forensics markets was offset by chemical energy declining against a very tough 12% compare and expected weakness in the China food market.\\nAs you know, in Q2, we discussed 3 areas that impacted LSAG's growth rates.\\nLet me give you an update.\\nFirst, starting with the 4+7 initiative in China. We saw a sequential improvement in demand from generics manufacturers. This is driven by business coming from the winners of the first 4+7 pilot, resulting in growth in our instruments business.\\nWe have deep relationships and history with these customers.\\nWhile the program is expected to expand over the rest of the calendar year, we see incremental regulatory clarity ultimately drive increased production volumes in a favorable long-term investment environment.\\nSecond, the China food market conditions remain the same as last quarter and in line with our expectations, with revenues flat to Q2. The business from government-owned labs remains muted, while commercial testing labs activity is increasing.\\nWe are expecting similar overall market conditions this coming quarter as well.\\nFinally, the global small molecule pharma business outside of China saw improvement in demand relative to Q2. We saw budgets free up and LC replacements taking place in some of our large accounts as well as the addition of new customers.\\nWhile macroeconomic and political conditions are creating market uncertainty for capital investments, I am quite confident in our ability to take market share in whatever market environment we encounter.\\nWe have an industry-leading portfolio and are not sitting still.\\nWe continue to invest in new offerings and markets.\\nOne of these new market investments is the pending acquisition of BioTek.\\nAs I mentioned earlier, this quarter, we announced our intent to acquire BioTek, a global leader in the design, manufacture, and distribution of innovative cell analysis instrumentation. I'm very excited by the significant step forward in strengthening our leadership position in the fast-growing cell analysis space.\\nOur strategic focuses there began with the purchase of Seahorse Bioscience in 2015 and was followed by the acquisitions of Luxcel Biosciences and ACEA Biosciences in 2018. By combining BioTek's offering with Agilent, we will create a business with revenues greater than $250 million per year, up from zero four years ago, this business is growing double digits today.\\nLooking ahead, we will now be able to deliver a breadth of differentiated workflows, enabling customers to obtain deeper, more reliable insights across a variety of cell analysis applications. This is yet another example of how we're investing in new, high-growth markets where we can leverage core Agilent capabilities in our One Agilent culture. The culture and portfolio fit with BioTek are extremely well aligned. We share the same core values and have very similar cultures with a genuine focus on our customers and teams. I look forward to welcoming the BioTek team into the Agilent family.\\nWe expect the acquisition to close later this fiscal quarter.\\nWe also continue to bring new and innovative offerings to the market across all of our businesses. These new offerings are consistently drawing very strong interest from both new and existing customers.\\nFor example, earlier this year, we launched major updates to our gas chromatography, spectroscopy, and genomics portfolio.\\nIn addition, in Q3, we had an excellent showing at the ASMS Conference highlighted by the launch of a new Agilent Infinity Lab LC/MSD iQ system. This new system incorporates designed-in smart features, software, and hardware, developed specifically for chemists and chromatographers.\\nOur new LC/MSD iQ system is a single-quad mass spec, built on the revolutionary Ultivo LC Triple Quad core technology platform.\\nWe also launched a brand-new Agilent 6546 LC/Q-TOF system that provides analyst ability to simultaneously acquire high-resolute data across unprecedented dynamic range.\\nIn addition, during the quarter, we introduced a new Agilent 6495 C Triple Quad LC/MS system that provides industry-leading precision in complex major Cs. And finally, we introduced a new Agilent Bravo sample prep system for metabolic analysis of human plasma samples. This new offering further strengthens our leading position in metabolomics.\\nWe also brought to market the first outcome of our joint development work with a newly combined Agilent and ACEA teams. At the CYTO 2019 conference, we introduced the NovoCyte Advanteon flow cytometer. This new offering addresses today's high end and increasingly sophisticated multi-color flow cytometry assays. It provides unsurpassed sensitivity, resolution, detection speed, and the flexibility of resin channel.\\nIn addition, the number of indications from our PD-L1 diagnostic assay continue to expand. In Q3, we received FDA approval for 2 new indications.\\nOur PD-L1 diagnostic may now be used as an aid in identifying patients for treatment with KEYTRUDA in a total of 6 cancer types.\\nWhile making all these investments and launching new products, we continued our trajectory of margin expansion by 90 basis points versus last year.\\nOur Agile Agilent system of continuous process improvement and disciplined cost management keeps the team focused on finding and executing on new opportunities. A few closing comments on our Q3 results and company transformation that has been underway for several years.\\nLooking ahead, we continue to see uncertainty in a challenging market environment in some end markets for capital instrument purchases.\\nThis quarter's results again demonstrate Agilent's ongoing transformation towards higher growth markets in an increasingly resilient business model with a higher mix of recurring revenue streams.\\nGiven our Q3 results and outlook, we're raising our full year guidance for earnings as well as revenue growth at the midpoint of guidance, and Bob will describe this in more detail.\\nBefore I turn it over to Bob, I'd like to leave you with a few -- a couple of thoughts here. At the close of our Q2 call, I commented that great companies do not just react to market conditions, they see market opportunity. At Agilent, we will continue to invest for growth and take market share in whatever market conditions we encounter. We're continuing to drive productivity and we're doubling down our efforts to be a more agile company.\\nWe will continue to leverage our strong balance sheet to invest in the business and return capital to our shareholders.\\nI'm quite confident that our company has never been stronger and that we're well positioned to drive continued growth and earnings expansion in an increasingly uncertain global economy.\\nThanks for being on the call, and I look forward to answering your questions. I'll now hand off the call to Bob. Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Mike. And good afternoon, everyone. In my remarks today, I'll provide some additional detail in revenue, walk through the third quarter income statement and some other key financial metrics, and to discuss our capital deployment during the quarter. I'll then finish up with our updated guidance for Q4 and full year. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nAs Mike said, our third quarter results were very good as we had strong execution across a number of fronts. Revenue for the quarter was $1.27 billion, with core revenue growth of 6.2%. Reported growth was 5.8%, with currency negatively impacting revenue by 1.9 points and acquisitions adding 1.5 points to growth.\\nIn terms of end markets, pharma, diagnostics and clinical, and environmental and forensics, led the way for us in the third quarter. Pharma, our largest market, grew 13%. Strength was broad-based across instruments, services and consumables as well as NASD, our biopharma business continues to grow at double-digit rates, and we saw good growth in the small molecule business as well, both in instruments and recurring revenues.\\nOur Environmental and forensics business grew 15% on a core basis in the third quarter, albeit on an easier compare.\\nAs with the second quarter, our forensic strength is tied to demand for expanded lab capabilities. This is a result of the ongoing global opioid crisis, which is driving increased sample testing and broader screening requirements.\\nOur environmental business grew high single digits. Again, driven by the ongoing expansion of testing in China. Diagnostics and clinical, core revenue grew 7% during the quarter, driven by strength of our pathology and genomics businesses. Chemical and energy revenue grew 1% against a very tough compare of 12% growth from Q3 of last year. Results were driven by continued strength in services and consumables.\\nAcademia and government declined 5%, largely due to order timing and rounding out the discussion of end markets, food revenue declined 3%, driven by China coming in as we expected, and as Mike discussed.\\nOn a geographic basis, we again saw growth in all regions, led by the U.S., growing at double-digit rates, with strength across all 3 businesses. China grew 1%, generally in line with our expectations, primarily due to the weakness in food.\\nIf you exclude food, growth in China was 6%; Asia, outside of China, also grew at a double-digit rate, driven by growth in Japan and South Korea. Europe grew 3%, in line with our expectations as the market environment remains subdued.\\nNow turning to the rest of the P&L.\\nThird quarter gross margin was 56.4%, essentially flat year-over-year, with tariffs impacting gross margin adversely by 30 basis points. We've been able to mitigate the impact to tariffs through discipline and cost management, and the ongoing focus on efficiency.\\nOur operating margin was 22.8%, up 90 basis points as revenue growth outpaced growth in operating expenses. Year-to-date, our margins continue to expand as our teams have executed strong expense discipline.\\nAnd as a result, non-GAAP EPS for the quarter came in at $0.76, $0.03 higher than the top end of our guidance and representing 13% growth.\\nIn addition to our operating performance, we were very active in deploying capital during the quarter. In Q3, we returned $600 million to shareholders. We bought back shares worth $549 million, totaling 8 million shares, and paid $51 million in dividends.\\nAs Mike mentioned, we also signed a definitive agreement to acquire BioTek Instruments and expect the deal to close by the end of our current fiscal fourth quarter.\\nSo year-to-date, including BioTek, we've committed to deploying over $2.2 billion in capital this year. Of that, $1.4 billion was spent in growth acquisitions with ACEA and BioTek, expanding our cell analysis franchise.\\nWe have also returned over $800 million through dividends and share buybacks.\\nOur balance sheet today remains healthy and we continue to look for opportunities to add growth assets to our portfolio.\\nNow turning to the cash flow. We generated $242 million in operating cash flow and ended the quarter in an effectively cash neutral position.\\nNow let's turn to our non-GAAP financial guidance for the year -- fiscal year.\\nAs Mike mentioned, with the strong results in Q3 and our outlook for the fourth quarter, we are raising our full year revenue and EPS guidance. Please note that our guidance does not include any impact from the expected BioTek acquisition.\\nFor the full year revenue guidance, we're increasing the lower end of our range. Thereby, increasing the midpoint, resulting in a new range of $5.105 billion to $5.125 billion, representing 3.9% to 4.3% reported growth. Currency is expected to be a headwind of roughly 200 basis points, partially offset by M&A contributing 150 basis points.\\nAs a result, we're now expecting core revenue growth in the range of 4.4% to 4.8% for the full year.\\nWith the strong execution we've seen in terms of our business strategies, we're raising our full year earnings per share guidance to a range of $3.07 to $3.09. This represents growth of 10% to 10.8% for the year.\\nAnd now turning to the fourth quarter. We're expecting revenue in the range of $1.31 billion to $1.33 billion, representing reported growth of 1.2% to 2.8% and core growth of 1.5% to 3%. Currency is estimated to be a headwind of roughly 100 basis points partially offset by M&A contributing roughly 70 to 80 basis points of growth. Fourth quarter non-GAAP earnings are expected to be in the range of $0.84 to $0.86 per share, which is 3.7% to 6.2% reported growth versus a year ago. Also of note, the newly announced tariffs on the additional $300 billion of U.S. imports from China is not expected to be material for us. And the share count for Q4 is expected to be 313 million shares.\\nNow before opening up the call for questions, I'd like to conclude by saying that Agilent's resilient business model is built for the long term. We believe we are focused on the right strategies that will continue to serve us well and ensure solid shareholder value long into the future.\\nAnd with that, Ankur, back to you for the Q&A.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Bob. Mike, if you can please provide instructions for Q&A.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions].\\nYour first question comes from Derik De Bruin from Bank of America Merrill Lynch.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Mike and team, can you talk a little bit more, obviously, the China number, the 4+7 tailwind -- hit, seemed to be a little less in the quarter. Can you talk a little bit more? You mentioned spending. And I guess, it's like how are you sort of thinking about spending patterns now that the second wave kicks in.\\nJust a little bit more color in what you're seeing there. And then, as a correlated question, there's obviously a lot of changes going on in the drug manufacturing space right now with some consolidation going on. Obviously, some M&A into the ones that's like -- how are you sort of thinking about some of the changes going on in terms of the bigger generic players, some of the consolidation in the space? And I guess, how are you positioned in those markets?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Sure.\\nLet me -- I'll take the first one, and Jacob, he can pass the second one to you.\\nSo, first of all, as we talked in the last call, we had seen a pause in our second quarter as it related to the rollout of the 4+7 initiative. But at the time, we said, listen, we've actually did a good thing, a long term and eventually will lead to increased divestments once we start to sort out who the winners are.\\nSo -- and that actually is how the quarter developed for us where we actually saw the winners starting to invest. And we think that level investment relative to Wave 1 will continue through our fiscal year.\\nAs it relates to the core of your question, which is how about Round 2? Our view is that they're going through a process of doing the bidding and sorting out the winners over the latter part of this year, and the impact on the business is more an FY '20 kind of impact in terms of what we're going to see in China. But again, I'd just point to -- we think these are good long-term developments for our business here because of the strength of our relationships and their real emphasis on productivity and compliance. And Jacob, your thoughts around the -- questions about the industry consolidations and generics?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes.\\nI think that's a really relevant question. And clearly, with some of the winners coming out now in China, I think we will see some consolidation.\\nI think Agilent will be in a very good position in this space, both in China and in general as we have very strong relationship with many of the larger end winners in the generic space.\\nSo, when this happens, which is part of the normal pharma cycle, we are ready to support them and make them successful.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And Derik, I just meant to put a period of this one, which is whether the generic consolidations are happening in China or in other parts of the world, we think overall, the productivity message and real value we can deliver to this segment of market really, really resonates with them.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Ross Muken from Evercore ISI.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"I guess maybe just digging in a bit on DGG, Rob.\\nI think the performance there was kind of notably strong, and so you called out a couple things, including an NASD [ph], which seems like it's starting to ramp, but also a bit on opioids, and then on the sort of array side. But academic was weak.\\nJust give us a little bit of a picture kind of the magnitude, maybe, of some of the outperformance in some of these pieces. And then, sort of how to think about that cadence maybe in the context of sort of the fourth quarter guide.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Sure, Ross. I'll make some initial comments here, then Sam, you can jump in and correct me if I'm off target here. But one of the messages that we were trying to convey in our earnings call, which is while the NASD growth was very strong in the quarter, that wasn't the only bright spot in DGG. It really was across the board whether it be in our pathology business, and we think we're putting up numbers that are growing faster than the market whether it be because of the increased acceptance for automation platform with the Omnis, the continued utilization and expansion of the PD-L1 assay on the genomics side. We saw good growth in our NGS related business, Sam.\\nI think that was probably double-digit for us for the quarter...\"}, {\"speaker\": \"Samraat Raha\", \"content\": \"It was.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And then lead for the NASD strength, which we think is here to stay.\\nLooking into the fourth quarter, we're kind of thinking something like high-single digits, I think, for this business. And Sam, anything else you want to add there? Because the only message I want to get across was broad-based strength.\"}, {\"speaker\": \"Samraat Raha\", \"content\": \"Now I think, Mike, you really outlined where the business is. And pathology, it's a business that's built over time, right? It's not just about a single quarter, but it is the combination of the assays that we have, the increasing number of indications, PD-L1 related that we announced 2 of them, approval from the FDA, but it's also the ongoing growth in our installed base, be it of Omnis, be it of other platforms. And our Companion Diagnostic business, which a lot of it feeds into that, is also -- it's performing in a really healthy way. The genomics business, also, as you said, it performed well, but that's broad-based around the world.\\nSo, we're pleased to see that both in terms of genomics-related instruments like the platforms that we have for TapeStation, Bioanalyzer, the AATI product category.\\nSo, we feel good about the performance in the coming quarter or two.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Sam.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"And then, maybe, just on the C&E side, I mean, obviously, you called out a tough comp, but a lot of macro volatility in the last few weeks, a lot of things happening on the trade side. I guess, how are you trying to interpret sort of all the key leads in that subsegment as you've had some good underlying product cycle. But obviously, there's some instability just broadly.\\nAnd so, how do you feel like, aside from sort of competing well in whatever market there is about sort of what that actual end market environment is going to look like for the next quarter or 2?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Great question, Ross. It's something we've spent a lot of time here inside the company talking about. And kind of entering into this year, we had some concerns about the chemical energy market just in terms of -- there's macro noise even coming into our physical year.\\nSo I think we got it, like kind of low singles coming into the year. But as you may recall, in our first guide, after we raised the guidance, hey, this could be a source of upside.\\nWell, clearly, that is not happening.\\nSo we're still assuming kind of low single digits, but probably negative growth in instruments because even though the product cycles are really strong, I think we're well positioned to win when money's there. But we're still going to assume for the -- at least the rest of this fiscal year that there will be growth in chemical energy. But overall, that will be driven by the strength of our ACG business, and we expect the demand to be pretty, pretty muted, if you will, in the C&E. And Bob, maybe you can take a quick look at this -- deep look at this, and maybe have some quick comments.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think that's right, Mike. And Ross, thanks for the question.\\nIf you look at our Q4, I think we're trying to be prudent in our forecast certainly with continued strength in our ACG and DGG businesses. But yes, LSAG or the capital business is continuing to have slow growth and capital in the C&E areas, one of those markets that we're looking at. And certainly with PMIs, the way that they are and as you say, the uncertainty in the market certainly isn't helping.\\nAnd so we think we've tried to take that into account for our fourth quarter.\\nThe new products that Mike mentioned didn't have a material impact on the quarter. But the ones that we've launched, the gas chromatographs and so forth, continued to have very positive uptake. But it's -- the market is slower, kind of as -- and it's kind of playing out the way we expected at the very beginning of the year.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I guess if there's one silver lining in terms of -- which is the, again, back to this productivity message and the fact that we now have a fleet of really great new products and there's a real productivity benefit to the customer, they're in a stronger position to go to their management and get support for their investment because it does really help their P&L.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Tycho Peterson from JPMorgan.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Mike, can you talk a little bit about the global pharma picture? You said it delays last quarter.\\nNow you're saying kind of budget's freed up.\\nSo how much of the 13% growth you saw was just kind of catch up from last quarter? And how you're feeling about sustainability of that going forward?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"So I'll let Bob do a little math on the catch-up. But let me make some macro comments while you're doing your mental math. But as we pointed out in Q2, we said, hey, in Q2, biopharma really is quite strong. By the way, it was strong and even stronger this quarter. But we said, hey, we saw a pause in the small molecule side outside of China and we talked a lot already about the 4+7 but it really was kind of curious or something, what was going on with our large accounts in U.S. and Europe. And I think they were just being prudent in their budgeting process, and we saw a release of funds in the -- in our third quarter. And we're expecting that to continue.\\nSo we don't see that as being a one-quarter phenomena, albeit that that's why we try to use the words in some end markets we're expecting some pretty challenging market conditions.\\nSo pharma, actually, we think is continuing to be a source of growth on the LSAG instrument side, while we expect some markets to actually be down year-over-year. And Bob, I don't know how we can parse out the catch-up?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think, Tycho, the way I would talk about it is, as I mentioned, the pharma business grew 13% in the quarter. And if you look at small molecule, it was mid-single digits.\\nSo there was probably some catch-up, but I wouldn't say it was material that, that mid single-digits is kind of where it has been historically over the last several quarters.\\nSo I think it -- what we have said and kind of the hypothesis has been that's primarily a replacement cycle. They can hold off for a number of quarters but they can't do that forever if they want to keep their manufacturing processes in place.\\nAnd so we think we are in that. It wasn't a snapback.\\nSo there wasn't more in Q3 than what we saw. But I think it was now they're getting further in the fiscal year and they're actually spending that money.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nSort of back to historical run rates, wouldn't you agree, Jacob? Or...\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes.\\nI think that's correct. But we do see that the larger accounts are still very conservative in the procurement, while some smaller pharma actually is investing these days.\\nSo that's where we actually see some of the growth coming from also. And we are taking good share there.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Thanks for the build there because in my narrative, I talked about the business coming not only from existing customers, but new customers. And we've been very aggressive in that regards as well.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And can you provide a little more color on the academic order signing that drove the decline in academic?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Bob, I'm not sure we have much more insight. And that business tends to be lumpy for us, right? And...\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nAs you know, it's a relatively -- it's the smallest piece of our business and it goes up and down.\\nAnd so we're not going to call out any one particular order or orders across the business. But we feel good about our position there going forward. And we're expecting that to return to growth in the fourth quarter. I will also say, back on the pharma business, when we look at our ability, I think one of the things that speaks well to our value proposition with our customers is when you look year-over-year, our pricing actually has held up pretty well.\\nOur pricing is roughly -- it's slightly above on the LSAG business.\\nSo I think that speaks to the value that we are able to bring from a productivity standpoint to customers.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Hey, Bob, back on academia and government, maybe just to share a discussion we were having inside the company, which was we're not a little bit concerned about this because we still see the funding environment. It's actually being quite strong and stable.\\nSo it's just a timing issue.\\nSo we don't see anything happening materially different in the marketplace.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That's right.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. If I could ask one last clarification before hopping off. On China, 4+7, do you expect the impact to be the same magnitude next year as it is this year, given that it's different rules for Round 2? I wasn't sure from your comments earlier if you...\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"So Tycho, I'm going to resist the temptation to do an FY '20 guide. But I would say, directionally, it's going to be an increase.\"}, {\"speaker\": \"Operator\", \"content\": \"You next question comes from Brandon Couillard from Jefferies.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike, just starting with the China food business. Can you just sort of give us an update on where you stand as far as building out some of your commercial teams to go after that private lab channel in China? Sort of your general visibility now today relative to maybe where you were three months ago.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Happy to do so.\\nSo we're fully built out.\\nSo we've been working this probably well over 1-year, 15 months. Because I think the first time I started talking about this was Q2 '18 call.\\nSo from a channel reach, channel perspective, we're there both in terms of our direct reach, but also through some of our digital enablement of customers.\\nSo we feel really good about our channel reach and relationships with the commercial accounts. And we're seeing it in the numbers.\\nSo we're seeing really -- it's really a tale of two cities. And Jacob, I'll have you jumping on this one as well in a second, because I know you've been digging into this, but sort of tale of two cities. We're getting good growth on the commercial. There's just no real new investment happening on the government lab side of things.\\nSo...\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. That's true, Mike. And we do see double-digit growth on the contract labs these days, but coming from a smaller base. And while -- so we have our very large market share in the government account.\\nSo clearly, when the catch up is happening, I actually believe we will see a very strong growth in this business again.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. If there's any silver lining, it would be as Q3 was as we expected.\\nSo we weren't surprised by the number, albeit down.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And as we're thinking about Q4, we're expecting Q4 to be -- kind of play out the way Q2 and Q3 did in terms of roughly flat at that $40-ish million revenue run rate.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Right. Which, looking at our -- I think we clocked a 16% growth overall in China Q4 last year.\\nSo I would say up against a tough compare.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"And then, maybe one more for Mark Doak. The gross margins in the CrossLab business are pretty substantially year-over-year.\\nI think the new high at 52%.\\nSort of speak to the drivers of that gross margin improvement and sort of what you see is the midterm runway, midterm opportunity for gross margins.\"}, {\"speaker\": \"Mark Doak\", \"content\": \"Sure. I'll be glad to. And if you pull us back, it's several things contributing to it. Over time, mix has been a play in terms of our consumables business being from a margin perspective, north of the company average. But also, a lot of work we're doing is relative to some of the Agile Agilent programs, but specifically looking at delivery efficiencies and our services team. We've been able to add a lot more revenue without a lot of proportional cost to that. And that comes to really what we're seeing increasing as a big factor in our margin expansion is scale. And we're in that position now where we can invest. Mike had talked about some of our digital capabilities, both in the channel, but also in the back office areas. And it starts to fuel these efficiencies. We can reinvest some of those profits to build even more strength in the area.\\nSo it's really eating off itself as you will. And when you pull it all together, between portfolio mix, continued move towards scale, and driving efficiencies through these digital capabilities.\\nSo those probably the big drivers behind it.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Puneet Souda from SVB Leerink.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"So first one on the cell analysis market. I mean with your recent acquisition of BioTek, and obviously, you've added Seahorse and ACEA before, do you think you have enough pieces here to sort of ultimately serve this growing and expected to be even further growing cell therapy developed in the market? And -- or do see more room for further capital deployment here? And I should say that this did increase your biologics exposure in some ways and it's likely to increase that.\\nSo just wanted to get a sense of what you have currently, and should we expect more here?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nSo let me start this off, and then, Jacob, feel free to chime in as well.\\nSo we think now at $250 million, we have a business with scale. And I think that's really important to say. We think we really compete. And really, we are really bullish on this space. And I think our investments dreams started several years ago.\\nSo whilst we are still in the process of digesting what we've just recently acquired, and then we have to bring the Agilent -- into the Agilent family, the new BioTek team.\\nSo we think we have a lot of really good scale once we close with the BioTek acquisition. But that being said, I think we have further aspirations to continue to build-out in that space as well.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. And building on that, I think, first of all, we clearly have scale today. But what is very important here is that the strategy we started out some years ago, 4 years ago now, was not just to build scale in the cell analysis business, but build differentiated components that could build together into workflows that would really do differentiate -- really provide differentiating information for our customers.\\nSo not only have flow -- up against flow and some plate with [indiscernible] against paid, we will combine them together with a particularly important immuno-oncology space, and especially here in the CAR-T space. We've seen that already happening.\\nSo before actually the acquisition of BioTek, we used the Seahorse and the BioTek and collaborated between the two companies to provide a workflow that combine those two technologies together in the same software and the same micro type of plate, and we saw that, that actually grew the market opportunity significantly.\\nSo now combining the Seahorse, ACEA, the BioTek and Luxcel together, I think we have a really, really strong differentiated position, but it also allows us to add more workflows into that space going forward. But our main priority right now is to integrate and be successful with BioTek.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And Puneet, I'd just say, that with revenue synergies often theoretical, when you do an acquisition, we've actually have real proof points already with customers and markets that we can do this, and there's real value to customers.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. Great. And if I could touch on the NASD business.\\nJust wanted to get a sense of if you could quantify how much was that and sort of in the quarter. And the current run rate that you have in sort of what -- what's your expectation longer term here? Has that changed from the sort of the earlier expectation in the comments that you gave around customers demanding the RNAi product and the overall long-term view of the business?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Much like avoiding the temptation of talking about FY '20 guide, I'll also avoid the temptation to talk about specific details on a product line level. But what I can do is give you a directional number.\\nSo I think we've been talking about this business hitting probably $100 million or so this year. And then, as we look into FY '20, we've added at least that much in terms of capacity.\\nSo we hope to be up to a larger number in the -- by the end of next year at the sort of a run rate level, at a higher number. We're not ready to kind of commit to what the number actually is, but it's going to be a pretty -- a nice step up for us. And Bob, I know you've been doing some modeling in this area as well already.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think Puneet, I mean, nothing has changed. We had a very good quarter. We're expecting another very good quarter next year -- or next quarter, excuse me, largely in the back of our existing capacity. And the team has just done a fantastic job.\\nAs Mike said, we're on pace to delivering that $100 million consistent with what we said, really, since the beginning of the year. And we're excited about the new facility coming online. And as Mike mentioned, it's bringing on manufacturing capacity right now and look forward to '20 and beyond serving our customers\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And by the way, don't interpret my comments as being any less bullish in this space. We just know that as we bring on the new facility, you have to time when you actually can start the batches up, but a lot of that is being driven by customers timing when they're doing the clinical trials.\\nSo we're much more specific when we do our FY '20 guide because we'll have a much better handle on the timing when these new customers will be coming into our new facility. I can tell you we've sold a good percentage of that capacity already.\"}, {\"speaker\": \"Samraat Raha\", \"content\": \"Mike, maybe if I could just add one thing...\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Of course, Sam, it's your baby.\"}, {\"speaker\": \"Samraat Raha\", \"content\": \"One thing that we've already stated is the basis of this as the number of clinical trials and work being done here. We see the supplier opportunity for us going from $0.5 billion market to over $750 million over the next several years.\\nSo we're going to grow with that. And it is a fact, too, that we are doubling our overall capacity for manufacturing. But I just want to reemphasize what both Mike and Bob said that there is a ramp up process over a number of years.\\nSo just because we're doubling our capacity, doesn't mean we're going to be double our revenue there.\\nJust to be explicit about that again. But we'll be very...\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"So it's not in year one.\"}, {\"speaker\": \"Samraat Raha\", \"content\": \"Exactly, in year one.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Catherine Schulte from Baird.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"First, I was just wondering, can you go into a bit more detail on your strong results in environmental and forensics? I think this is the fourth quarter in a row of high single-digit or double-digit growth there.\\nSo I'd just be curious to hear more details on the drivers in that end market.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I think I'm actually going to pass this to Jacob, who's here.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. And again, it speaks to the portfolio we build up here over the past years on really robust reliable instrumentation that allow us to really go into -- of course, opioid is a big crisis here in U.S.\\nSo we have actually quite a large growth in that area.\\nWe also seen soil and water.\\nHere in U.S, which have actually driven a lot of business. And the same token, China has actually continued to have strong growth in both those areas, specifically the environmental, which is heavily regulated.\\nSo we are doing very well in regulated spaces, and this has driven also the momentum and forensic this quarter.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. And I think it's fair to say with specific I know there's -- go ahead, Mark.\"}, {\"speaker\": \"Mark Doak\", \"content\": \"I was just going to say, if I could add to that too, in concert with Jacob, we've been working a lot on the environmental side in terms of the end market workflows and complementary consumables and services to go along with it.\\nSo that's clearly another driver of this end market for us.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Okay. And then, we heard one of your peers talk about starting to see a bias against U.S. companies in some China tenders. Are you seeing signs of that dynamic as well?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Catherine, thanks for asking that question. Not at all.\\nSo that's always been the risk of the heightened tensions between U.S. and China as it relates to trade.\\nWe have not at all seen that in our business.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Doug Schenkel from Cowen.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"I only have one question, but it has three or four parts.\\nSo I know -- I don't want to disappoint.\\nSo I know you're up against a tough comp in Q4, and I'm guessing there's some desire to be a bit more conservative in the current environment. That said, given the strength of really, ACG and DGG in Q3 and really the past few quarters, we would have expected Q4 revenue growth guidance to be a bit higher.\\nSo one, were there any timing dynamics that benefited Q3 at the expense of Q4? Two, did you see any end market conditions weaken over the course of Q3? And if so, are you baking in an assumption into guidance that this continues in the fourth quarter? Three, are you assuming that LSAG growth is lower in Q4 versus the flat performance in Q3? Because it seems like you'd have to unless you're expecting ACG and/or DGG to moderate. And four, kind of building up on the last one, I'm just wondering if NASD is not expected to be as strong in Q4 as Q3, maybe just because things have to pause a little bit as you bring new capacity on.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nSo Doug, we've been waiting for these questions.\\nSo thanks for putting it out there. And I'll start off, and then have Bob share some of our guide velocity.\\nSo I really want to be really clear on this. We saw nothing unusual relative to pulling in from the fourth quarter.\\nSo our book-to-bill is solid.\\nAnd so there's nothing unusual we have in terms of changing the seasonality business by pulling in from Q4 into Q3. When we look at our LSAG business, we actually expected a decline in Q4 off that tough compare.\\nI think you're off 9% last year. And now there's two other parts. I only got two of the four parts.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I wrote some of them down.\\nSo Doug, I'll try to tag team with Mike.\\nAs Mike said, we didn't see any pull forward or any dynamic that took orders out of Q4 into Q3. And as you said, our backlog actually did not deteriorate. But that being said, you're seeing it. We saw it today, right, in the market. There's a tremendous amount of uncertainty. The trade resolution is nowhere -- it's no closer now than it was when we had our call back in Q2.\\nAnd so we're de-risking Q4 a little bit relative to where we were. It is a tough comp. And there is a little more uncertainty in the marketplace today than it was even 3 months ago, and we're trying to be prudent there. That being said, we raised the full year on the top line and certainly on the bottom line, and feel good about that.\\nTo your question about NASD, we are expecting that growth to moderate. It had a very strong Q4 of last year. But when you look at the run rate, we still feel very good about the run rate.\\nSo it's less about level loading and manufacturing and it's more about just comparables there. And we are expecting continued performance in both ACG and DGG, not necessarily at the double-digit rate. That would be good, but that's not built into our guide. And as Mike said, we are expecting a flattish to slightly down in LSAG just given the strong 9% compare that we had in Q4 of last year.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Patrick Donnelly from Goldman Sachs.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Maybe one on ACG for you, Mike, and I'm sure Mark can chime in. It was right in there with the best growth you guys have ever put up in that segment, even while facing a high single-digit comp.\\nSo how are you guys continuing to drive that segment to these levels of growth? I mean, it's been years since you had that initial refocus. How are we still seeing follow through? What's really driving the reacceleration demand?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nSo I'll take the congratulations on behalf of Mark, but then pass it on to Mark. But you're exactly right. I can remember the early days. We were getting questions about when was this going to stop? And we said why would it stop? Because there's a number of things doing and there's also an expanding market underway. And as Mark pointed out, the strength was broad based across consumer services.\\nI mean, we really think we're playing into -- and I tried to highlight this into my script, that really playing into some real changing customer needs. They really want something that's going to help drive their productivity and they are also looking for at times vendors to take on some of the work they've been doing inside. And then, on the consumables front, they really want these integrated workflows. But I can't do the strategy justice.\\nSo Mark, why don't you fill in the pieces that I've missed.\"}, {\"speaker\": \"Mark Doak\", \"content\": \"Thanks, Mike. And Patrick, I guess, maybe it's a little bit of the past, but also the future, and we're still very bullish about our potential to grow. But some of the drivers made really significant investments in the expansion of our portfolios. And from services, we've got breadth to now in more of our value-added services. And the enterprise capabilities that will not only have a rollout over the continuation this year and in the consumables business, it's an intentional drive to drive for more complete workflows for targeted end markets. And we called out biopharma in particular, a high-growth market, where we've really been focused around grabbing that.\\nSo portfolio is a big driver. We're really getting some great results from expanding our reach and our ability to wallet share growth inside of our current accounts to reach and lease subscriptions, still a lot of opportunity there. We still have a significant opportunity to improve our attachment rates to the Agilent instruments. But I always like to come back and remind everyone, we view our market not only as the Agilent installed base, but also the competitions. And that adds a significant size and scale to the market opportunity. And not only we can take market share from our competitions on a multi-vendor perspective, we are.\\nSo to kind to sum it up. A lot of work that's been done over the past, build a lot of capabilities from the standpoint of portfolio, digital, working on some fundamental basics around what we can do in the attachment rate from the sales channel and our big market opportunity out there.\\nSo hope that gives you a sense of where we've been, a little bit of where we're going too.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Yes. That's helpful color. And then maybe just a quick one for Bob, on the share repurchase front. It was encouraging to see you guys step in and be opportunistic with the $550 million this quarter. How should we think about it going forward. Obviously, the market has pulled back a decent amount, your stock along with it.\\nSo maybe just provide some perspective on that front.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Thanks, Patrick, and appreciate you acknowledging that. And we'll continue to evaluate the market. Obviously, our focus is first on growth, and we'll be closing the BioTek acquisition this quarter. And our M&A funnel continues to be strong, and we will be looking at that, but not afraid to go into the market if the price is right, so to speak.\\nSo I think the way that we are looking at that is first on M&A, and then looking to continue to deploy capital, where as I mentioned before, cash neutral right now with the acquisition of the BioTek, we'll probably be at net debt of roughly onetime.\\nAnd so we still have plenty of capacity there.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Steve Willoughby from Cleveland Research.\"}, {\"speaker\": \"Stephen Willoughby\", \"content\": \"Most of my questions have been asked.\\nJust 2 things, for you, I guess.\\nFirst, Mike, I was just wondering if you could comment a little bit more and provide any more color on some of the new products you recently launched and how they're being accepted into the market, particularly the new GCs as well as the new iQ system. And then, I guess, secondly, for Bob or Mike if you want to take it, are you able to quantify how much you're expecting in terms of revenue in the fourth quarter from the new NASD facility you're starting up here?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nSo if you don't mind, I'll make some summary comments, then Jacob, you can just fill in some of the details. But last number, that's our view on our new GC family launch was actually ahead of where we thought we'd be. And I think we're doing well on the iQ as well. But -- and maybe you can kind of fill in some details there.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Certainly, I think we are -- despite some challenging market conditions, we're actually doing extremely well with the 88 series and in front of our -- on our own ramped volume.\\nSo I think that is working very well, and it's really the combination of what we call the smart instrument combined with our already proven -- well proven technology, GC technology. And that really resonates with our customers. The same can actually be said with our iQ, which of course, a little -- only was introduced a few weeks ago out at the ASMS and we start to ship here very soon.\\nWe have received the first orders. But what I can say there is that it has been very well received where we have been out introducing it and presenting it to customers.\\nI think they very much like the ease-of-use intuitiveness of the detector itself. And also, all the self awareness that it have.\\nSo it really helps the customer to be successful, not only successful, but also allow them to be -- you have much more uptime in a laboratory. And this really addresses the QA QC labs, where it's all about being uptime and of course, get things with the laboratory.\\nSo it's been really well-received, but it's still early days for the iQ.\\nSo we have received orders, but we are shipping in this quarter here.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And Bob, you want to take the NASD question?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Steve, just on NASD, it's going to be, as we've said earlier in the year, it's not going to be material to the overall numbers.\\nSo it's going to be low single millions.\"}, {\"speaker\": \"Operator\", \"content\": \"And we have time for one more question. The last question comes from Dan Brennan from UBS.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Congrats on the quarter guys. I was hoping to ask a question back to China. Can you just provide some color on, like, what the actual generic business did in the quarter, like what the level of revenues was year-over-year? And then, while I appreciate, I think, to Tycho's question you don't want to give a specific number for 2020. But just given, I think, the investors in ourselves who are just trying to get some frame of reference, like directionally. Is there any help you can provide? Just as we go to 2020, I know you made a comment to Tycho, but just a little more help, if you could, directionally, on the food and the China generic side, how to think about that?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nSo happy to, let me take the second part of that question first, which is when you think about the outlook for '20 again, well you know I'm going to stay way from percentage changes in growth rates. But I think we have a lot more confidence around where the generic side of that marketplace is going because we only have some proof points.\\nWe've already seen, which is -- the thesis was in the second quarter, hey, we think this is going to lead to, ultimately, more business. But there was a pause in business. We actually saw that play out in the third quarter. And we think it will play out in the fourth quarter, where the winners are going to be buying the equipment. We think the same thing is going to happen in Q2 -- I mean, excuse me, FY '20. It will be more an FY '20 event in terms of what impacts the P&L because we know what the process, we know what's going to happen. We know the winners who we have deep relationships with are going to invest.\\nSo I think we have a level of confidence about where that market is going. I don't think the same thing can be said about the food market because that's why I used the word foreseeable future. What we do now is the commercial side of that segment will continue to grow.\\nThat will continue to grow. It's unclear right now what's going to be happening relative to China's desire to invest in the government labs.\\nAs you heard from Jacob earlier, right now, they're prioritizing, for example, investments in environmental, and that's why we're seeing strong environmental growth. And Bob, maybe it's worth just kind of parsing out. I was just thinking how our business is in -- I can't give a specific number relative to generics. But just in terms of size of our pharma business in China, and then roughly how much of it is in the non-biopharma side.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo our -- maybe just to comment on the food, Dan, on the -- on Q4, as I said earlier, we're expecting it to be roughly that $40 million, which will be down year-on-year, pretty consistent with how we -- our results in Q2 and Q3. And the question is, over time, we do think that, that business will come back, not at the levels that had been in the past, just given the different dynamics. But the question is when and we're not ready to call that yet.\\nOn the pharma side, the business actually did better in Q3 than it did in Q2. And of roughly China is roughly 20% of the overall business and pharma is about 30% of that -- 20%.\\nSo it's about 6% overall. And it's roughly 50-50 in terms of consumables and instruments.\\nSo it's roughly 2% to 3% of our overall company. And in Q3, it grew.\\nAs Mike mentioned, really on the back of the winners of the 4+7 and just kind of clarity on what this pilot meant going forward.\\nSo that's probably as much detail as we're going to get into relative to this. And we'll have another quarter under our belt for Q4 and then be better prepared to talk about it as things unfold for the fiscal year next, in November.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Great. And if I could, since it is the last question.\\nJust one more. Mike, obviously, a very strong quarter.\\nYou mentioned kind of similar to what you've been talking about. Obviously, we could see what's going on, with continued uncertainty out in the marketplace, especially for, I think, for cap equipment. And Bob, you talked about PMIs, but you also talked about good book-to-bills and you had a good quarter.\\nSo any way to help us think about, like, as we try to tease out all the noise that's out there in the marketplace, kind of what it means for Agilent on a go-forward basis, like PMIs, do we want that? Do we pay a lot to influence that? Or just any more color about the customer conversations you're having, and kind of how it relates back to these comments.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Sure. Yes. Happy to do so.\\nSo first thing I would do is I would set aside 60% of the business of Agilent, which is in the recurring revenue side of the business. And we talked a lot about the DGG business, the ACG business, and our view that we're going to have continued strength there. And then, what we've been trying to do is position the business. Hey, listen, there is this 40% of the business, which is instruments. And that does -- it's predicted by PMI.\\nI think you may recall you and I have our conversation, but I think still some of the models still hold, which is the PMI trends do drive, to some extent, what's going to happen ultimately in the capital goods side.\\nI think we've already seen it. PMI started dropping earlier this year. Albeit there are some areas of Jacob's business, which are still somewhat independent of that whether it will be the 4+7 initiatives, some policy changes, some of the things that happen in environmental, forensics.\\nSo I think its sort of a -- it's a mixed model.\\nSo -- the first thing I'd do is start off by just saying, let's set aside 60% of the business over here, and then start talking about the 40%, and then parse out the cell analysis piece, which is by itself is a high growing business driven by certain dynamics there. And then parse out some of the policy driven stuff, then you're left with, primarily, chemical energy exposure. Bob how would you think about that?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"No. Maybe I'd just leave it here. I mean, I think we feel very good about our portfolio. Obviously, we can't time the markets from the standpoint of market growth. But we think that we're able to gain share in any market, and I think this quarter proves that.\\nOur portfolio is strong.\\nWe continued to invest in areas that are faster growing than the overall company, things like cell analysis and then also our biopharma businesses across all three business groups.\\nSo I think Mike mentioned it in the prepared remarks that the business is a lot different than it was five years ago. And I think we continue to invest in fast-growing areas, continuing to transform it and make it a much more resilient model. And I think we feel good about that certainly for not only Q4, but going forward.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"All right. Thank you. With that, we will conclude today's earnings call. Thank you, everyone, for joining.\"}, {\"speaker\": \"Operator\", \"content\": \"This concludes today's conference call.\\nYou may now disconnect.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2019-11-26
year: 2019
quarter: Q4
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon, and welcome to the Agilent Technologies Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers\\u2019 remarks, there\\u2019ll be a question-and-answer session. [Operator Instructions] Thank you.\\nAnd now, I\\u2019d like to introduce you to the host for today\\u2019s conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Mike, and welcome, everyone, to Agilent\\u2019s fourth quarter and full-year conference call for fiscal year 2019.\\nWith me are Mike McMullen, Agilent\\u2019s President and CEO; and Bob McMahon, Agilent\\u2019s Senior Vice President and CFO.\\nJoining in the Q&A after Bob\\u2019s comments will be Jacob Thaysen, President of Agilent\\u2019s Life Science and Applied Markets Group; Sam Raha, President of Agilent\\u2019s Diagnostics and Genomics Group; and Mark Doak, President of the Agilent\\u2019s CrossLab Group.\\nYou can find the press release, investor presentation and information to supplement today\\u2019s discussion on our website at investor.agilent.com. Today\\u2019s comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year. References to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of October 31.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company\\u2019s recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now, I would like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Ankur, and thanks, everyone, for joining us on our call today.\\nWhen I became CEO, I knew we had the opportunity to become a growth company. We would do this by investing in fast-growing markets with a building and buying approach.\\nWe also set out to create a more resilient company business model, capable of delivering strong earnings in a variety of market conditions. To accomplish this, we developed a roader base of growth and a more flexible and efficient cost structure.\\nAs you know, transforming a decades-old company is not an easy task, but I believed in the strength and determination of the Agilent team. The fourth quarter and full-year results I will share today are a testament to the commitment of the Agilent team and their ability to step up to meet this challenge.\\nWe strongly closed our fiscal 2019, with fourth quarter results exceeding our expectations. Agilent\\u2019s Q4 revenue of $1.37 billion is up 4% on a core basis against a 9% compare. And we have momentum going into 2020 as orders outpaced revenue.\\nEPS of $0.89 is up 10% for the quarter. Both our top line revenue and EPS are above the high-end of our fourth quarter guidance. Operating margin of 25.1% is up 50 basis points over last year. Q4 marks the 19th consecutive quarter of adjusted operating margin expansion delivered by the Agilent team.\\nOur higher than expected top line is led by 10% core growth from our Agilent CrossLab Group. Business is also strong for our Diagnostics and Genomics Group, delivering 7% core growth.\\nOur Life Sciences and Applied Markets revenues are in line with expectations, down 2% against a 9% growth compare.\\nThe pharma, diagnostics and clinical, and the environmental and forensics markets continue to lead our growth. High single-digit U.S. growth is stronger than forecasted with other regions coming in as expected. Growth in China declined low single digits as expected. Agilent\\u2019s growth strategy of building and buying in fast-growing markets is on full display in Q4.\\nDuring the quarter, we closed the acquisition of BioTek. This is our largest acquisition since the launch of the new Agilent in 2015. BioTek brings a superb team and an excellent high-growth, highly profitable business to Agilent. The acquisition of BioTek complements our earlier acquisition this year of ACEA BioSciences. Both acquisitions are part of our growing cell analysis business serving biopharma and academic research customers.\\nAgilent\\u2019s cell analysis business is now generating more than $250 million in annual revenue, about 5% of company revenues, and is growing at a double-digit rate.\\nWe are also continuing to invest internally to drive new organic growth. In Q4, we recognized the first revenue from our new oligo API manufacturing site in Frederick, Colorado.\\nThe high-quality, GMP grade oligos produced at this site are key to a new class of drugs being developed by our biopharma customers. Investing in this facility is part of our overall strategy to build a larger biopharma business.\\nWe are expecting continued strong growth in this business as we ramp volume throughout the coming year.\\nFinally, in October, I traveled to the UK to open a new state-of-the-art facility at the Harwell Science and Innovation Campus. The site will be a major R&D hub for laser spectroscopy and will also incorporate Agilent\\u2019s Raman spectroscopy business.\\nOur recent acquisitions and these capital investments in Colorado and the UK are very visible examples of our continued and relentless focus on investing for growth.\\nHey, let\\u2019s now shift gears and look at our full-year fiscal 2019 results. We had a very solid year, generating $5.2 billion in revenue, representing 5% core growth. Strength in the pharma, clinical and diagnostics, and environmental and forensics markets led the way. Regionally, the U.S. set the pace, growing in the high single digits. The U.S. was followed by mid single-digit growth in Asia outside of China. Europe and China grew at low single digits for the year.\\nFull-year earnings per share grew 11% to $3.11. The result is another year of double-digit earnings per share growth. The full-year operating margin of 23.3% is up 80 basis points over 2018, despite a full-year of tariff related duties.\\nOur investments in ACG continue to yield dividends. ACG grew a stellar 10% for the year.\\nWe are helping customers transform their analytical lab operations by anticipating and meeting their evolving needs. DGG is also delivering very strong results, with 9% core growth for the year.\\nWe\\u2019re capturing market share in our pathology business, expanding our presence in next-gen sequencing and further building our oligo API business.\\nDuring the year, DGG crossed the billion-dollar revenue threshold and now represents approximately 20% of Agilent\\u2019s business.\\nLSAG revenues declined 1% on a core basis as we faced some market headwinds. We remain committed to investing for future LSAG growth and market share gains.\\nOur new product development pipeline remains full.\\nDuring the year, we introduced a number of innovative new products, including the launch of a new family of groundbreaking gas chromatographs and molecular spectroscopy instruments. At this year\\u2019s ASMS Conference, we introduced several new differentiated LC/MS offerings, including the 6546 LC-QTOF and 6495C LC triple-quad systems.\\nAs we head in 2020, our LSAG product portfolio and go-to-customer field team have never been stronger. Agilent continues to operate from a position of strength.\\nWe are well-positioned to capture market share.\\nBefore I turn the call over to Bob, I want to remind you of the Agilent shareholder value creation model: deliver above market growth, while expanding operating margins, along with a balanced deployment of capital with a priority on investing for growth. The result, delivery of superior earnings per share growth.\\nIn driving value creation, we\\u2019ve built a broader base of growth and a more resilient business model. We were tested this year with economic and political uncertainties leading to subdued demand for new instrument purchases. Yet, we delivered 5% core growth, operating margins improved 80 basis points and delivered another year of double-digit EPS growth.\\nWe deployed more than $1.5 billion in M&A and growth-focused capital investments.\\nOn the M&A front, we\\u2019re very pleased with the performance to date of BioTek and ACEA BioSciences. We remain on the hunt for similar types of growth opportunities. I\\u2019m increasingly confident in the Agilent team\\u2019s ability to pursue larger-scale acquisitions and deliver on value creation synergies.\\nWe continue to review potential acquisitions as part of our building and buying growth strategy.\\nNow more than ever, I\\u2019m convinced we\\u2019re in an exceptionally strong position for the future. This is particularly relevant as we move into 2020, a milestone for us at Agilent as we celebrate 20 years as an independent company.\\nWhile uncertainties persist in some end-markets as we start fiscal year 2020, we\\u2019re operating from a position of strength.\\nWe have built and will sustain our track record of delivering results, working as a One Agilent on behalf of our customers and shareholders. I\\u2019m very proud of the results the Agilent team delivered in the fourth quarter and throughout the year.\\nI know you\\u2019ve heard me say this before, but I truly believe the best is yet to come for Agilent, our customers and our investors.\\nThank you for being on the call today and I look forward to your questions. I will now hand the call off to Bob. I mean, that was a Freudian [ph] slip. I\\u2019ll now hand the call off to Bob. We don\\u2019t have a new CEO \\u2013 CFO. Bob, you want to take it from here?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Mike, and good afternoon, everyone. In my remarks today, I\\u2019ll provide some additional revenue detail and take you through the fourth quarter income statement and some other key financial metrics. I\\u2019ll then finish up with our guidance for 2020 and the first quarter. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nAs Mike indicated, our fourth quarter results were very good with strong execution throughout the P&L.\\nFor the quarter, revenue was $1.37 billion, reflecting core revenue growth of 4%. Reported growth was stronger at 6%. Currency negatively impacted revenue by roughly 2 points, while acquisitions added 4 points to overall revenue, reflecting the impact of a partial quarter of revenue from the BioTek acquisition in addition to earlier acquisitions.\\nFrom an end market perspective, pharma, our largest market, had 7% core growth in the quarter, especially impressive off of a tough 14% comparison from last year.\\nOur large molecule biopharma business and CrossLab strength continue to drive strong results. Geographically, all regions grew with the strongest growth in Americas and China.\\nIn speaking of China, despite the debate regarding the pharma market and the 4+7 program, our pharma business in China grew double digits for the year. Continuing revenue in the environmental and forensics market grew 9% in the quarter. This is against a very tough compare of 17% growth last year. Growth was balanced between LSAG and ACG and continues to be driven by evolving regulations, especially concerning opioids.\\nDiagnostics and clinical revenue grew 7% during Q4, led by strength in our pathology and companion diagnostics businesses. Within pathology, continued expansion of our PD-L1 business was a key highlight.\\nRevenue from the chemical and energy end market came in as expected, with 1% growth. Decline in instruments were offset by strength in the CrossLab\\u2019s business. Academia and government declined 4% against the tough compare of 10% growth last year. We still see the funding environments in academia and government remaining stable though.\\nAnd finally, consistent with expectations, food revenue declines about 5% due to the China food market. Despite the year-over-year declines, we were encouraged that for the third quarter in a row, the run rate in China continues to be stable.\\nOn a geographic basis, the Americas came in stronger than expected with 9% growth during the quarter, led by strong results in the pharma, diagnostics and environmental markets. Europe modestly exceeded our expectations, delivering a 4% growth rate with balance strength across most markets and groups. China came in as expected, declining in the low single digits against a very strong compare of 16% growth last year.\\nExcluding food, China was up slightly. In wrapping up, Asia ex-China declined low single digits.\\nNow turning to the rest of the P&L, fourth quarter gross margin was 56.5%. This was down 120 basis points year-over-year, primarily driven by product mix in LSAG, the start-up costs at our Frederick, Colorado site and a higher revenue mix from ACG. It\\u2019s reporting to remember that, while ACG\\u2019s gross margin is lower than the company average due to the services component, the ACG business has done a fantastic job of driving strong operating margin leverage.\\nIn fact, ACG\\u2019s operating margin led the company for the quarter and the year.\\nSo ACG is not only helping drive our recurring revenues, it\\u2019s doing so at a very accretive pace.\\nIn terms of operating margin, our fourth quarter margin was 25.1%, up 50 basis points, driven by operating expense leverage and strong expense management. The quarter also capped off full-year operating margin of 23.3%, an increase of 80 basis points over the prior year.\\nNow wrapping up the income statement, our non-GAAP EPS for the quarter came in at $0.89, up 10% versus last year and $0.03 higher than the top-end of our guidance. And as Mike mentioned, our full-year earnings per share of $3.11 increased 11% versus last year.\\nNow turning to some other financial metrics.\\nFor the quarter, we generated $314 million in operating cash flow. We acquired BioTek for $1.165 billion and returned $100 million to shareholders via dividends and share repurchases.\\nLastly in the quarter, we took advantage of market conditions and refinanced $500 million of senior notes early, producing our future interest costs. All in all, a very active quarter.\\nNow before moving to next year\\u2019s guidance, I want to recap how we have deployed capital this year.\\nAs we mentioned at the beginning of the year, we plan to focus our capital deployment towards growth-oriented assets and driving returns to our shareholders. To that end, we\\u2019ve deployed over $2.3 billion this year: $1.4 billion in M&A for BioTek and ACEA and more than $900 million in share repurchases and dividends. And we ended the year with a very healthy balance sheet, allowing plenty of capacity for further capital deployment.\\nNow let\\u2019s turn to our non-GAAP financial guidance for the 2020 fiscal year, beginning with the full-year guidance.\\nFor the full-year, we\\u2019re expecting revenue to range from $5.50 billion to $5.55 billion, representing core growth of 4% to 5% and reported growth of 6.5% to 7.5%. Currency is estimated to negatively impact growth by 0.3 percentage points with M&A contributing roughly 2.7 to 2.9 percentage points of growth for the full-year.\\nFrom a group perspective, we expect ACG to sustain the momentum and deliver high single-digit growth, driven by broad-based strength. The DGG business is expected to grow at a high single-digit to low double-digit rate with our NASD Frederick facility ramping throughout the year, and we anticipate a modest recovery for LSAG roughly flat on a core basis.\\nNow moving down the P&L, we expect modest operating leverage. And also embedded in our forecast is we expect the other income and expense line to be roughly $40 million to $45 million in net expense, with year-over-year change driven largely by the interest expense as we enter the year in a net debt position.\\nWe expect our tax rate to improve by 50 basis points to slightly above 16% and our full-year diluted shares outstanding to be approximately $312 million, essentially flat to Q4 of this year and reflecting only anti-dilutive share repurchases throughout the year. All this translates to non-GAAP EPS expected to be between $3.38 and $3.43 per share, resulting in 9% to 10% growth on a reported basis.\\nFinally, we expect operating cash flow of approximately $775 million to $800 million. This includes a one-time tax outflow of roughly $230 million in the first quarter to transfer certain intangibles related to prior acquisitions. This tax will reduce our U.S. transition tax dollar-for-dollar and will provide us with operational and tax benefits in the future. We\\u2019ve also announced raising our dividend by 10%, continuing a streak of double-digit increases and providing another source of value to our shareholders.\\nNow turning into Q1 guidance.\\nFor Q1, we\\u2019re expecting revenue to range from $1.34 billion to $1.355 billion, representing reported growth of 4.3% to 5.5% and core growth of 2.5% to 3.5%. The lower organic growth in Q1 reflects the impact of the timing of the Lunar New Year, which this year falls into our fiscal first quarter. We anticipate this adversely affecting the growth rate in the first quarter by roughly 1 point.\\nIn addition, the growth rate takes into account the Frederick site ramp that will occur over the year.\\nFirst Quarter 2020 non-GAAP earnings are expected to be in the range of $0.80 to $0.81 per share, representing reported growth of 5% to 7%. EPS growth in Q1 is lower than the full-year based on the revenue growth, the Frederick start-up costs and certain share-based compensation costs that are expensed in the first quarter.\\nNow before opening the call for questions, let me conclude by saying we are very pleased with the results our Agilent team was able to achieve this past year, while continuing to take focus on taking full advantage of the opportunities in front of us.\\nWe are positioning our business towards stronger secular growth markets and driving higher recurring revenue streams. We clearly saw the results of this in 2019 and we entered 2020 with a strong portfolio and with momentum.\\nWith that, Ankur, back to you for the Q&A.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Bob. Mike, if you can please provide instructions for the Q&A.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] Your first question comes from the line of Doug Schenkel from Cowen.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Hey, good afternoon, guys\\u2026.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Doug.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"\\u2026and thank you for taking my questions.\\nSo maybe first with just a cleanup question. Did fiscal 2019 NASD revenue come in around $100 million as expected? And can you give us more detail on what you\\u2019re assuming for NASD revenue in 2020? I know you said you expect it to ramp over the course of the year. But if you actually gave a number, I might have missed that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So I\\u2019ll pass that to Bob.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob?\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Yes.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Doug. Yes, it came in generally in line a little better than that and we\\u2019re expecting very significant growth in FY 2020.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay.\\nSo recognizing it, we don\\u2019t have a specific number, but just talking about it qualitatively and maybe taking everything up a level.\\nYou set the low-end of 2020 core revenue growth guidance at 4%. And this would be the \\u2013 I think, the lowest core growth rate since at least 2011. And whatever that tailwind is from NASD, it makes the setting guidance at those levels even more notable.\\nBased on what you guys just did in the quarter and the way you sound, that \\u2013 it seems like you\\u2019re really just setting the bar at a level that embed some pretty conservative assumptions on the low-end.\\nSo I guess, specifically, would you guys be willing to talk about what conditions would need to exist for this scenario to become reality?\\nThings like \\u2013 at 4%, what are you assuming for China food? What are you assuming for 4+7 in terms of the downside risk there? And is there something you\\u2019re factoring in that would suggest there\\u2019s a scenario where things actually get worse in terms of overall global capital equipment demand?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Thanks, Doug.\\nLet me start and then Bob will jump in on this.\\nSo I think we don\\u2019t want to overthink this one.\\nSo this is our initial guide for the year. And you\\u2019re right, it would represent, if, in fact, that was an actual growth number \\u2013 our loss growth rate in a number of years. But it\\u2019s just an initial guide, as you heard earlier, you heard a lot of words as expected with upside.\\nSo, we\\u2019re going to position our initial guide with the room for upside on the plan for the year. And\\u2026\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I would say, Doug, to build on what Mike was saying.\\nI think we were taking a kind of a prudent approach to guidance. Obviously, if we were at that level, we\\u2019d be disappointed and something would happen in the macro economic environment that we\\u2019re not expecting.\\nWe\\u2019re not seeing anything right now that would suggest that the market conditions are getting any worse.\\nThis \\u2013 that would suggest that market conditions probably would get worse and LSAG would not come back and it would continue to decline. But we\\u2019re, again, we\\u2019re at the beginning of the year there.\\nOur \\u2013 I think, we\\u2019re prudent here, but we like to believe that there\\u2019s a lot of opportunities for growth going forward.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay, that\\u2019s super helpful. Thanks for taking my questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you, Doug.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Tycho Peterson from JPMorgan.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hey, thanks. Question on the small molecule business. I\\u2019m\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, good afternoon.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"\\u2026hey, good afternoon. I\\u2019m wondering if you could talk on small molecule performance in the quarter. I know earlier in the year, you talked about a slowing global pharma business.\\nJust curious how you\\u2019re thinking about the replacement cycle and was any of the instruments slowdown on the pharma side?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"In fact, Tycho, I think you\\u2019re \\u2013 hey, Tycho, happy to jump in on this one and feel free Jacob to add your comments as well. But in Q2, we called out what seemed to be a slowing replacement cycle \\u2013 replacement level in the generic side or small molecule side of the Pharma segment. We really haven\\u2019t seen any evidence of that in the third and fourth quarter.\\nAnd as Bob mentioned in the script, we had double-digit growth in pharma, 4+7 initiative, which is heavily focused on small molecule is not impacting our business. We put a really solid numbers. And I think we\\u2019re seeing the growth in small molecule fairly healthy, along with higher levels in the biopharma side. But really the pressure on the instrument side really on a growth rate perspective has really come in the food segment, primarily in China as well as the global chemical energy market. And, Jacob, I don\\u2019t know if you have anything else you\\u2019d like to add there?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Mike, I think you have covered a lot of it. The only thing to add there is that, we, as you mentioned, but \\u2013 that we do see the growth in the QA/QC environment, maybe less in the discovery from small molecules. But we continue to expect that volume will be there and continue to increase in the small molecules going forward also.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. And then, Mike, for your commentary on C&E, for instruments, are you assuming any recovery next year on the instrument side?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No. That\\u2019s basically flat, kind of basically flat conditions.\\nSo \\u2013 and back to the question, Doug, you asked earlier, if we would see some improvement in the chemical energy that would really represent upside to our our initial guide.\\nSo we\\u2019re assuming kind of continued conditions. They\\u2019ve been challenged this year.\\nSo we\\u2019re assuming they continue into FY 2020, no change there. But if it would change the positive that would be upside to our current plan.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Gotcha.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I think the resilience of our model really showed in this past quarter and the full-year, which is, while chemical industry is down on the instrument side, we actually had some modest growth there when \\u2013 with the aftermarket side of our business.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. And then one quick one for Bob, just to close on the M&A comments. Can you just remind us your framework? Are you still assuming $1 billion-ish type deal would be the ceiling where we\\u2019re obviously getting the question a lot as other analysts?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No, no, let me take that one. If it wasn\\u2019t clear in the script, I actually explicitly said that we\\u2019re increasingly confident on our ability to take on larger-scale acquisitions and deliver on value creation and synergies. I would not put a ceiling like that on our appetite for deals.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Are you able to talk about ceiling on leverage, or where you would go?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Go ahead, Bob.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Yes, we are still committed to being investment grade. Obviously, being ending the year at roughly a little less than one-time net debt levered. That gives us a lot of opportunity to \\u2013 if the right deal were there to kind of lever up with the commitment to kind of paying back down.\\nNow, again, we\\u2019re going to be remained financially disciplined and focused on returns, but we do have a fair amount of room there.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You\\u2019re welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Brandon Couillard from Jefferies.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay, thanks. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike or Bob, could you give us any color in terms of what you\\u2019ve penciled in for China for fiscal 2020? And to sort of speak to your level of visibility in the food business and perhaps some early traction that you might be getting with some of those private labs?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Yes, I\\u2019ll start and then Mike, or perhaps, Jake, if you wanted to add anything.\\nWe are expecting a modest recovery in China next year. We ended this year at roughly 1%, a large part of that being the headwinds that we\\u2019re seeing in food.\\nWe\\u2019re expecting that China to become kind of low single digits to mid high, or mid single digits, depending on kind of that food recovery.\\nWe have some \\u2013 the good news is, over the last three quarters, we\\u2019ve been roughly averaging this $40 million per quarter that we talked about.\\nSo we\\u2019re on this trajectory of \\u2013 in China being $160 million kind of run rate. And our expectation is that, we\\u2019ll continue to \\u2013 we\\u2019re not going to speculate growth there, but be at that level next year, which will help the rest of the business grow.\\nSo we will \\u2013 because we won\\u2019t have that headwind.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I think it\\u2019s really important that we define what do we mean by recovery, which mainly means continue at the flat level it\\u2019s been running for the last three quarters, about $40 million a quarter. And just to put a number on this, I believe, Bob, about 4 points of our growth in China this year was impacted by the food market.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That\\u2019s correct.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So we fast forward, you could do the math and said, okay, it would just stays flat with what we\\u2019ve seen for the last three quarters.\\nYou\\u2019d expect that we would grow above what we\\u2019ve grown this year in China. And then to your question about the contract testing side, Jacob, I think it\\u2019s high single-digit growth there.\\nSo\\u2026\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"\\u2026really, we\\u2019re doing quite well there.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. We \\u2013 I was actually recently here in China. And clearly, the private labs are doing quite well. We see strong growth now from a different base than where we are on the government labs. But even with the government labs and certain types are \\u2013 there are certain some investments going in, but not to the level that we\\u2019ve seen before.\\nSo that\\u2019s why we don\\u2019t see a lot of movements right now. We won\\u2019t.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks. And a follow-up for Bob. Could you just elaborate a little more color on the tax hit, the one-time tax hit on the cash full on you expect in the first quarter? And kind of the mechanics of what it relates to in terms of the intangibles, reclassification, and any implications it might have for the tax rate beyond next year? Thanks.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo it is a one-time opportunity that we have afforded ourselves.\\nWe\\u2019re moving some intangible property out of one of our acquisitions into our tax model. It\\u2019s going to require us to pay the $230 million upfront in taxes, but that\\u2019s going to be creditable to our already existing liability for our U.S. transition tax.\\nAnd so it\\u2019s effectively a one-for-one kind of credit there.\\nSo it\\u2019s not an incremental cost to us over time.\\nAnd what it allows us to do by putting this \\u2013 it\\u2019s related to the Dako acquisition. It allows us to streamline our operational activities, as well as overtime, generate some tax benefits. That will likely happen in 2021 and beyond, so it\\u2019s part of our kind of multi-year tax planning initiatives that we\\u2019ve been talking about.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Very good. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Vijay Kumar from Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hey, guys, thanks for taking my question. And\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Vijay.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"\\u2026Mike, maybe a big picture question. I just \\u2013 if I think about where PMIs are, I think, PMIs are bottoming out. But from your commentary, I guess, what you\\u2019re saying is, you\\u2019re still expecting whatever trends we saw for 2019 as a base case, you\\u2019re assuming those trends continue into next year. I\\u2019m just curious PMIs are bottoming out, why is that a reasonable assumption going forward?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I want to see the orders first.\\nSo \\u2013 and back \\u2013 getting back to the earlier question about guide, that\\u2019s why we went into level we did, which was, if you go back and look at Agilent\\u2019s overall results for 2019, they really were quite strong. But the growth came from different parts of the businesses than we expected. And we\\u2019re sitting in Q2 and Q1 last year, PMIs started dropping, and you see \\u2013 saw a level of conservatism in our customer-buying behavior.\\nSo we said, okay, there\\u2019s reason to believe to your point that it could actually be a different environment in 2020.\\nLet\\u2019s not guide assuming that.\\nLet\\u2019s just \\u2013 let\\u2019s see it happen and then we\\u2019ll take up the guide appropriately and take the orders of business.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think, Vijay, this is Bob.\\nJust to add on to what Mike is saying. I mean, what we\\u2019re trying to do like everyone else is kind of read the tea leaves. And our best view is that, until we start seeing something different that it\\u2019s going to remain the same as it is today. And if it does rebound, that would be good. We would like that. Yes.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That \\u2013 that\\u2019s helpful, guys. And then, Bob, one quick question on operating leverage. It looks like the guide is contemplating modest operating leverage, maybe 30, 35 basis points for next year. I\\u2019m just \\u2013 I mean, that Q4 performance, this is really impressive what you guys did on the OpEx side. Any thoughts on why maybe leverage for next year, Rob, moderates a little bit? Is that maybe a little bit more spend to \\u2013 on the growth initiatives you guys have?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, some of it is that and we have a full-year of the Frederick costs that are going to be built into the results in 2020 that we didn\\u2019t have. We really just had that in Q4. And obviously, Q4 is one of our strongest years of \\u2013 our strongest quarter.\\nSo we get a lot of leverage there. But we feel pretty good about that. And I think we\\u2019ve demonstrated this year an ability to manage our operating expenses to continue to drive double-digit growth on the earnings side and continue to drive operating margin leverage.\\nSo I think, you should feel confident that we\\u2019ll continue to do that going forward.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Thanks, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You\\u2019re welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Steve Beuchaw from Wolfe Research.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Hi, good afternoon, and thanks for the time here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Steve.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Hi, Mike, thanks for the time here, again. A few things I\\u2019d like to tie up. I mean, Mike, I wonder if first, you might elaborate a little bit on a point that you made in your prepared remarks. When you said that orders in the quarter actually grew, I believe faster than revenue. I wonder if you could talk about where you\\u2019re seeing acceleration? And to what extent, if any particular region, maybe Japan was a driver there knowing there are some tax incentives in Japan?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks. Thanks for doing that. We thought it was really important to give the audience a view of the order activity in the quarter. We typically don\\u2019t like to plan \\u2013 we typically don\\u2019t comment on that. But given the Q1 guide and some of the nuances around Lunar New Year and such, I want to let you \\u2013 let the audience know that we ended the year in a strong backlog position, but the orders really exceeding the amount of revenue for the quarter.\\nAnd I\\u2019d say, the quarter in orders was very similar to the quarter in terms of the revenues that you saw, which was strength in the Americas, strengthen in pharma from an end market, very strong results in ACG, DGG, cell analysis.\\nSo \\u2013 and then the environmental side continues to put up really great numbers off of double-digit compares.\\nSo I think the Q4 order book was very similar in terms of pattern and areas of strength that we saw on the revenue side that I commented in my script.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. The only thing I\\u2019m going to say, I was just going to be\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"\\u2026built new.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Steve, to more specifically to your question on Japan, we did not see any one-time build there, that was at the end of the fiscal year.\\nOur fiscal quarter actually was across that, that timeframe.\\nSo we saw normal growth in Japan, which actually speaks to kind of the broad-based strength that Mike was just talking about.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Okay, great. Very helpful. And then just, let\\u2019s say, two very quick points to tie up with the model. I guess one on NASD. I know you don\\u2019t want to give a specific number as it relates to what the contribution on revenues might be for fiscal 2020. But could you spend a minute just on how close you are to getting capacity there booked up? And when you think it \\u2013 whether it\\u2019s 2021 or 2022, we might see the Frederick location running closer to that incremental capacity and then actually, I\\u2019ll tie it up right there? Thanks, again, for all the help.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, I think you\\u2019ve been joining in the same questions with Sam.\\nSo\\u2026\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, yes, yes.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So you and I both want to\\u2026\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Why don\\u2019t I start it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"\\u2026and I\\u2019ll jump in.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"\\u2026from the question earlier, in the Q&A, we felt very good about kind of where we ended up the year. We had very strong growth. And we ended up, as I mentioned, slightly above the $100 million. And as we had talked about before, there was $100 million of capacity that would be ramping up over the course of the year. Many folks have modeled kind of a $50 million number and that\\u2019s in the ballpark. And in the ramp is really dependent upon how the clinical trials go and so forth.\\nAnd so, maybe I\\u2019ll turn it over to Sam, to talk about kind of some of the dynamics, but obviously, some very positive things that have happened in the market just recently.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, Bob, I think you you\\u2019ve already laid the groundwork. Steve, how are you? We continue to be excited about the NASD business. And Boulder, just to remind you, is an ongoing important part of our NASD capacity capability there. And there have been some announcements recently, you might have seen that they just really reaffirmed what\\u2019s in our plan, the ability to grow and support the growing demand in the market for our customers.\\nSo Bob, really, I don\\u2019t have a lot to add to what you already said.\\nWe expect by the time we exit the year and you\\u2019re running\\u2026\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"I think, it\\u2019s fair to say, we\\u2019re not running into challenges to fill up the site.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"That\\u2019s right.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"I mean, we\\u2019ll just kind of leave it at that.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Brennan from UBS.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Dan.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Hey, Dan.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"So, Mike, maybe just on China, if you don\\u2019t mind. China, you said pharma grew double digits in the quarter in China. But could you just spike out the generic issue there? And kind of how did generics specifically do in the quarter? And maybe kind of what\\u2019s assumed in 2020 versus what you achieved in 2019 with generics there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. How about if I used the word 4+7 in that whole segment, excuse me, that whole segment of small molecule, I think it was up double-digit for us.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. I mean, as Mike mentioned, we after the first 4+7 around and the winners were announced, we certainly also see we are market leader in that space and that by we have access to many of those customers out there.\\nSo we, of course, in demand from those customers also. That would be more 4+7 or more activities in that space. But generally, speaking, we feel that we have a quite good predictability in that market now.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Dan, I think that actually played out the way we had thought during the year. Once the initial announcements were done and tendering process started, the whole market pause for us to release a good quarter. And then as we had thought would happen is the \\u2013 once the winners were announced and we were actually over-indexed in those accounts, so we had already preexisting strong relationship with those customers. Then we would see this return to growth we saw it in Q3 and we saw it in Q4, and we think the \\u2013 that momentum is with us as we move into 2020.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think Dan, this is Bob.\\nJust to build on what Mike and Jake were saying.\\nI think what we\\u2019ve seen is kind of the notion of the higher quality, higher volumes and our ability to provide not only instrumentation, but the consumables and the software associated with that to keep up time in the lab is really resonating with our customers.\\nAnd so I think the combination of both the LSAG business and the ACG business is a true, what we think is a competitive differentiator across this, and this is a proof point for us.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great. Thank you for that. And then maybe back on C&E, I know, I think the Tycho\\u2019s question, Bob \\u2013 Mike, excuse me, I think, you discussed instruments, maybe flat is the way to think about the outlook from here conservatively? Can you just maybe speak to kind of what the interest level is like from the Intuvo and then the two larger instrument platforms today? And kind of what are the guideposts towards when maybe we could see that instrument demand pickup? Because I assume there has to be some good latent demand for the new instruments.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nIn fact, we\\u2019re already seeing that.\\nSo it\\u2019s actually when you dig into the details on the order book and the revenue results, in fact, we just had a review last week with Jacob on his ramp to volume. And he knew, the new 8890 and 8860 GCs are actually \\u2013 it\\u2019s \\u2013 on the dashboard, it shows green being head of our internal ramp to volume forecast.\\nSo we think that it\\u2019s already happening. And then other parts of the instrument portfolio, so the chemical energy aren\\u2019t seeing the same type of demand. But this shows you when you come out with a new set of offerings, the marketplaces have a clear value proposition to customers that drives productivity even in a market environment, where capital is a little bit tighter, you can get the order. And, Jacob, I know you\\u2019ve been out with some customers recently, but if you could anything else you\\u2019d like to add to that?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely.\\nI think the 88 series really resonate with the customer base. And even though, it is a muted environment, we do see that there is interest and we do see, as you know, that we have a really strong ramp to volume. But the customer really like about it is that, we continue with the highest quality and highest performance in the market, but now also with a lot of what we call smart performance in the instruments \\u2013 a lot of intelligence.\\nSo with instrument actually knows what it\\u2019s doing and it can put predictive maintenance in.\\nIn fact, we put out something that\\u2019s called smart alerts now that customers are really excited about that they can get an overview over their labs and get access to what\\u2019s actually happening instruments, so they can be predictive in their expectations.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And it also creates an ongoing revenue stream for us as well.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Absolutely.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great. Excellent. Thanks a lot and congrats.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Derik de Bruin from Bank of America.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hi, good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Derik.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Hi, Derik.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hey.\\nSo actually, I wanted to follow on with that question thinking about the GC cycle and the upgrade. How much \\u2013 can you estimate about how much the installed base was upgraded over the last few years.\\nNow you\\u2019ve got a very big GC platform installed globally.\\nJust curious in terms of where we are in the cycles once it picks up again?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think, Jacob is raising his hand. He\\u2019d love to answer this question.\\nSo\\u2026\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes.\\nWe have \\u2013 generally speaking, when we look into our refresh cycle, we do see that the market is looking at approximately 10% per year of refresh.\\nSo that also means that our instruments is out there for quite a long time.\\nWe are actively looking into that. We we do see \\u2013 we actually believe that we are in the middle of a refresh cycle. It has been challenged with the overall market conditions.\\nSo we do believe actually when the market is coming back to when the PMI are starting to turn that that we would see an acceleration in that refresh cycle.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think it\\u2019s fair to say to Jacob, there\\u2019s always, if you will, a replacement going on.\\nJust \\u2013 how much has actually been replaced. And I think we continue to see fairly high levels of aging in the installed base, which would point to perhaps somewhat of an acceleration of the replacement rate, assuming the market environment would improve. Yes.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Hey, Derik, one other thing that I think is probably pertinent here, it\\u2019s still early days. But when \\u2013 if you recall, the launch is both at the high-end and the mid range. And what we really excited about was the potential to have a really compelling offering at the mid range, where we had not as much penetration as we did at the high-end. And while Mike was talking about our ramp to volume, Mike and Jake were talking about a ramp to volume being green for the business if you kind of parse them out. I would say the mid price or the mid value range is dark green.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Which is a good thing, I think.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Which was a good thing.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"And so, once the China food business starts to snap back or come to pick up, again, I guess, can you \\u2013 how should we think about that business? I mean, is there going to be a V-shaped curve since rebound is the latent demand there or is it going to be \\u2013 is that market going to be a little bit less than we had grown in the past just given some new organizations in that market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think we won\\u2019t see the type of double-digit declines we saw this year.\\nAs Jacob mentioned on the actual volume side, the number of samples being run is up double-digit. The money has been down sharply at the central government level. We don\\u2019t expect that\\u2019s going to be the long-term situation.\\nSo right now for 2020, again, we\\u2019re just saying it\\u2019s going to be flat with the level we\\u2019ve seen for the last three quarters. That being said, our internal view is that this is kind of a mid single-digit kind of grower. It\\u2019s going to \\u2013 I mean, the China market itself is going to be least 6% to 8% growth rate and this is probably about where this business could be. It won\\u2019t be at the toward double-digit growth that is seen for the past decade.\\nThat being said, you won\\u2019t see these double-digit declines that we experienced in 2019. That\\u2019s why when we talk about a modest recovery in China really is, we\\u2019re just talking about lapping the compare on the food \\u2013 from the food business.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"One final question. I mean, you\\u2019ve done a lot of acquisitions in the cell biology space recently. And admittedly, I\\u2019m a molecular biologist by training, I\\u2019m a cell biologist.\\nSo can you help me understand what you\\u2019re offering that\\u2019s novel in terms of how you put all these pieces together?\\nAnd just sort of what are you bringing to market to customers that hasn\\u2019t been brought there before? I\\u2019m just trying to get a better understanding of sort of like the opportunity here. And along those lines, like do you need a broader molecular biology portfolio to continue to drive into that market? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, happy to do that, Derik.\\nSo I want to make some initial comments and Jacob is knee deep into this business, and he can share with you some of the things that really differentiate ourselves here.\\nSo, I think we first got started down this journey with the acquisition of Seahorse Bioscience. We really felt that was a really good first point with a differentiated offering with novel, unique technology that nobody had. But we also felt that we needed to have some more scale to be much more formal in the space.\\nAfter the recent acquisition of ACEA Biosciences and the acquisition of BioTek, the $250 million-plus, we think we\\u2019ve got the scale. And we\\u2019re also very selective in terms of the types of companies we look at, the teams, the profile of the portfolio, so I think we\\u2019ve got something really especially that it differentiated. And Jacob, why don\\u2019t you talk about what we\\u2019re doing about the workflows and some other things?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely.\\nSo I\\u2019m certainly excited about our opportunity in the cell analysis space. And what I think is that two dynamics going on.\\nFirst of all, with the recent rise of immune-oncology that we first play out in [indiscernible] now in the cell analysis also. And then, of course, generally speaking, immunology, that there\\u2019s a lot of interest in that space right now. And it really requires technologies that allow for life cell analysis, both from an imaging perspective, but also measuring the activity in the life cells. And those are the technologies that we\\u2019re providing between the BioTek, the Seahorse, the ACEA and the lots of technologies.\\nSo where we really differentiate is, first of all, the seahorse and ACEA Technologies are very differentiated understanding on their own, while BioTek have a very broad portfolio, including some very excited imaging technologies. But we have not bring them together in workflow settings, where you can use basically the multi techniques to look at cell from many different angles and provide much deeper insight based on one informatics platform that nobody else can do in the market.\\nSo that I think that\\u2019s really where we differentiate versus competition.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"And one of the things, Derik, we looked at was, we had already been working, for example, between the BioTek team and the CRS team actually have been working together prior to the acquisition. And we had proof points based on incremental business we had, which was customers really didn\\u2019t want to have independent instrumentation and data systems that really haven\\u2019t integrated software, integrating these workflows and really was \\u2013 really had a differentiated value to customers, and they saw that was very important to them and they were willing to give us the business as a result.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Bill Quirk from Piper Jaffray.\"}, {\"speaker\": \"William Quirk\", \"content\": \"Great, thanks. Good afternoon, everybody.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Bill.\"}, {\"speaker\": \"William Quirk\", \"content\": \"First question is Mike and Bob, you guys have touched on China several times already. But maybe we can talk a little bit about assumptions concerning other geographies in 2020? Are they any different than what you\\u2019re currently seeing in terms of both current business, as well as wall to your order book? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Do you want to take that, Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, yes. No, that\\u2019s a great question, Bill.\\nSo let me kind of walk you through kind of how we\\u2019re thinking about the various markets.\\nSo we would expect that the Americas would continue to kind of lead the pace with kind of high single-digit growth. Europe, probably low single-digit growth going forward, pretty consistent with kind of how we\\u2019ve seen this year kind of play out. And the rest of Asia, excluding China being in kind of in that low to mid single-digit growth.\\nAnd so that\\u2019s kind of how we\\u2019re thinking about China. And China would be low to mid, yes.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay.\"}, {\"speaker\": \"William Quirk\", \"content\": \"Got it. And then, Mike, to elaborate on an earlier comment that you made about tighter capital, can you just talk about how broadly you\\u2019re seeing that?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Oh, I think that comment was related to conditions we saw in 2019, that \\u2013 and my comment really was, even when there\\u2019s tighter capital, which is what we saw with lower PMIs throughout this year, customers are still willing to invest when you have a solution that helps them with their bottom line, their productivity, as well as their scientific results.\\nSo what I\\u2019m saying is, there\\u2019s a path forward to getting more business, even when capital is tight.\"}, {\"speaker\": \"William Quirk\", \"content\": \"Okay.\\nSo you\\u2019re not suggesting obviously then that there\\u2019s some sort of lack of availability, it really has to do with, if you have the right product, you can find it?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, correct.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely.\"}, {\"speaker\": \"William Quirk\", \"content\": \"Okay, got it. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Paul Knight from Janney Montgomery.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Hey, Mike. Could you talk about\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Paul.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"\\u2026the \\u2013 your position in biopharma, specifically a large molecule is what portion do you think of the business today? And where would you like that to be, I guess, would be a good color? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, happy to do so, Paul. And as Bob mentioned, we\\u2019ve been having \\u2013 we have strong pharma results, again, this quarter. This has been kind of consistent story for Agilent over the last several years.\\nDuring that period of time, we\\u2019ve been consistently growing our biopharma portion, our large molecule portion of that business double-digit.\\nI think, a couple years ago was probably maybe about 15% of our pharma business.\\nNow it\\u2019s up to probably north of 20% and we think that rate will continue. It\\u2019s not because the other side has been shrinking, it\\u2019s because we think we\\u2019ve been obviously investing very heavily, either through new instrument platforms, marked on some acquisitions in this area.\\nSo while we don\\u2019t have a specific percentage in mind, I would expect every time I start talking you through the coming years, you\\u2019re going to see a higher part of the \\u2013 of our business in biopharma.\\nIn fact, when we come out to \\u2013 at the conference again this year, we\\u2019ll probably talk more specifically about the entirety of our biopharma business.\\nI dropped a lot of comments today about NASD and some cell analysis.\\nSo a lot of stuff ultimately comes in into a lot of us into the biopharma end market. We often think about biopharma business just being associated with LC and LCMS, but there\\u2019s a lot more to the story.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Okay. And on the academic side, it was soft. What was specifically did do you see going on in the U.S. market in the quarter?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We dug into this, honestly, it\\u2019s probably worth calling. And as best we can see really was just about the strength of the business we had last year, I think it was about over 10% growth last year.\\nSo nothing really is really changing in that environment and continue to see very solid and stable funding environment.\\nSometimes there\\u2019s seasonality a bit with that business, but I think that\\u2019s really all we could really saw them.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"That\\u2019s right. I mean, that business is one of our smaller businesses, and it can be kind of lumpy and so forth and had a very strong Q4.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Puneet Souda from SVB Leerink.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Hi, Mike, thanks for the question.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Puneet.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"So this appears to be another quarter of growth in CrossLab.\\nSo wondering what continues to be the strength there. What\\u2019s your confidence there longer-term? And it\\u2019s consistently about 8% growth for the \\u2013 I mean, now, last three years.\\nAnd so should we expect similar expectation here going forward into \\u2013 and despite LSAG instruments being flat for the year, as you pointed out in your remarks, should we expect CrossLab\\u2019s longer-term to continue to do well, knowing that some of the instrumentation is being flat and with the consumables and service contracts will continue to grow?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I\\u2019m happy to comment on this. This is a real success story, I think of the new ads and we architect this strategy a couple of years ago. And we \\u2013 I can recall, getting this question almost every year when we had an 8% or 9% print, hey, when\\u2019s it going to end? And we would say, it\\u2019s not going to end. We think that what\\u2019s going on here is really you have changing customer needs and you need to anticipate what\\u2019s going to happen and provide a new set of services and capabilities. really help them with the economics on the lab in addition to the scientific results.\\nSo today, I think this \\u2013 and I hope it came through in the call script, which was we said, we really have demonstrated this new business model this year, where we can have strong growth in ACG, irrespective of whether or not the business in our new instrument side is as strong as we\\u2019d like it to be.\\nSo, as Bob said, the guide for next year, we\\u2019re quite confident in our ability to continue this high single-digit kind of growth. The services proposition we have and what we offer is really what we\\u2019re resonating with customers.\\nYou heard, Jacob commenting a little bit on some of the work that goes on between Mark\\u2019s team and Jacob\\u2019s team to develop new capabilities around our instrument platforms, which leads into a set of new revenue streams on our services side. And on the consumer side, it\\u2019s been both a story of organic growth, but also continuing to add more to the portfolio through acquisitions.\\nSo I think we\\u2019re really quite confident about our ability to continue this high single-digit growth rate really tied in also to how we\\u2019re enabling business differently on a digital perspective.\\nSo I hope it\\u2019s coming through that we\\u2019re highly confident about our \\u2013 what we build and where this business is going to go in the future.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think, Puneet, hey, this is Bob.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"\\u2026just one other thing is, we\\u2019re talking about this.\\nIf you looked at just the attach rates, we\\u2019ve got a number of programs that are driving increased attach rates.\\nWe have \\u2013 we think we have a lot of room to continue to grow there. And I think the one thing that we\\u2019ve seen this year is actually, as Mark and team have offered more services and more solutions, we\\u2019re actually seeing for the instruments that we are placing actually higher value\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"...tied to the service offerings.\\nSo we\\u2019re actually being able to create more value on a per box basis, given the portfolio that we\\u2019ve been able to derive.\\nSo there\\u2019s a lot of opportunity there. Jacob talked about some of the smart alerts and so forth, but we\\u2019re building this intelligence in. But in addition, we\\u2019re actually creating more value when an instrument is sold and actually increasing the service component.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay, thanks. And if I could check on Dako, could you elaborate the contribution there on the quarter? I don\\u2019t know if you provided that and what\\u2019s your expectation that you\\u2019re breaking there for 2020?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think we didn\\u2019t provide a specific number for me. But if you saw my comments, we talked about gaining market share in pathology and we\\u2019ve got a high single-digit growing business in DGG. And though a lot of today\\u2019s call has been focused on the growth rate from NASD. Pathology is the largest business in that group and it\\u2019s doing well.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. And if I could squeeze in the last question on, Mike. When we look at the last couple of years, pulling back a little bit higher level.\\nIn terms of instrument launches, you had Intuvo, Ultivo, 8800 series, a number of launches. And this would be about the time we would be seeing a benefit from those.\\nSo is the message here that those instruments continue to gain strong traction in the market? And it\\u2019s just the end markets that are sort of challenging you and the government dynamics in China, or is there any \\u2013 anything more to that we should be looking into in terms of the instrumentation? And just give us, if you could take a moment and give us a sort of a view into the new instrument sort of outlook longer-term and how should we think about Agilent in that framework? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Puneet. I couldn\\u2019t have said it better myself, which is our product portfolio has never been stronger.\\nWe have had a continuing cadence of products, whether it\\u2019d be liquid chromatography, gas chromatography, LCMS, GCMS, molecular spectroscopy, the story just continues.\\nSo if there has been any softness relative to expectations in LSAG results, it\\u2019s all been some of the market environment conditions that you\\u2019ve described. And the fact that we\\u2019ve been able to continue to invest.\\nWe have invested in our field team, as well as I know, some of my competitors are pulling back their reins a bit, where we think we\\u2019re capturing share, we think we\\u2019re well positioned for \\u2013 when some of these end markets start to turn to back to back to growth. We\\u2019ve seen some of these cycles before in the past.\\nSo I think the \\u2013 and then I made a comment in my script about the product pipeline being full, which is what that was an indication of it.\\nWe have other projects.\\nSo we\\u2019re not going to introduce a bunch of instruments and then disappear for half a decade, you\\u2019re going to have a continuing cadence of products, new products, upgrades.\\nSo we feel like our NPI process is really humming right now.\"}, {\"speaker\": \"Operator\", \"content\": \"Your last question comes from the line of Jack Meehan from Barclays.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Jack.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Hey, so I can\\u2019t believe I got this far in the call. But I wanted to ask how is the early integration of the BioTek acquisition going? And maybe can you also elaborate on the pacing of the revenue contribution? When I look at the fourth quarter, the acquired growth was about a point better than I was looking for in terms of the incremental growth and the first quarter is about a point shy of what I was looking for, was there any movement there?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo\\u2026\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"I\\u2019ll take the last one and then I\\u2019ll turn it over to Jacob for the integration piece.\\nSo yes, we \\u2013 in simple terms, we had talked about $20 million to $25 million worth of revenue. It was slightly better \\u2013 it was better than that in the quarter.\\nGoing into Q1, the ACEA Biosciences acquisition moves into core.\\nSo that\\u2019s why it looks a little lower. It shows up as part of our core growth. In Q4, both ACEA and BioTek were in the M&A number.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And as I mentioned in my script, we\\u2019re very pleased with how the \\u2013 we are on the early days in BioTek and Jacob, maybe just want to add a few comments. We just \\u2013 we\\u2019ve had a big meeting with the field team few weeks ago, so\\u2026\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, exactly.\\nI think the integration couldn\\u2019t have been better so far.\\nI think we are really spending time on learning, of course, BioTek and they spend time learning us both from what processes we\\u2019re using, but also from a cultural perspective, we continue to be very excited about the team that we\\u2019re getting on board and how they fit well with the Agilent culture.\\nSo I\\u2019m very excited. Obviously, over the next year, we\\u2019re going to integrate them. But \\u2013 and \\u2013 but I\\u2019m continuing to see a lot of momentum in the combined cell analysis business.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nOur expectations is that business is going to grow double-digit.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Okay, thank you. And then I was hoping just to wrap up getting mark-to-market\\u2026\"}, {\"speaker\": \"Operator\", \"content\": \"One moment please. Jack Meehan, your line is open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Okay, thank you. I was talking to myself for a second.\\nJust follow-up I was hoping if you could give us a mark-to-market on Lasergen, I think you\\u2019re expecting first placements in the second-half of this year at the last Analyst Day.\\nJust how is the progress going there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo technically, Sam, I think we\\u2019ve really been quite pleased with the progress and we\\u2019re not ready to call out intro date for the RUO unit yet?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"That\\u2019s right, Mike.\\nWe are making good technical progress in terms of the specifications that are pushing technology. And we are executing on our development roadmap and we\\u2019re not ready to share specifics on the launch date just yet.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"I would say, Jack, this is Bob.\\nOur guidance doesn\\u2019t comprehend any revenue there. And even back in the original guidance, there was no material revenue in 2020.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay, Jack?\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Yep. Thank you, guys.\"}, {\"speaker\": \"Operator\", \"content\": \"And that was our last question at this time. I will turn the call back over to the presenters.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"All right. Thank you, everyone. With that, we will wrap up today\\u2019s call. Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today\\u2019s conference call. Thank you for participating.\\nYou may now disconnect.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2020-02-18
year: 2020
quarter: Q1
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon and welcome to the Agilent Technologies first quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.\\nAnd now, I would like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead. Thanks.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you Julianne. Welcome everyone to Agilent's conference call for the first quarter of fiscal year 2020. With me are Mike McMullen, Agilent's President and CEO and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Bob's comments will be Jacob Thaysen, President of Agilent's Life Science and Applied Markets Group and Sam Raha, President of Agilent's Diagnostics and Genomics Group. Due to certain personal engagements, Mark Doak, President of the Agilent's CrossLab Group, is unavailable to join us today.\\nYou can find the press release, investor presentation and information to supplement today's discussion on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year. Revenue growth will be referred to on either reported or core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of January 31.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now, I would like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks Ankur and thanks everyone, for joining us on our call today. I would like to start today's call with a reminder that Mark Doak, ACG Group President, will be retiring on May 1.\\nWhile Mark and his wife are currently enjoying a long planned location and is not able join us today, I would be remiss in not taking the opportunity to recognize the outstanding accomplishments Mark has made in his stellar 38-year. His track record of results speak for itself. Thank you, Mark.\\nWe have a very strong bench at Agilent and have already named Mark's successor, Padraig McDonnell. Padraig knows the business well. He has been on Mark's staff for several years and is currently running out chemistries and supplies division. Padraig and Mark are already working on transition activities as Padraig prepares to take the helm of the ACG business at the start of fiscal Q3.\\nOur congratulations to both Mark and Padraig.\\nAnd now on to the quarterly results. The Agilent team delivered a strong start to 2020. Q1 revenues are above our expectations as business grew in all regions and markets. Total revenues of $1.36 billion are up 5.7% year-over-year on a reported basis and 2.4% on a core basis.\\nWe continue to translate our topline growth into strong bottomline earnings.\\nOur EPS of $0.81 is up 7% and is at the high-end of our guidance.\\nBefore going into business units and market details of our quarterly results, I want to speak about two specific areas that highlight how our building and buying strategy of investing in fast-growing markets continues to deliver growth and help us create a more resilient business.\\nFirst, I want to talk about our most recent acquisition, BioTek. This was the first quarter with the BioTek team onboard and the business is off to a very strong start with revenue growth above our expectations.\\nWe continue to be very enthusiastic about the cell analysis space and BioTek continues the strong momentum that originally got us interested in bring them into Agilent. The BioTek leadership team was just in Santa Clara for a few days of planned meetings and they are very energized and excited about the future possibilities to make it a great business even stronger as part of the Agilent.\\nSecond, the resiliency of our business model is on full display this quarter as Agilent delivered strong growth and earnings in the face of a negative Q1 impact from the Coronavirus outbreak in China.\\nAs this has dominated headlines, let me add a few additional comments regarding the Coronavirus and its impact on Agilent. Most importantly, our thoughts go out to all those affected by the Coronavirus.\\nOn the Agilent front, our team fortunately has not had any direct health impact and many returned to work last week.\\nWe are remotely supporting our customers as a number of them gradually resume operations.\\nWe have also restarted our in-country production activities and they are shipping products to customers within China and internationally, albeit at a reduced rate.\\nOn the business side, given that our first quarter ended January 31, we are seeing business impact across both fiscal quarters, Q1 and Q2. In Q1, our revenues are running ahead of expectations right up to Lunar New Year Holiday.\\nHowever, the extensive Lunar New Year Holiday affects our customers' ability to transact and accept shipments during the last days of the quarter. This reduced our reported revenue by approximately $10 million in total for the quarter, primarily in our LSAG instrument business.\\nWe have since recognized the bulk of this revenue now in Q2.\\nLooking ahead, we are projecting that Coronavirus will continue to impact our China business throughout Q2. Bob will share additional details, but we are anticipating delays in new equipment purchases and a slower uptake of consumables and services. The slower uptake is due to reduced number of selling days resulting from the extension of Lunar New Year, along with customer and logistics operations that are ramping, but not yet fully operational.\\nIt's important to note, while we are forecasting the impact to our Q2 business, our full year outlook for total Agilent revenues and EPS remains unchanged.\\nOur business outside of China remains on a solid footing and we believe a large portion of our China business that is currently being impacted by the Coronavirus is not lost but rather is delayed.\\nAs you know, the Coronavirus outbreak is unfortunately impacting the health and safety of tens of thousands of people. I am very proud of how the Agilent team has responded to do our part to help.\\nOur Agilent China team is now actually supporting those customers during crucial research into the virus.\\nWe have donated instruments and supplies to four clinical and research institutions based in China to support these research and drug development efforts.\\nWe continue to closely monitor events in China and are prepared to act quickly to help wherever possible.\\nNow on to additional details of our quarterly results. Agilent's growth is broad-based as our business grew across all regions and end markets. Regional performance was led by the Americas posting 5% core growth with America coming in with low single digit results and Asia holding steady. Despite the timing of the Lunar New Year and the Coronavirus impact late in the quarter, our China business grew low single digits.\\nWhile all end markets grew, our results were led by strong growth in the biopharma and environmental forensics markets.\\nNow taking a closer look at how the individual business units performed. LSAG revenues grew 5% on a reported basis driven my strong performance in our biopharma and cell analysis business. On a core basis, LSAG's revenues were down 2% against a tough compare and inclusive of the unexpected Q1 impact from the Coronavirus.\\nWith the exception of China, all regions and end markets performed in line with expectations.\\nThe ACG business continues to deliver strong results, posting 7% core growth even with reduced selling days in China. This growth was broad-based across all major market segments and regions. These results continue to demonstrate the strength of our ACG CrossLab strategy and how we are leading the transformation of the analytical lab.\\nDGG has also posted 7% growth in the quarter against a difficult 12% growth compare.\\nWe have experienced a continuation of positive trends winning share on our core pathology business and seeing strength our NGS QA/QC franchise.\\nWe continue to be pleased with the revenue ramp at our new oligo manufacturing facility in Frederick, Colorado.\\nIn addition to driving strong finance results, I want to highlight some other notable events that took place during the quarter.\\nWe continue to bring different and new product to the market, meaning strong customer and external recognition. We just introduced the Agilent SureSelect XT HS2 DNA kit. This, along with our recently launched automated sample prep platform, Magnis, further strengthens our leadership position in the NGS sample prep market.\\nIn addition, two industry publication honored the Agilent InfinityLab LC/MSD iQ system with 2019 innovation awards. The award-winning mass spectrometer introduced last June incorporates intelligent design and innovations such as embedded sensors that monitor instrument health.\\nAnd finally, earlier this month, Barron's name Agilent number one in the list of the 2019 Most Sustainable Companies in America.\\nWe are very proud of this recognition. Sustainability is a critical topic that is gaining increased interest from customers, employees and investors.\\nMore importantly, we believe focusing on sustainability is simply the right thing to do.\\nBefore I pass the call on to Bob, I would like to close with a reminder of Agilent's resilience and our shareholder value creation model, delivering above market growth, expanding operating margins and a balanced deployment of capital.\\nWe are able to thrive by focusing on platforms with multiple large end markets and long term growth opportunities.\\nWe are also driving growth in the aftermarket, increasing our focus on faster growing end markets, streamlining our infrastructure and operations and investing in the future of Agilent, both organically and inorganically.\\nWe do all this while maintaining acute focus on delivering EPS growth with superior quality of earnings and driving shareholder value creation. Despite the temporary business uncertainty created by the Coronavirus in China, I remain confident about the longer term growth prospects of the China market, our China growth strategy and most importantly our team. I am very proud and confident in the strength and resiliency of our China team and their ability to overcome any near term challenges that come our way.\\nWhen I look at our global team in our business, our growth prospects and team have never been stronger.\\nWe are laser focused on driving revenue and earnings growth. I am pleased to tell you that all these facts allow us to maintain our growth and earnings outlook for the year.\\nThank you for being on the call and I look forward to answering your questions. I will now hand off the call to Bob. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thank you Mike and good afternoon everyone. In my remarks today, I will provide some additional detail on revenue, walk through the first quarter income statement and some other key financial metrics and then finish up with our updated guidance for Q2 and the full year. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nOur first quarter results were very good as we had strong execution across all regions and markets. Revenue for the quarter was $1.36 billion with reported revenue growth of 5.7%. Currency negatively impacted revenue by 0.4 percentage points and acquisitions added 3.7 percentage points to growth.\\nOur core growth was 2.4% in the quarter.\\nAs Mike indicated, our performance was impacted by the extension of the Lunar New Year Holiday due to the Coronavirus. This reduced the number of shipping days in China and we estimate it shifted $10 million in revenue out of Q1. If not for the reduced shipping days in Q1, our performance would have been stronger with the shift affecting our core revenue growth by roughly 70 basis points.\\nIn terms of end markets, we saw growth across all of our six end market segments. Pharma, environmental and forensics and diagnostics and clinical led the way for us in the first quarter.\\nDuring the quarter, pharma grew 3%, double digit growth in DGG and high single digit growth in ACG, offset a mid single digit decline for LSAG. Within pharma, our biopharma or large molecule segment grew high single digits.\\nAnd on a geographic basis, our pharma business experienced high single-digit growth in the Americas and mid single digit growth in Europe. This was partially offset by mid single digit decline in China, largely associated with the timing of the Lunar New Year and to a lesser extent the execution of the 4+7 program. The 4+7 program is playing out as we expected with the third round completed in January and multiple winners per drug.\\nWe continue to believe that this is a long-term positive for the industry as drug quality improves and access to healthcare increases.\\nOur environmental and forensics business grew 4% against a very tough compare last year of 10%.\\nDuring the quarter, we saw balanced growth between instruments and aftermarket sales.\\nAnd diagnostics and clinical revenue grew 3% against a strong 11% compare last year. Mid single digit growth in DGG, driven by continued share gains in our pathology business, were partially offset by declines in LSAG and ACG with both only having small businesses in this segment.\\nChemical and energy revenue grew 2%. Services and consumables grew mid single digits offset by flat instrument sales. Academia and government grew 1% with services and consumables growing mid single digits, partially offset by flat instrument sales. Mid single digit growth in the Americas was partially offset by flat to low single digit declines in the other regions.\\nAnd finally, food returned a modest growth, up 1%. Low teens growth in services and consumables was partially offset by declines in instrumentation.\\nWhile one quarter does not make a trend, we are pleased with the continual progress in this market.\\nOn a geographic basis, we saw growth in all regions, led by Americas growing mid single digits. Europe grew 2%, in line with our expectations. And as Mike mentioned, our business in China was running ahead of expectations through the first two months of fiscal 2020.\\nAs mentioned earlier, despite the shift of the $10 million, China still grew 1%. If not for the extension of the Lunar New Year, our core growth in China would have been solidly mid single digits.\\nNow let's turn to the rest of the P&L. Gross margin was 55.7%, down 120 basis points versus the prior year. This is a result of the planned startup costs for our new NASD facility as well as product mix and some negative pricing effects on our instrumentation business. We offset 90 basis points as we leveraged our cost basis in operating expenses. And as a result, our operating margin was 22.9%, down slightly from 23.1% in the first quarter of last year.\\nAdjusting for the $10 million Coronavirus impact on revenue, operating margins would have increased versus the prior year and so we feel good about our continued opportunity to expand operating margins. We were also able to lower our tax rate slightly to 15.5% and expect that rate to continue for the rest of the year. This resulted a non-GAAP EPS for the quarter coming in at $0.81, at the top end of our guidance and representing 7% growth.\\nBefore turning to second quarter guidance, I want to touch on a few other financial metrics.\\nOur operating cash flow was an outflow of $59 million, in line with expectations as we incurred the one-time tax outflow of $226 million related to the transfer of intangibles as noted last quarter.\\nWe also paid out $56 million in dividends and purchased 726,000 shares for $60 million. We ended the quarter in a net debt position and a net leverage ratio of 0.9 times.\\nNow let's turn to our non-GAAP financial guidance for Q2.\\nWe are anticipating revenues in the range of $1.28 billion to $1.32 billion in the second quarter. This range is larger than we have traditionally provided as we have been tempted to estimate an impact of the Coronavirus on our business in the second quarter.\\nAs this is a fluid situation, we thought it would be helpful to detail all our assumptions, particularly as we have seen impact across both Q1 and Q2.\\nOur guidance contemplates a $25 million to $50 million impact in our first half of our fiscal year, which translates to roughly to a 1.5 to three week impact on China revenues. Of this, we saw $10 million in Q1 and we are estimating a net $15 million to $40 million incremental impact in Q2. The Q2 revenue range of $1.28 billion to $1.32 billion translates into reported growth of 3.4% to 6.6% with core growth of 1% to 4%. Currency is expected to have a negative 1.1% impact while M&A is expected to contribute 3.5% to 3.7% in the quarter.\\nWe are estimating the Coronavirus to negatively impact our Q2 core growth by one to three points.\\nOur revenue outlook translates Q2 earnings in the range of $0.72 to $0.76 per share, 1.4% to 7% growth versus last year.\\nImportantly, as Mike mentioned, we believe the majority of this business is not lost, rather delayed as customers and the government ramp and recover.\\nIn addition, our business outside of China remains strong.\\nAs such, we expect a larger second half of the year and are not changing our full year guidance for revenue or EPS.\\nSo before starting up the call for questions, I want to conclude by saying we have a very solid start to the year that shows the strength and breadth of our portfolio. It is that portfolio, coupled with the strength of the Agilent team that, despite the uncertainty caused by the Coronavirus, we are maintaining our full year outlook.\\nWith that, Ankur, back to you for the Q&A.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thanks Bob.\\nFor Q&A, I would like to request to limit to one question and maybe one quick follow-up. Julianne, if you can please provide instructions for Q&A.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions].\\nYour first question comes from Tycho Peterson from JPMorgan.\\nYour line is open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hi. Thanks. I appreciate you guys quantifying the corona impact. I guess, a couple of things. I mean you have previously talked about mid single digit China expectations for the full year.\\nSo should we assume that's still the case, just more back-end loaded? And then, Mike, as we think about collateral damage within China, how should we think about the C&E market, just given that the broader economic activity in China is slowing? So should we think about some impact on C&E as well?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Tycho.\\nI think I will handle both questions. And Bob, correct me if I go off script here. But I think we still think that the mid single digit number is doable for the year in China. What we are seeing already on ground from our team, I was just on the phone today with our team in China, we are still able to transact and orders are actually coming in as forecast.\\nI think that we think a lot of the procurement is going to occur a little bit later in the year. We think a lot of it's recoverable with the exception of probably some aspects of our service business where customers really are looking for service people to arrive on the sites.\\nI think we feel pretty good about how we are thinking about China throughout the rest of the year, albeit it being a very fluid situation.\\nAnd you know, we really haven't seen any kind of transitory or connected impact on C&E.\\nIn fact, C&E actually did better than we were thinking in the first quarter. It's too early to call it a trend but some of the PMIs are actually inching up which would maybe give an indication of perhaps a better outlook and some initial noise in some of our major accounts about thinking on procurement. But we still remain cautious in terms of the outlook for C&E but I am f encouraged by the Q1 results. And again, we are not really seeing significant movements around in that area on a global basis. And we think back to the first comment on China, we weren't expecting a lot in C&E this year in China anyway.\\nSo I think we are in pretty solid shape relative to the outlook there as well.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And then a follow-up on biopharma.\\nYou grew 3% on a 10% comp. Last quarter, it was 7% on a 14% comp.\\nSo you know, was that a pull forward last quarter? And if so, can you maybe just talk to that dynamic?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You know, I think the big story there is China, right.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. That's exactly right, Mike. There's two elements there. One is the shifting of the Lunar New Year from Q2 into Q1 as well as the extension of the Lunar New Year Holiday.\\nSo those are the two primary pieces.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And then within the pharma numbers, Tycho, the biopharma segment really was strong for us again this quarter as well. And then we think as the 4+7 initiative rolls out in the latter part of this year, then we will see the growth in the small molecule side of that space. And then, we have really strong growth in NASD and the ACG business is strong in pharma.\\nSo we are feeling pretty good about pharma.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you Tycho.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Doug Schenkel from Cowen.\\nYour line is open.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Doug.\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"Hi. This is Ryan, on for Doug. Thanks for taking my question.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"How are you, Ryan?\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"Maybe just to round out the China dynamic quickly, can you provide some more color on your supply chain exposure? Within China, it sounds like the operating environment is improving. But how should we think about your direct and indirect supply chain exposure? And do you see any risk to your ability to fulfill demand within and outside of China over the course of this year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sure, Ryan. Thanks for that question.\\nSo as I touched briefly on my call script, we actually have resumed production and are in a really solid position now to not only ship the product to our customers in China, but also products that are manufactured in China to have them exported into the global market environment. And as we have a very diversified global footprint in terms of supply chain and manufacturing capabilities, we think the near term, we are in pretty solid shape relative to ability to meet our commitments from a he shipment perspective. And then you also may recall that starting with the initiation of the U.S. based tariffs, we actually had initiated a movement of a lot of our supply chain out of China.\\nSo it actually has mitigated our risk here as well.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Ryan, this is Bob.\\nJust to follow-up, we have twice weekly calls with our team in China, inclusive of logistics as well as our supply chain. And obviously, it's quite dynamic but as it currently stands today, we feel like we have the ability to be able to procure not only raw materials but also produce the finished goods and ship not only within China but also get product into China and vice versa.\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"Great. And then maybe just following up with a brief two-parter. Number one, on the food market. It sounds like things were improving a bit prior to this Coronavirus dynamic. Can you talk a little bit more about what you are seeing in the market and if you think that the China portion of that market specifically could be poised to return to growth as we get past this Coronavirus dynamic? And then specifically for gross margin, can you talk about what the timing headwind was for the quarter versus the other dynamics that you called out? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You want to take this, Bob.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nSo on food, as I mentioned, we certainly are pleased with the progress we have had several quarters of kind of very predictable performance there. And actually Q1, despite the Coronavirus, it probably had more impact on the pharma side then in food. It grew 1% on a global basis. It was down slightly in China, but certainly not to the level that it had been in the past.\\nSo we feel good about that. It's probably too early to call that it's going to return to growth. Long term, we do believe it will return to growth, but not ready to call that in this fiscal year.\\nIn terms of the timing of the Coronavirus, that $10 million, that was quite a large incremental because we had all the costs.\\nSo that was probably a higher than normal kind of incremental drop to the bottomline. And that was probably a little over $0.01 of impact on the full quarter.\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"Very helpful. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Jack Meehan from Barclays.\\nYour line is open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Hi. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon Jack.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Hi. I was hoping could you give us an update on the NASD rollout at the new site and how much that contributed to the quarter in both DGG and the pharma end market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So as I imagine, you maybe getting a little tired of hearing this from Bob and myself. I am going to pull Sam into this conversation. But as we highlighted in the call script, the NASD business continues to ramp as we would expect.\\nWe are really pleased with the progress and how we are starting to fill out that factory. Still not yet at full capacity, operating at full capacity yet but it was a contributor to our growth in the first quarter, no doubt.\\nAnd Sam, anything else you would like to add there?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"No. Mike, you hit the nail the head. The business is performing as we have expected.\\nWe continue to see interest in all the customers, the pharma customers that we have given tours to.\\nWe are doing work now there for a number of customers. Not to be boring, nothing new to report. It is progressing as per plan.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So all good news right now.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I would just add, Jack.\\nYou know, as we have talked about, this will ramp up and be a more material impact in the second half of the year. It's progressing as we expected it. It had a slight impact to the DGG and a slight impact to the overall Agilent organic core growth and we are very pleased with the progress.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And Bob, I think I will just make this one more point too, while we look at the second half outlook for the business, it's not all about China recovery.\\nThe other elements of the business, including NASD, which we know we are going to have a strong second half.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That's right.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. One follow-up on DGG.\\nYou know, the core growth of 7%, not to nitpick it too much but was there any thing that was a little softer in the quarter in that segment, just knowing some of the other growth drivers relative to how the segment was growing last year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think it was really -- this is Mike, Jack and Sam feel free to jump in on this. We had 12% growth last year, so tough compares. We had solid growth across all elements of that business. And outside of again may be a China impact for an element of the business, things are firing on all cylinders also across the businesses is how I recall.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. That's right, Mike.\\nWe continue to have good growth, you know, with market, above market with our overall NGS portfolio.\\nSo we feel good about that. And the low double digits, our pathology business, as you heard on Mike's opening comments and Bob's as well, we believe we will continue to gain share there growing in the mid single digits. And you just heard about NASD.\\nSo you look at the major parts of DGG, we had I think a really well-balanced good quarter.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"It mainly is a comparison story.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. Thank you guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No problem.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Dan Leonard from Wells Fargo.\\nYour line is open.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Hi. Thank you.\\nSo just a couple of things to circle back to. One, what decelerated in the Americas in the quarter? Your growth rate in that region had been trending higher than 5% for quite some time.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Hi. Dan. Welcome back and appreciate the question. It was really a combination of a very tough compare. I would say probably the area that was a little softer was the instrumentation business. They had the most difficult compare in the first quarter and we would expect that to improve in Q2 through Q4 as we get to easier compares.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. I know, Jacob you were looking into this.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. And I think the continued depressed PMI certainly impacts C&E business, chemical and energy business.\\nSo we continue to see that in U.S. being performing at least flat and we would like to see improvement. But I think it's going to still take some time for that to happen.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I would add that you know, it ended where we expected it to be.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, sure.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"And then a related question. Bob you mentioned when discussing the gross margin dynamics that there were some negative pricing effects on the instrument business. Can you elaborate on that? Are you pulling maybe the pricing lever to drive more demand in the instrument business after four quarters in a row of very soft demanded at LSAG?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Dan, I just can't help but to jump in on this one. And I think that question should be posed to our competitors because we saw particularly as we finished the calendar year, we saw some very aggressive pricing by some of our competitors, particularly in the liquid chromatography and mass spectrometry platforms.\\nAnd I don't know if you are adding to that, Jacob.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"No.\\nI think it's fair to say that we continue to be premium priced but there is certainly some competition in the market space right now. And yes, so there is a price pressure.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"But we don't play the price game here. I mean that's not how we want to win.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. I appreciate the color. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Patrick Donnelly from Citi.\\nYour line is open.\"}, {\"speaker\": \"Jesse Klink\", \"content\": \"Hi. Thanks. This is Jesse, on for Patrick.\\nFirst, I just wanted to touch on the China impact. I mean you guys have laid out a 1% impact to core growth from that. I just wanted to understand how that compares to your expectations of Coronavirus made at a lower than anticipated?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Maybe just to be crystal clear here. We saw roughly a 70 basis point impact in Q1. We had product that was getting ready. It was staged and getting ready to ship.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"In-country.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And on the last couple of days of January and with the extension of the formal holiday, there was no one there to pick that up.\\nSo we know that was clearly an impact in Q1.\\nIn terms of Q2, what we are expecting between the first half of our year, it's roughly 1.5 to three week impact as we are ramping up. And most of that's happening in Q2.\\nWe are expecting in Q2 that the Coronavirus has roughly a one to three point impact to our growth in Q2, roughly $15 million to $40 million. In the first half, it's $25 million to $50 million. And we will expect to get that back in the second half of our fiscal year.\"}, {\"speaker\": \"Jesse Klink\", \"content\": \"Okay. That's helpful. And then just maybe one on the BioTek acquisition.\\nJust wondering how that business performed relative to expectations and just kind of how the customer reception has been so far as you have broadened the portfolio offering there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Jesse, happy to hit that right up. And relative to expectations, it's ahead of our expectations. It really has been just a tremendous addition to the company. And we are talking about this the other day inside the company. Typically, when you put together a deal scenario, it's often out of the gate, you don't see a team beating the revenue numbers all the time. And that is actually what we saw in the case of BioTek in the first full quarter as part of Agilent.\\nAnd Jacob, I know you have been talking to customers and how are they thinking about BioTek being part of Agilent?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Again, I just want to underscore once again that we have been very pleased with the performance of BioTek while it's been here in Agilent. But not only BioTek, the whole cell analysis business is doing very well and are we posting double digit growth for the whole business.\\nSo we are very pleased with that and we actually believe it is going to continue for quite a long time. We see cell analysis is going to be a key driver for understanding the immune system and immune oncology. And with now the Seahorse, ACEA and BioTek and Luxcel combined, we have a very unique value proposition. And that that is really what excites us and what also is very exciting for customs is that when we combine those technologies, these techniques together, we can create more insight for the researchers and the biopharma customers that nobody else in the industry can do.\\nSo this is very exciting and we are just getting started.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Puneet Souda from SVB Leerink.\\nYour line is open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes. Hi. Thanks Mike.\\nSo first question on Europe.\\nYou pointed 2% growth there. I was hoping to get a view from you on outlook and what you are baking in the guidance here? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks. Bob, why don't I just talk about our performance and you can maybe comment on the outlook.\\nSo it came in right as expected. And I think you know that Europe is in a difficult economic environment and we think our team is really doing well there relative to what's going on in the market environment.\\nSo we were actually quite pleased with how Q1 came out for us in Europe.\\nAnd Bob in terms of the outlook?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nSo Puneet, good afternoon.\\nAs Mike said, we were pleased with the outlook of being 2% and that's kind of what we are forecasting in Q2 and the rest of the year.\\nAnd so certainly the is doing a really great job of being able to deliver in a tough environment. But it kind of hit where we expected and that's kind of what we are expecting for the rest of the year as well.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. That's very helpful.\\nSo if I could touch back on China.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"I know it's been covered quite a bit. But I would really appreciate your thought there, given one of the strongest legacy positions in that country for Agilent.\\nAs the recovery happens here, are there certain segments which you think where you will see more acceleration, more faster recovery, certain product lines or certain segments where you would see a recovery faster versus others? And then I was sort of also surprised with growth you are seeing in ACG. CrossLab continues to deliver. I was trying to understand what sort of exposure you had there in China? And given the travel restrictions and everything, are you still able to ship products and service instruments seeing the growth in CrossLab here? Or how much was the impact in CrossLab, if you could quantify? Thank you.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Puneet, let me take, there is a lot into that question.\\nSo let me try to hit them.\\nIn terms of recovery, we would expect that obviously, the instrumentation portion would recover and within that probably pharma first.\\nAnd so we would expect that to be prioritized over some of the other markets.\\nIn terms of ACG, we continue to be pleased by the broad-based strength there. Actually even in China, despite kind of the reduced selling days, it grew 11%. We do expect probably a slower ramp up there, less on the consumable side as the factories are getting back to production, but more on the services side, as you can imagine having our folks getting into labs right now is fairly difficult and there is a portion of that would be on demand for servicing equipment.\\nAnd so we would see that probably ramp up a little slower in Q2 but then ramp back up to normal, latter half of Q2 and into Q3 and Q4. At least, that's our current assumption.\\nAs Mike mentioned, we have been in close contact with our teams in China and have been watching the order flow. And the order flow to-date is, across both ACG and LSAG as well as our DGG business which is a smaller piece, tracking to our expectations.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. And any sense in terms of the exposure that you have in China and could that mix change in the next quarter or so?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No. I don't anticipate a major shift.\\nWe have largely got a instrument heavy business in China relative to the rest of the business anyway. But our opportunity really lies in the consumables and service over time.\\nSo I don't see a dramatic change in Q2 or in the back half of the year.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Great. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Very welcome, Puneet.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Dan Arias from Stifel.\\nYour line is open.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Good afternoon guys. Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Dan.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Mike, just back to Tycho's biopharma question. Hi Mike.\\nNext quarter, I think the comp goes way down to low singles for that customer segment.\\nSo where are you feeling like biopharma growth heads in 2Q as we just think about the momentum in the favorable comparison, but also China? Can that be more mid singles when we net out the moving parts there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Dan.\\nI think that's a reasonable expectation.\\nSo when I was asked earlier about the pharma, we remain confident about our ability to grow in pharma.\\nYou know, part of it's going to be the pickup and continued growth that we are going to have in our NASD business.\\nWe also know that we are getting to some of the easier compares relative to the LSAG instrument business, because as you may all recall that's in the Q2 is when we starting seeing the slowdown as China went through this whole looking at their procurement practices around the generics.\\nSo we think there is a lot of good reason to be positive about the ability to have a higher growth rate in the outer quarters than we did in Q1 in our pharma business.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And we are expecting a faster growth in Q2.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Okay. And then maybe one again for you, Mike or maybe even Sam. It feels like 1Q is always a good time to ask this question, just given that most are heading down to AGBT. Any update you can give us on Lasergen product development? How much of a focus is that at this point? And then maybe what are you looking at in terms of the change in total investment there if we compare 2020 to 2019?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So I think, Sam, you are getting our bags packed, maybe at least now your team is getting their bags packed to head to that.\\nYou are staying home. That's right.\\nOkay. Maybe just a few comments on this.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Overall, thanks for the question, Dan, if you would have heard my comments already from JPMorgan, we are making progress on a number of fronts related to the development work we are doing on the Lasergen sequencer, particularly as it comes to the technical specs on our read length, on our quality and so forth.\\nSo we are continuing to make that progress. When you think about AGBT, of course, it's not just about sequencers, it's about the overall NGS workflow, it's about really looking at beyond NGS, the overall genomics.\\nSo we are excited about Magnis, which we introduced not too long ago.\\nWe are seeing, sorry to remind you, Magnis is this really walkaway automation for taking DNA libraries or actually putting DNA in and being able to come back and just load that directly onto your NGS sequencer.\\nWe have seen some really good interest in that in Europe, in America and in China.\\nSo we are going to continue sharing the message there and sharing some data from a number of customers.\\nWe also, as you would have heard us talk about, we have launched a new SureSelect XT HS2 DNA reagent kit which allows us to look at even lower starting amounts, down to 10 nanograms of DNA for FFPE which is very important for cancer. It also allows on Illumina sequencers. It's very important to be able to use molecular barcodes.\\nWe have that going on as well. And then we have a number of partnerships that we are working on with a number of customers and collaborators.\\nSo stay tuned.\\nI think it's going to be an exciting AGBT.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And Dan, the other part of your question was --\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Investment outlook.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nSo just quickly, our spending forecast in 2020 is the same as 2019.\\nSo we are not expecting any ramp up.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Okay. I appreciate it. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Derek de Bruin from Bank of America.\\nYour line is open.\"}, {\"speaker\": \"Derek de Bruin\", \"content\": \"Hi. Good morning or good afternoon. I have got a number of questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Derek de Bruin\", \"content\": \"First one is, I guess just on the gross margin outlook for 2020. Can you sort of walk it through the next couple of quarters in terms of how that looks?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. We talked about at the beginning of the year, our guide was contemplating roughly a flattish gross margin across the company and that hasn't changed.\\nSo we have always said that the first half of the year, with Q1 being the hardest of comparison because of the startup costs in NASD and you can see that kind of in our numbers.\\nWe also were affected a little less, as we mentioned before, in LSAG. We would expect that to recover as we get through the course of the year.\\nSo at a high level, Derek, I would expect our gross margins still to be within that range, roughly flat year-over-year. And where we are getting our operating leverage is really in the OpEx expense line.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Bob, I think we are also looking to see maybe more favorable mix in our instrument business as we move forward. And I made some comments about the pricing pressure that we saw more of a calendar year end kind of phenomenon with pricing more stabilizing as we started the 2020.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Derek de Bruin\", \"content\": \"Well, great. That segues into my next question on instruments.\\nAnd so I think you had said last quarter, you were expecting may be flattish instruments for the full year. Is that still sort of your expectation? And that leads into, any idea of sort of what pent-up demand could be? I mean do you sense from customers, particularly in C&E, if there's people waiting on the sidelines to buy when the budget gets better? I am just trying to get a sense of what the instrument dynamic looks like.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Hi Derek. This Bob.\\nI think the short answer on your first question is, yes.\\nWe are still in that range of roughly flat. Actually if you looked at Q1, we were down 2% core, but if you adjust it for the Coronavirus, it would been down about 1% on the most difficult comp that we had.\\nTo your point around C&E, there have been chutes of life and some of our customers looking at things.\\nNow what I would say is the Coronavirus kind of froze some of that into question. But I would say, that's still intact right now.\\nI don't know. Jacob, if you have anything?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"No. Overall, I do think that there is some pushed out pent-up demand here. And eventually, there will be a tech refresh. And we have invested over the past period quite a lot into our instrument portfolio and really refreshed across the whole portfolio.\\nSo when that pent-up demand is coming forward, we are ready. But we just can't call it right now exactly when that's going to happen.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Jacob, I will just add one thing. Early on in my tenure, we had a similar kind of slowdown in the C&E. The difference here is that, at that time, a lot of our platforms were rather aged. This time, we have a completely refreshed platform.\\nSo it also is a great productivity message there to customers. And our lab managers also have the ability to go to their management and say, listen, there is something new out there. I am not buying this, I am replacing like-for-like.\"}, {\"speaker\": \"Derek de Bruin\", \"content\": \"Great. And then just one, maybe I missed something, but you did 3.7% contribution from M&A in the first quarter, 3.5% to 3.7% in the second quarter and then the guide for the full year is 2.85 to 2.9%. Is it something else in the first half besides BioTek? And if not, why are you expecting a step down?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"So you have get very good math and we are not expecting a step down. The only thing that's in the numbers and that could be an area of potential opportunity.\"}, {\"speaker\": \"Derek de Bruin\", \"content\": \"Great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Brandon Couillard from Jefferies.\\nYour line is open.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike, just on a separate topic.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Can you sort of speak to the Twist settlement last week? Why only $25 million? And should we expect any legal savings from having that case out of the way now to reinvest those dollars?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo first of all, just a few comments on the settlement.\\nSo we are very pleased with the agreement that was reached with Twist.\\nAs you know, we think it's in the best interest of our shareholders to rigorously protect our IP. And not only in addition to receiving a payment from Twist, they also had to procure a license from us for certain aspects of our oligo synthesis technology. And we are really a company that's committed to doing innovation in the right way.\\nSo we are really pleased with how the settlement goes.\\nAnd Bob relative to the treatment of the legal expenses and outlook for the rest of the year? I think we have that in pro forma, right?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nWe will pro forma that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo you will see both the settlement come in, Brandon, as well as the costs associated with that, I guess, in our Q2 results.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That's right.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks. And maybe one more higher-level question for you, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"I mean you mentioned sustainability, that recognition. Clearly, that's becoming a much bigger focus I think for the investment community. Can you just help us contextualize that focus may help contribute to your growth or cash flow or differentiate you in terms of the customer base?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. It's a great question.\\nSo as I mentioned in my call script, we have been doing these things because we thought it was the right thing to do and now people are really paying attention to it.\\nSo I think it helps on multiple aspects of the business.\\nSo first of all, relative to our new products which have a very favorable environmental impact, there is real compelling reason for customers because a lot of our most important customers have their own sustainability initiatives and they are very interested. I have several European customers I am visiting next month and they want to hear about our sustainability plans.\\nSo when you talk to them about how we are reducing the footprint, the electrical consumption, that some of our products don't even use gases and that we have eliminated the use of gases and gas chromatography in the case the NPIs and we are reducing the size of the packaging.\\nAnd by the way, that also comes with the benefit to Agilent's P&L.\\nSo it really helps in terms of our customer relationships and our ability to drive sales into those accounts. And also it is really quite helpful for recruiting of new employees into the company.\\nNew employees when they are looking at potentially joining the company really want to know what Agilent stands for when we talk to them about our culture and what we do as a company in the local community, what we do for the environment, our views on diversity and inclusion.\\nI think it really is a powerful message to attract new employees to Agilent, but also for those who are part of the Agilent team to really be proud of the company they work for and be energized about where the company is going forward.\\nI think we have talked before, I am a big fan of sports and if you build a great team, you get great things happen in the marketplace or on the field. And I think that really is really one of the major benefits you get here which is what it does for your team.\\nSo it really is a multitude of impact for the customers, I mean for the company and something we really believe in.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Vijay Kumar from Evercore ISI.\\nYour line is open.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hi guys. Thanks for squeezing me in.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Vijay.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"One, maybe on China, Mike.\\nWe have heard some chatter of possibly the government initiating some sort of stimulus here to kick-start the economy. If that were to be the case, where would that impact fall? Is that in C&E and food? Is that where we would see your China numbers coming up?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Well, I have to say I have heard some rumblings of stimulus, but I haven't seen anything around the specifics of what a stimulus would be. I don't know Bob or whether you have anything to add.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No.\\nI think you are getting --\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"That's a likely area.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Exactly, I think that's a likely area. That and pharma.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And also, I would also expect environmental as well.\\nSo that would be my guess, because these are major quality of life initiatives that the Chinese government has been behind.\\nSo my guess is that's where they would put the stimulus. But again, we don't have any specifics. That would just be pure speculation on my part at this point in time.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Understood. And Bob, a quick one on the EPS guidance here. I see that the tax rate ticked down sequentially on the guidance front. Did anything change on the margins at all because it looks like the revenue range remains unchanged? So I am wondering if this is below the line or margins some sort of impact here?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Nothing material, Vijay.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"All right. Thanks guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Steve Beuchaw from Wolfe Research.\\nYour line is open.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Hi and thanks for the time everybody.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Steve.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"I guess first I wanted to start with Bob with just a question about one of the underpinnings of the outlook for the year that hasn't been touched on so much just yet and it's NASD, maybe a two-parter on NASD. One is, do you think we feel good about getting to a few dozen millions of dollars of contribution from NASD? And then can you give us any perspective and I guess maybe this is a Sam question, as to how much of the capacity on the new facility in Fredrick is now contracted? And then I have one for Mike.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Sure. Yes.\\nLet me make sure I answer your question correctly. What I would say is, Q1 came in slightly better than what we expected on the ramp.\\nSo we feel very good about that trajectory. Obviously, you know the second half of the year is going to be significantly greater than the first half of the year as we ramp up that business. And I would say that the order book, we feel very good about.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. And maybe Steve, to build on what Bob said.\\nWe have said that there is a ramp rate that we have been planning all along. That's what we are seeing.\\nSo as you really get into Q4, we will be much more in the run rate, if you will, of what to expect going into financial year 2021 in terms of the Frederick site in particular.\\nSo it's ramping as planned. It is being utilized. We were happy to produce good product and good revenue from that in this quarter again after starting last quarter. And further to what Bob said, a lot of these programs and projects are long lead, both working with our customers to really lay the groundwork and do the work.\\nSo though I can't tell you exactly what percentage, I do feel good about the percentage of programs and projects that we are already lining up going into next year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Steve, if I could just amplify one of the points that Sam made. It was absolutely crucial that those first batches we produce for customers met their expectations. And as you know, we are very cautious in terms of how we started positioning the ramp here because we just had to get it right and we have gotten it right for those first few customers.\\nI think that really positions us well when we look at the outlook for the rest of the year.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Okay. That makes a ton of sense. Thank you for all the color there. And then Mike, I wonder if we could just do the zoom-out thing, if you will, where we think about the full year. I mean there are so many moving parts, right. And the Coronavirus certainly makes it more complicated. But if I rewind to 90 days ago or so, there was a perspective, not necessarily from Agilent, but certainly in investor conversations that the outlook for fiscal 2020 was really conservative or significantly conservative. And I think we have, of course, heard from you guys over the years, outlook that started at one point and you pretty consistently do better than the outlook. I wonder if you could just give us your perspective on the outlook and guidance philosophy now that you know 90 days more than you did at the time you gave the outlook at the beginning of the year, to what extent is this middle of the fairway, to what extent is this conservative? And as you talk to your customers and you think about the outlook, I mean, how are you feeling and how has that evolved, just again really zooming out? Thanks so much.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Steve, so I am in the conference room zooming out right now and great question. And I think that that's how we thought about the full year guide, which I will leave it to you to prescribe the first adjective. I mean there were proper adjectives, but we started this year with a guide that we thought was relatively the floor of what we could do and talked about areas of potential upside for the business. And we were actually tracking well in the first quarter where it would have been a beat, both on the revenue and EPS side of the quarter, albeit the impact of the much talked about today the impact of the Coronavirus.\\nSo that's why we felt pretty confident about our ability to say, listen, there are still a lot of puts and takes relative to China in the near term, but there are other aspects of the business are doing extremely well outside of China, whether it be NASD or ACG business. The compares and the strength of our LASG instrument portfolio, that's gone on NGS.\\nSo we have a lot and then back to cell analysis.\\nSo we have a lot of confidence and whether we call it a middle of fairway right now, but we feel pretty good about --\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I would say, Steve, one thing. Obviously 90 days ago, we didn't have the epidemic that we are seeing right now which is unprecedented.\\nAnd so what we are trying to do is we are seeing, hey, in the first half of the year, we are expecting a $25 million to $50 million impact that we are going to make up in the second half of the year.\\nNow the question is, how fast. And we hope for everyone's sake that that will ramp up fast and we will get this behind us. But that's certainly puts a lot more variability in our forecast. We feel good about where our forecast is. But we certainly didn't anticipate that at the beginning of the year.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Okay. I really appreciate the color there. Thanks for bearing with me. I appreciate it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Steve. Great question.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from Bill Quirk from Piper Sandler.\\nYour line is open.\"}, {\"speaker\": \"Bill Quirk\", \"content\": \"Great. Thanks. Good afternoon everybody.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon Bill.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Hi Bill.\"}, {\"speaker\": \"Bill Quirk\", \"content\": \"So I guess Bob or Mike, just update on M&A.\\nYou had mentioned on the last call that you would be considering looking at larger deals in and around $1 billion.\\nJust curious what the update is?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think the statement I made in last quarterly call remains which is, we think that deploying our capital towards growth and earnings drivers on the M&A front makes a lot of sense for our shareholders in deals that makes sense for us, in markets that we know where we can really leverage the scale of the company. And we did our largest deal, BioTek, the past quarter. And as you heard earlier, that's off to a really good start.\\nI think we often get the question, well, how large you are willing to go? And the way, Bob and I have described it is, listen, we could go maybe multiples of that. But we are looking to stay in our lane here and not do anything that's magnitude larger than a BioTek.\\nSo I am not saying that BioTek is the max level. But probably multiples of that as opposed to something that's of a magnitude size.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And Bill, as you can appreciate, timing there is always very difficult to understand and we are going to remain disciplined. And if there isn't anything out there that would meet our financial criteria, we are not going to do it. We don't need to do M&A to make our model work. But certainly, you see in the first quarter the benefit that we have seen with BioTek and really building scale in cell analysis, which we think has a long term growth opportunity for us, not only in LSAG but across the business.\"}, {\"speaker\": \"Bill Quirk\", \"content\": \"Understood. And then just secondly, I guess kind of a bigger picture question about the pacing of CrossLab.\\nOver the course of the year, we are going to be heading into slightly more difficult comps for the next couple of quarters?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. The beauty of ACG has been it's predictability across the business and we are not expecting any dramatic change in the back half of the year with the possible exception of slightly an elevated ramp in China. But that business that Mark and team have built has been just phenomenal in terms of providing stable high growth and profitable growth over the course of the last several years. And I think that that, quite honestly, is a great legacy to what Mark has been able to accomplish. And not only that, it really speaks to what our customers are looking for in terms of productivity in the labs and so forth.\\nSo we would expect that to continue to kind of chug along as we have talked about in the past.\"}, {\"speaker\": \"Bill Quirk\", \"content\": \"Got it. Thank you very much.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are welcome.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"All right. Thanks everyone. With that, we would like to wrap up the call for today. Have a great rest of your day.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.\\nYou may now disconnect.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2020-05-21
year: 2020
quarter: Q2
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon, and welcome to the Agilent Technologies Second Quarter Earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers\\u2019 remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.\\nAnd now I'd like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Jody, and welcome, everyone, to Agilent\\u2019s conference call for the second quarter of fiscal year 2020. I hope that all of you and your families are safe and healthy.\\nOn the webcast today are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining for the Q&A after prepared remarks will be Jacob Thaysen, President of Agilent's Life Sciences & Applied Markets Group; and Sam Raha, President of Agilent's Diagnostics and Genomics Group; along with Padraig McDonnell, President of Agilent CrossLab Group.\\nYou can find the press release, investor presentation and information to supplement today's discussion on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website.\\nUnless otherwise noted, all references to increases or decreases in financial metrics are year-over-year, and revenue growth will be referred to on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now I would like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Ankur, and thanks, everyone, for joining our call today. I want to add my best wishes as well and hope that you and your families are safe and healthy. I'm pleased to have Padraig McDonnell, our President of the Agilent CrossLab Group, joining us for the first time today.\\nAs I mentioned last quarter, Mark Doak has retired from the company and Padraig is now leading the ACG. I know you enjoy getting to know Padraig better in his new role. I'm glad he could be here with us on the call.\\nLast quarter, Agilent among the first discussed the business impacts of COVID-19. Since then, much has changed as COVID-19 is now a global pandemic. The world is a very different place than it was back in February. But what hasn't changed is the attitude and execution of the Agilent team and our unwavering focus in four key areas.\\nLet me first talk about how we are protecting our people.\\nOur top priority is ensuring the health and safety of the Agilent team. Early on, we entered the global work-from-home policy and severely restricted travel. We implemented new work practices and safety protocols for our manufacturing teams and service engineers visiting customer laboratories. The team is really stepping up. True to the Agilent mission, our response to COVID-19 is driven by our commitment to our people and our customers.\\nIt should be no surprise then that our second area of focus is unwavering commitment to our customers.\\nWe are and have been open for business. From the early stage of the pandemic, we took decisive action to secure our global business operations.\\nWe are using innovative and more efficient ways to support our customers, from leveraging our digital capabilities, promote technical assistance to urgently delivering Bravo liquid handler systems for their COVID-19 test or providing live online guidance to keep labs functioning. We're doubling down on reps to support our customers. This is especially true as their needs change and evolve.\\nOur third focus area is taking quick and decisive action to preserve a strong P&L and balance sheet. When we experienced significant disruption to business activity in late March, we made change in our supply chain, logistics and business operations. This ensured counting order intake and our ability to deliver products and services to our customers.\\nWe also didn't shy away from taking swift action to reduce expenses.\\nWe quickly put in place a cost management program while reprioritize and sustained our growth investments.\\nAs we continue to sharpen our plans, we will not put our future growth opportunities at risk. Bob will share more details, but the top priority is monitoring our liquidity and cash flow.\\nWe have taken actions to ensure a strong balance sheet and financial flexibility.\\nThe positive impact of our approach shows in our Q2 results. In the midst of the spread of the global pandemic, the Agilent team delivered Q2 revenues of $1.24 billion. This is flat on a reported basis and down a little less than 2% on a core basis.\\nOur Q2 operating margin of 22.4% are up 50 basis points. We posted earnings per share of $0.71 during the quarter, flat versus our results a year ago.\\nBefore covering additional Q2 detail, a few comments on our fourth key area of focus, our continued prioritization on growth.\\nOur building and buying growth strategy remains firmly in place while we are taking decisive action on our cost structure to respond to the COVID-19 impact.\\nWe are continuing to prioritize investments in fast-growing markets such as biopharma that deliver incremental growth and help us create a more resilient business. When we all come out of this on the other side, Agilent will be poised for growth.\\nOur Q2 pharma growth is being driven by the strength of our biopharma business. This is a direct result of our building and buying strategy in action.\\nOur approach to investing for growth continue to serve us well and will be a major factor and help us emerge in the current environment stronger than ever. An example of our approach to continually assessing our growth investments is the decision we made regarding our cancer diagnostics strategy and the Lasergen sequencer development program.\\nGiven change in the marketplace, we believe we can now capture future growth in the NGS diagnostics space without the need our own sequencer platform.\\nAs a result, we made a decision to shutter our sequencer development program.\\nWe are redirecting our investments with the valuable intellectual property we\\u2019ve created into areas of higher interest. Despite this program change, we remain optimistic about continued growth in NGS cancer diagnostics.\\nLet\\u2019s now take a closer look at the quarter as well as the future outlook in today\\u2019s COVID-19 world. Last quarter, our attention and revised outlook is focused on our China team, customers and business, as COVID-19 spread to other parts of the world in the second quarter, the situation changed.\\nDuring February and March, our overall business was up about 1%, however, in late March, we faced significant disruption in business activity as Europe and the Americas restricted access to facilities.\\nOur China business is recovering better than forecasted. We posted 4% core growth in China with increasing strength throughout the quarter.\\nIn fact, in April, China posted strong growth, while all other geographies experienced declines.\\nWe expect that China growth recovery to continue throughout the year as lab operations and investments continue to resume. The near-term outlook in Europe and the U.S., however, remains challenging, particularly for parts across most end markets and non-COVID-19 diagnostic testing.\\nSome quick highlights across our businesses, both DGG and ACG delivered core growth. DGG\\u2019s 5% growth is driven by NASD, up 35% as the ramp of that business continues as planned. ACG was up 1%.\\nOur LSAG business declined 7% as customers curtailed equipment purchases, although we did have pockets of growth in biopharma, cell analysis and COVID-19 testing and research.\\nFrom an end market perspective, pharma grew 5% in the quarter, followed by 4% growth in diagnostics and clinical. The food market continues its recovery with a modest 1% growth driven by China.\\nOur environmental and forensics business is down 1% for the quarter. In Q2, academia and chemical and energy are the end markets that are most impacted, down 16% and 10%, respectively.\\nWe expect continued pressure in these markets throughout the rest of the year, although we are seeing some pockets of growth in chemical production regionally as some customers shift supply chains.\\nLooking forward, we expect Q3 to be the most challenging quarter of the year, with gradual improvement during the course of the quarter and continuing into Q4.\\nAs a key player in the life science industry, Agilent also has an important role to play in the fight against COVID-19.\\nBefore closing, I\\u2019d like to share a few thoughts on our COVID-19 offerings.\\nWhile the COVID-19 virus is negatively affecting our overall growth at this time, Agilent is supporting several aspects of COVID-19 research and testing, along with therapeutic and vaccine development. In Q2, this resulted in a one-point tailwind of growth, primarily in providing instrumentation. There is potential that this will become a more meaningful tailwind in future quarters.\\nTo address this, we have mobilized across Agilent team to maximize support to customers around the globe fighting the virus. These offerings range from instrumentation, such as automation, PCR and marketplace testing to consumables and components necessary for testing as well as lab support to these customers.\\nAs we enter Q3, I want you to know that the global Agilent team is energized and remains focused on supporting our customers and driving growth.\\nWe have taken swift and decisive actions to ensure a continued strong P&L and balance sheet. We remain a diversified, resilient company with a bias for speed, execution and growth.\\nThank you for being on the call. I will have a few closing comments after Bob speaks, and then we look forward to taking your questions. And now, Bob, you\\u2019re up.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thank you, Mike, and good afternoon, everyone.\\nBefore I begin, I want to repeat what Mike and Ankur said and hoping that you are doing well and staying safe.\\nLooking forward, I, for one, am confident we will get through this and look forward to the day when we can follow up these calls with face-to-face meetings again. In my remarks today, I\\u2019ll provide some additional detail on revenue, walk through the second quarter income statement and some other key financial metrics, and then finish up with a framework for thinking about Q3.\\nGiven the current volatility and uncertainty that exists, we\\u2019re not going to be providing specific forward-looking guidance today. That said, in the spirit of trying to be helpful and transparent, we will provide a glimpse into the evolution of our business during the second quarter and our thought process and how things may play out in the coming quarter. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nReported revenue for the quarter was $1.24 billion, which was flat versus last year on a reported basis. Currency negatively impacted revenue by 1.6 percentage points and acquisitions added 3.3 percentage points to growth. On a core basis, revenue declined 1.7% in the quarter. The pacing of revenue during the quarter varies significantly by region driven by where each region was in the cycle of precautionary measures, being taken to slow their spread of the virus.\\nAs we previously disclosed, we saw overall business activity slow in late March, driven by the U.S. and Europe. The stay-at-home measures in those regions reduce lab operations and limited lab access and our ability to install equipment. This lower level of business activity carry through the month of April resulting in double digit declines for the month in those regions.\\nOn the other hand, and as we had anticipated business activity picked up throughout the quarter in China, as restrictions were slowly lifted. We saw strong growth in China in April, partially due to catch up from lower business volumes in February and March. Overall, China grew 4% for the quarter, exceeding our initial expectations at the start of Q2. In total for Q2, quarter-to-date results through March were up 1%, while April was down roughly 6.5%, resulting in the 1.7% core decline.\\nBefore getting into some additional group details, it\\u2019s also important to note while we have seen some order push outs, we have not seen increased order cancellations.\\nWhile there are always some level of cancellations in both March and April cancellations were actually lower than the previous year.\\nOur resilient business model was extremely important to us as we navigated the effects of a challenging environment.\\nAs Mike mentioned, DGG and ACG both grew on a core basis, while LSAG instrument business declined. LSAG declined 7% core in the quarter, but did see some bright spots with growth in large molecule pharma, cell analysis and COVID-19 testing and research.\\nIn addition as Mike mentioned, we had modest growth in the food market.\\nFor LSAG the impact of COVID-19 related closures was most pronounced in the Academia and government and chemical and energy markets. ACG grew 1% with China growing in the high single digits.\\nOur ACG results were negatively affected by delays and installations and lab closures in Europe and the Americas during the quarter.\\nAnd I\\u2019m pleased to say that our DDG business delivered 5% growth during Q2, and it was on track for double digit growth prior to the slowdown in U.S. and Europe. We saw sequential growth in genomics, boosted by products used to develop testing capabilities and for vaccine research into COVID-19. And as Mike mentioned, our NASD ramp remains on track and delivered excellent growth this quarter as well. The pathology business grew in all regions except for the U.S. where the affects of delayed and non-COVID-19 related medical procedures was more pronounced in April. On a geographic basis, all regions ranged from flat to down 4% for the quarter with Europe down 4%, Americas down 1% and Asia Pacific flat. And within Asia, as we mentioned, China grew 4%.\\nNow let\\u2019s turn to the rest of the P&L.\\nAs the expanded impact of the pandemic became apparent, we moved quickly and decisively to adjust our cost trucker through targeted discretionary spending program reductions.\\nWe continue to invest in our key growth opportunities and important capabilities, such as digital.\\nFor example, we leverage digital and virtual reality investments for our field service engineers to continue to support our customers where we did not have physical lab access.\\nWhile we took actions across the P&L, we focus most of our effort on SG&A. R&D investments as a percentage of revenue were largely unchanged from the prior year.\\nAs a result operating margins of 22.4% improved 50 basis points over last year on flat revenue. Gross margin at 55.4% was down 60 basis points versus the prior year, mostly due to volume and the revenue mix shifting more towards services.\\nIn addition, we saw higher logistics costs as moving goods internationally became more expensive. This combination of factors resulted in non-GAAP EPS for the quarter coming in at $0.71 per share flat with the number we posted a year ago.\\nNow in terms of the balance sheet, we were in the market early in the quarter, repurchasing 1.66 million shares for $126 million. In late March, however, we suspended all our share repurchases to maximize our liquidity and financial position.\\nWhile not in our current plans for Q3, we continue to monitor and evaluate when repurchases will resume.\\nWe generated $313 in operating cash flow during the quarter, which is a $61 million improvement over last year, despite building some raw material inventory to assure supply.\\nAdditionally, we've taken steps to reduce our capital spending by roughly one-third for the rest of the year.\\nIn addition, we ended the quarter in a strong position with $2.1 billion in available liquidity, including $1.3 billion in cash and roughly $800 million available under our revolving credit facility.\\nOur net leverage ratio as defined by net debt to EBITDA was 0.9 times.\\nGiven our cash flows and our strong financial position, there is no change to our dividend.\\nAs you may recall, we withdrew our 2020 guidance in mid-April due to the uncertainty surrounding the duration and severity of the global COVID-19 pandemic and the impact on the global economic environment.\\nWhile various countries have started working towards reopening, the pace and effect of global reopening efforts is still unknown.\\nSo we won't be providing guidance for Q3 or the full year.\\nHowever, we did want to provide a framework and a range of possibilities for how our business could unfold in the coming quarter.\\nWhen we look at Q3, we expect May to be very similar and the business activity is very similar to April and the business activity we've seen in the first few weeks of the month confirmed that. We anticipate that China will remain ahead of the curve in terms of economic recovery, relative to the rest of the world.\\nWe expect pharma and our services, particularly contracted services, which make up the majority of our service revenue to remain resilient. And we will be following the consumables business very closely to monitor early signs of recovery and demand patterns.\\nA combination of these factors could result in our revenues being down between 5% and 15% on a core basis. At the lower end of the decline, we assume activity in June and July will continue to improve, with the COVID-19 offerings Mike mentioned having a more significant impact than the 1$ contribution in Q2.\\nOn the higher end of the decline, we\\u2019re building in the assumption that there would be no significant improvement throughout the course of the quarter in the U.S., and Europe, that non-COVID-19 testing would not recover, and China would plateau.\\nWhile this is a wide range, there is still significant uncertainty in the pace of recovery as the U.S., and Europe are currently lifting restrictions. We hope that the 15% decline proves very conservative but wanted to provide you with some of the assumptions we are using to manage going forward. In Q3, we expect a two-point headwind due to exchange rates, and M&A should be a three-point tailwind.\\nAgain, this is not formal guidance, but should give you a sense for some of the variables we are looking at within the business and believe this is the best way to view the third quarter given the uncertainties that exist.\\nAs Mike said, we also believe that fiscal year as the world works through reopening the economy. Overall, I feel we are very well positioned to deal with this challenging environment, accelerate market share gains and come out even stronger as the global economy recovers.\\nBefore I turn the call back over to Mike, I want to conclude by saying Agilent\\u2019s performance for the first two quarters truly shows the resiliency of our company. I also want to thank the Agilent team for remaining focused on supporting our customers during this time. And, I\\u2019d be remiss without a shout out to the finance team for being able to close the books in such a professional manner with everyone working from home. We\\u2019ve taken the actions that will serve us incredibly well through the rest of 2020 and into the future.\\nAnd with that, I believe Mike would like to share some final thoughts before we move on to the Q&A. Mike?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, thanks, Bob.\\nBefore we take your questions, I want to close by saying that I couldn\\u2019t be more proud of our Agilent team. The idea that difficult situations provide the opportunity for organizations and individuals to step up and exhibit strength, leadership and resiliency has never been more true at Agilent.\\nThe Agilent team has been tested during this crisis like no other time and they have not shied away from it. Instead, we have answered the call with world class execution, an even stronger focus on customer service and an inspired creativity that is second to none. I am absolutely convinced we will emerge from this pandemic as an even stronger force in the marketplace.\\nAnd, with that, I will turn things over to Ankur so we can take your questions. Thank you.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you. Jody, if you can open the line for Q&A, please.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] And our first question comes from the line of Tycho Peterson of JPMorgan. Please go ahead.\\nYour line is open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Thanks. I'm going to start by asking about the guide.\\nYou said China is plateauing.\\nSo what I guess sequentially is getting worse here since you captured April in the prior quarter. Why should things be deteriorating for the upcoming quarter? And then, on the COVID tailwinds did the 35% growth you called out in NASD, does that capture anything around COVID manufacturing? Or can you maybe just touch on what drove the strength there too?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Do you want to take that one?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Thank you, Tycho. And this is Bob, I'll take the question. I'll actually take the second question first around NASD. The NASD growth is on the ramp that we had talked about previously. It actually has to do with COVID-19 testing or research. It's mostly the activities that have continued in our pipeline of products and clinical testing that has happened. And we're very pleased with the progress there.\\nSo that has nothing to do with the COVID-19 testing.\\nOn the first question that you had, again, this isn't guidance it's kind of a range of scenarios that we're planning.\\nAnd we hope that the bottom end of that or the minus 15% would be very conservative.\\nIf you look at, we are expecting May to be very similar to April, which would hopefully be the bottom and then improvement in June and July. And but if there are relapses, if China does relapse, or there is a slowdown in that growth that would be the bottom end of the range.\\nSo it's a wider range than we would normally have. But there's obviously very much a lot of uncertainty around the forecast.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And on the uncertainty, chemical and energy, you mentioned customer shifting supply chains. Can you maybe just talk about how much of the sequential step down here at C&E and given the volatility in oil purchase, how much of a factor that is?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure. Yes, Bob, I'll take that one.\\nSo I think for C&E for Q3, basically, we assume than it kind of looks like Q2 and with the potential that the investments that we're starting to see inclinations of a regional approach to this pandemic is really cause many parts of world to rethink their supply chain.\\nSo we're seeing early indications of moving of on shoring ensuring certain types of critical chemical components in certain geographies.\\nSo that could represent them upside I think. But basically, we're assuming kind of current situation continues into Q3.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Tyco, if you look \\u2013 if we took our chemical and energy end market and looked at the first two months versus April, they were roughly the same.\\nSo we said it was down 10% in the quarter. It didn't have a material change in April.\\nOne of the businesses that did was academia and government.\\nSo academia and government with the lab closures and so forth was worse in April than it was in other markets. But chemical and energy was pretty steady throughout the quarter now albeit down.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. And then one clarification point\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay.\\nSorry, I was going to add to that.\\nI think when we talk about chemical and energy, it's important to keep in mind that about 70% of that segment is actually chemicals, including material testing.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And then just one clarification before I hop off on Lasergen, again, it sounds like, this is a full write down, is that correct? You're kind of abandoning your project. That seems a little bit different than what you talked about back at our conference in January.\\nSo can you clarify, what changed there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Well, actually you reference your conference a lot changed after the conference where we saw a number of new announcements indicating there were some changes in terms of how certain competitors in the space were thinking about access to the platform.\\nSo that caused us to rethink our current investments and we had an opportunity to really move our program forward without needing to invest directly in a sequence or platform of our own. And Bob, I'll let you comment on the financial side of that.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. It is a full shut down and we will have a write-off in Q2.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"And our next question comes from the line of Steve Beuchaw of Wolfe Research. Please go ahead.\\nYour line is open.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Thanks for your time here. I wanted to ask, first of all, on the strategic activity in this space. One thing that we've seen across tools and devices is this upwelling of interest in capital raise in part with a view that there is an opportunity for accelerated capital deployment, given potential for opportunity here.\\nYou guys have a uniquely strong balance sheet comparatively, certainly plenty of liquidity. I wonder if you could speak to how you think about capital deployment and the intensity of capital deployment in the next year. And then I have two follow-ups. Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think from an Agilent perspective, our overall thesis of building and buying still stays intact where we'd like to deploy capital in M&A, that makes sense for the company. And we've talked about our criteria around end markets that we know, where companies that we've acquired and have higher levels of growth in the overall company average accretive.\\nSo that formula remains relatively unchanged. But we have noticed as some of these moves as well.\\nSo I think that speaks to a continued robust interest in the M&A pipeline across the industry. I'd also tell you the valuations haven't moved much.\\nSo this is not a buyer's market and you can buy things on the cheap, so you really have to be think through what you're looking at and does it make sense for the company? Anything else you'd add to that, Bob?\\nSteve, do you have a follow-up or\\u2026\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Yes.\\nSorry. I thought Bob might chime in there. But I have two follow-ups. One is, I wonder if you could speak to activity on a month-to-month basis and the extent to which you think there might've been any sort of April snapback.\\nYou commented on specifically in China, but any snapback activity in other parts of the world and the extent to which people might be trying to ramp quickly and how that might reflect, not just in China, but on \\u2013 growth is a trend line prospectively for non-China regions. And then one just quick one, I am curious how you guys are thinking about planning for growth in CrossLab given that, CrossLab historically been a very strong grower and some component of the CrossLab growth story has been penetration into new categories, is that penetration story still active in the current environment. Thanks so much.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I'll take the first question in terms of the pacing, Steve and you're right. What we have seen is that the pacing by region really follows kind of how the pandemic spread and then how the countries are coming back.\\nAnd so what we saw was a more pronounced, obviously in China that has \\u2013 I wouldn't call it a snapback, but it's a recovery. And we're actually seeing the same thing in Europe, where Europe, we felt more of the pain, and that it's actually coming back faster. And then the U.S., and now we're starting to see some of the U.S., it\\u2019s still very early days in the U.S., but you are seeing kind of that \\u2013 that kind of wave of recovery happening throughout the course of each one of the regions. And I'll turn it over to Padraig to give a chance to talk about the CrossLab\\u2019s business, but we remain incredibly bullish about that business. And I think even more so now, given some of the proof points that we have in terms of being able to support our customers, both directly and through our digital means. Padraig?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Thanks, Bob. And I think yes, very, very strong demand. We're seeing, for example, in our service business, a lot of strong tracks which really help our customers be productive and help with startup services and actually achieve a critical component in the services.\\nOn the consumable side, we certainly saw a strong demand in China, a big snapback up on in terms of a demand for our products that are really supporting workflows. And we see this continue especially around a lot of the digital capabilities that we've developed and our way of interacting with customers. The last thing, I would mention is that also our productivity story in CrossLab about our lab enterprise business is doing extremely well. And also we really shows that the customer need for productivity in these times on beyond going forward is going to be very strong.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And Steve, let me add just one other thing. In the case, obviously ACG grew 1%, it would have been stronger \\u2013 several points stronger. We did have some deferrals because we couldn't install the equipment and we recognize a portion of the price for the service, the training and installation and so forth.\\nAnd so that is revenue that is on the balance sheet today and it will come back to us in the course of Q3 and Q4.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Okay. In Q2, this particular quarter was not a good indicator. Much appreciate it. Thank you very much.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Patrick Donnelly of Citi. Please go ahead.\\nYour line is open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great. Thanks guys. Mike, maybe one for you on the C&E segment, certainly encouraging to hear there was no real deterioration in April. Can you just talk through the exposure there? Obviously, E&P pretty correlated to oil prices. Maybe on the refining side, how has that reacting to the oil decline? I know typically low oil could actually be a positive if it's over supply. It feels like at least part of what's going on now is low demand, but maybe just talk through what you're seeing there and the expectations going forward.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. That\\u2019s a great question. And what we also try to think through, what\\u2019s really behind the lower oil price. And I think this time, you\\u2019ve got two things going on, right, which was oversupply and then really driven by, obviously, the COVID-19 and the slower growth in the economy and demand for those services. But I\\u2019m really glad to get a chance to comment on the mix of our business because that segment is pretty subdued right now. But over the years, we\\u2019ve continued to have more and more of our business move into the chemical side of that.\\nSo roughly about 70% of our business in C&E is in the chemical side and really saw much different dynamics in April, actually, almost all through all Q2, where the energy segment was pretty subdued where limited investment there, mainly business was carried forward through our ACG business, but really not a lot of demand on instruments, different kind of scenario on the chemical side.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. And then maybe on the other side of COVID, obviously, academic labs closing during this understandable that they should snapback quickly. I guess, how do you feel about the C&E segment? Does it feel different where, again, labs reopening, demand comes back quickly, do you think this will linger because of the oil prices? What\\u2019s your outlook, maybe again? Not asking for guidance by any means, but over the next 6 months to 12 months, does this have the potential to linger versus some of the other ones that should snapback?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"In my prepared remarks, we basically said we expect this segment to be subdued for the foreseeable future.\\nSo it\\u2019s really just tied to events that I\\u2019m just not smart enough to figure out myself, which is when does global growth start to get solidified and when does it start to turn.\\nI think what we wanted to point out, there actually are some little glimmers of positive aspects of C&E business, particularly the COVID-19 has exposed the fragility of the world\\u2019s supply chain. And we\\u2019re seeing many customers and many governments, they want certain critical components made in their country and made in their region.\\nSo we are seeing indications across multiple industries of onshoring initiatives actually starting, which would speak to some longer-term growth prospects in this space. But don\\u2019t get too excited. This \\u2013 I would just say, let\\u2019s assume that it\\u2019s going to stay subdued for a while as we\\u2019re thinking about it right now. Hence, the reason why we went through the guidance in Q2, because some of these are just too difficult to predict the timing of transition.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And I would say, Patrick, just on that, obviously, the more subdued piece is the instrumentation\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, yes, yes, absolutely.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And we will see the snapback or the improvement first in the ACG business.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"That\\u2019s really helpful. And then a very quick cleanup on NASD, following up Tycho\\u2019s question there. Do you guys have capacity to increase the address demand from COVID? Or are you already kind of maxed out in terms of the build out and just as you build out capacity, it\\u2019s kind of addressing?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We are not capacity constrained. And now, we continue to build out the new facility in Frederick as well as optimizing our Boulder facility. And while I can\\u2019t share specific names, I can tell you that there are programs underway that aren\\u2019t in the revenue yet right now that are related to COVID-19 work.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great. Thanks a lot, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Derik de Bruin of Bank of America. Please go ahead.\\nYour line is open.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Derik.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hello, good afternoon. Hi. Couple of questions, just a couple of cleanups. The NASD base now in 2Q, what\\u2019s that \\u2013 where are we in terms of revenues? That was up 35%. I\\u2019m just curious on the base.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. It\\u2019s tracking well to the number that we talked about at the \\u2013 or what people have estimated, ramping up to $150 million kind of run rate. It\\u2019s tracking well to that.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Great. And what are you going to do with the \\u2013 are you reinvesting the Lasergen money into the business? Or is that going to drop through? Are you going to \\u2013 and can you remind us on what you were spending on that I think it was around $50-ish million.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. No, it was about $30 million a year. That was what was kind of forecasted this year. We\\u2019ve spent basically half of that.\\nSo the second half of the year, that\\u2019ll be a combination of reinvesting where appropriate and also managing the dynamic situation that we\\u2019re in, in terms of COVID-19. Hey, Bob, I think we had the full cost of the program in our Q2 results, in our next quarter results.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That\\u2019s correct.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And there\\u2019s some real talent in that team, and there\\u2019s some really great intellectual property that we think we can really deploy in other programs.\\nSo we\\u2019re looking to go forward that combo approach, as Bob mentioned.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"So you mentioned that you\\u2019re seeing some of your chemical customers think about their supply chains and move around. What about the pharmaceutical customers? I mean, obviously, there\\u2019s a push looking about bringing API manufacturing back, and you\\u2019re a big player there. And this also sort of dovetails with another question on geopolitical tensions. And are you worried about the longer-term impacts of what\\u2019s happening now between the U.S. and China in terms of your China business?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I\\u2019ll \\u2013 hey Derik, this is Bob. Yes. I\\u2019ll take the first one, and I\\u2019ll leave the second one to Mike.\\nI think on the pharmaceutical one, we\\u2019re actually watching that very closely. It\\u2019s different than the chemical side because I think the chemical side will probably move a little faster than this. Obviously, there\\u2019s regulations, but you are seeing discussions about that even as recently as earlier this week about the U.S. providing a contract here in the U.S. for some APIs and so forth.\\nSo we actually think \\u2013 we\\u2019re watching that closely, and we think that, that could be an opportunity for us as those new labs or capacity come out, because our offering here is, I think, second to none, and so more to come there. It\\u2019s probably not as fast-moving, but we certainly is on our radar screen.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And without waiting in too deeply on the political dimension of things today, what I can tell you is we\\u2019re actively scenario planning. We \\u2013 under potential scenarios around changes in trade policies and supply chain.\\nSo we don\\u2019t want to be caught in the reactive mode that we were when tariffs were first announced a few years ago.\\nSo our teams are really working through a number of different strategies right now.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"And if I can squeeze one more in.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, sure.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"While Agilent doesn\\u2019t do \\u2013 you don\\u2019t supply testing products for COVID-19. I mean, obviously, how are you thinking about testing and deploying testing for your employees? And I\\u2019m sort of curious about, are your customers demanding that you get tested or people come in? Because there\\u2019s some very large numbers being thrown around in terms of the size of the testing market.\\nAnd so I\\u2019m just curious in terms of what you\\u2019re thinking.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, a couple of things right now.\\nSo first of all, although we don\\u2019t provide kits directly ourselves, we provide a lot of the components and ingredients, antibodies and other enzymes, that go into testing kits.\\nSo we\\u2019ve \\u2013 I\\u2019ve personally involved in a number of calls where customers and governments are looking for us to assure to supply to them.\\nSo I think we\\u2019ve got a good feel for the demand that we\\u2019re seeing out there. Relative to our own employees, right now, we\\u2019re not requiring employees to be tested for \\u2013 return in the office.\\nJust a reminder, about 85% of the employees now are, for Agilent, are working from home, and we\\u2019re going to be very, very careful on phasing in the return to office.\\nSo we\\u2019re thinking this through. Once more routine testing does become available, that\\u2019s probably something we would look at pretty closely. But we\\u2019re in no hurry right now because our teams are working from home right now.\\nRelative \\u2013 it\\u2019s funny. We keep asking that question of our \\u2013 particularly our service teams, and that has not come up yet.\\nSo we\\u2019re continuing to monitor. But right now, we\\u2019re not seeing requests from our customers to have any type of testing done prior to our employees coming onto the site. Clearly, we have to follow that our safety protocols, and we offered our team with the right PPE and the right training. But on the testing side, we\\u2019ve not yet seen that.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Thank you very much.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Dan Leonard of Wells Fargo. Please go ahead.\\nYour line is open.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Thank you.\\nSo hate to overanalyze one month, but I want to circle back to the month of April.\\nSo 6.5% down is not so bad for all of the news we\\u2019ve seen. Can you \\u2013 you mentioned strength in China. Can you quantify China? I mean I was doing some back of the envelope, but it looks like it might have been greater than 20% growth in April in China. Is that in the right ballpark?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nYou\\u2019re in the ballpark.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You\\u2019re pretty at good math, Dan.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. And then maybe separately follow-up. Mike, it does seem like you don\\u2019t trust the trend in China. And how much of that is just uncertainty around the virus trajectory versus the maybe geopolitical or any other things?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Dan, thanks for the follow-up question. I do trust the trend in China.\\nSo I hope that didn\\u2019t come through that way in my remarks.\\nSo actually\\u2026\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. There\\u2019s the plateau earlier. I wasn\\u2019t sure.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No, no. That was sort of the worst-case scenario that Bob was trying to put together this framework, said, well, we could be wrong. And if it\\u2019s wrong, we \\u2013 this is what the implications would be. We don\\u2019t think we\\u2019re wrong. But if in case we were wrong, this is \\u2013 you see that far end of the framework that Bob described. But in fact, Q2 China growth was better than we had expected, and we believe it\\u2019s going to continue to return to higher levels of growth throughout the quarter. And I hope a few of you noticed that the China food also grew in Q2.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Great. Thank you for that clarification.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Doug Schenkel of Cowen. Please go ahead, your line is open.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Hey, good afternoon, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Doug. How are you doing?\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"I\\u2019m doing well, thank you.\\nSo maybe a quick follow-up to Dan\\u2019s question, cutting it in a different way. Bob, you said May is going to be similar to April, but you acknowledged, again, in answering the last question that China continues to get better. Logically, I think that means something or somewhere still must be getting worse coming out of April into May. Maybe I\\u2019m just being a bit too forensic with how you position this. But I\\u2019m just wondering, are there areas where you saw and continue to see continued deterioration as we sit here in mid to late May?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, we haven\\u2019t seen any continue \\u2013 again, these are one point out of the month, right, but \\u2013 or one point out of a year. But May is trending the way April trended in total.\\nAnd so we\\u2019re not seeing anything that is dramatically off pace.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I think Bob, it\\u2019s \\u2013 maybe this is worth mentioning that we don\\u2019t go in a lot of details on the order front, our order forecast have been tracking well for both April and through this point in time through May.\\nSo, yes.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"That\\u2019s great. Helpful color.\\nRegarding ACG trends, specifically on the consumable side, what did you see in April and then what was that trend into May. Consumable use picking up would be a really great sign that more people are getting into labs, and as you noted, a good leading indicator for future demands.\\nSo I\\u2019m just wondering, recognizing it\\u2019s an unusual time, if you\\u2019d be willing to go to that level just because it\\u2019s important for you in the group. And if so, if you\\u2019d say anything about specific end markets and geographies?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I would say, generally speaking, our consumables business has started to pick up. And I\\u2019ll just leave it at that.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"And it\\u2019s tied directly to the opening a facility.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You can draw a parallel, where things are opening up.\\nYou see the consumables recovering. It\\u2019s recovering much faster than the instrumentation. And that\\u2019s really \\u2013 that\\u2019s why we keep using word uncertainty, because we can\\u2019t project exactly how certain facilities will open up. But we know when they opened up in China, we\\u2019ve gotten the business. We know as they\\u2019ve been opening up in Europe, we\\u2019re getting the business. And then when they\\u2019ve slowly been opened up in the U.S. but getting the business, with the exception being universities, which aren\\u2019t opening up right now, unless you\\u2019re doing COVID-19 research.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Correct.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. Super, helpful. Last one, cell analysis. Can you talk a bit more about trends in this business in the quarter? You had a good quarter. The business grew year-over-year.\\nI think on the surface, that\\u2019s a bit surprising just because of the heavy mix of heavy, the exposure to academic research. How are you able to pull that off?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Doug. Thanks for the observations there, because there is a big footprint of the business in academia, but the overall business did grow. And I think I\\u2019d like to give the opportunity to Jacob to crow a little about what\\u2019s going on there.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely. Thank you very much. And it is actually a good story. I mean, as you say, Doug, it is a tale of two cities that clearly academia and government has been challenged during this period of time.\\nWhile our exposure in biopharma has really picked up here. And furthermore, we have also seen quite some interest for the BioTek ELISA and [indiscernible] in for the theology testing.\\nSo with that, that\\u2019s actually quite good demand.\\nWe also see a flow, will have a tremendous growth. We see a lot of the flow instruments being used in the research sector right now to better understand the cytokine that is happening in \\u2013 relates to the COVID-19.\\nSo overall, both the biopharma space is seeing strong demand. We\\u2019ve seen demand into the diagnostic testing on the COVID-19. And then obviously, academia and government overall is challenging, but we do see pocket of interest still there.\\nSo overall, great performance.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Jacob.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay, great. Thanks, again.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"And our next question comes from the line of Puneet Souda of SVB Leerink. Please go ahead, your line is open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes, thanks. Hi, Mike.\\nFirst one on NASD.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Puneet. How are you doing.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Great, great. Thanks, Mike.\\nSo the first one on NASD. Great to see the growth there, but just wondering, was there any element of stocking from the biopharma or biotech customers there just given heading into COVID?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sam, I think the answer is no, but I\\u2019m going to \\u2013 you haven\\u2019t had a chance to talk today.\\nSo why don\\u2019t you confirm or deny this room or around.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, yes. Thank you. No, the answer is no, Mike. And Puneet, that business, it\\u2019s a long lead business where we both contract with customers usually several months, sometimes quarters out the work because there\\u2019s a lot of a proprietary work that has to be done in conjunction with them, scheduling all the pre-validation work.\\nSo no, there was no stocking work. We\\u2019ve got things scheduled out for months ahead already.\\nSo, no stocking effect.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Hey, Puneet, this is Bob.\\nJust to add on to what Sam said, because there\\u2019s been a lot of news about clinical trials being put on hold and so forth.\\nWe haven\\u2019t seen any of that in our demand for NASD.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. That\\u2019s great to hear.\\nSo Sam, if I could and Mike, you as well, if I could ask on cancer diagnostics, obviously a high growth area and expansion into liquid biopsies and other significant market opportunities there.\\nNow with the decision on Lasergen, how are you thinking about the long-term focus for your genomics portfolio and overall market position longer term?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I\\u2019ll make some initial comments, and I\\u2019ll invite Sam to join in here as well.\\nSo I guess, first of all, important just to remind the audience we actually do have a cancer diagnosis business with day from an NGS perspective.\\nSo we provide a lot of components and sample prep and other instrumentation into these workflows today.\\nWe\\u2019re overall very \\u2013 we continue to be very, very bullish about the cancer diagnostics market for NGS-based \\u2013 cancer-based diagnostics. And we think there\\u2019s a path forward for incremental growth on top of what we\\u2019re doing that doesn\\u2019t require a \\u2013 or having our own sequencer, because of some change in the external marketplace. And Sam, maybe you have some building comments on that.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, yes. Absolutely, Mike.\\nAs you said, we are \\u2013 we remain the leading provider for library preparation, particularly target enrichment kits that are used as part of NGS-based cancer diagnostics.\\nWe have some of the leading workflow elements as it relates to NGS-quality control and so forth. And also our combination of our access to clinical diagnostic labs through our pathology franchise, our CDX business where we work with pharma partners to develop companion diagnostics from \\u2013 we believe, together with what we have in genomics, it still gives us a unique capability set, which we are looking to deploy that capability set by bringing that together and there\\u2019s partnering opportunities.\\nSo Puneet, we haven\\u2019t really changed our thesis. And as Mike said earlier, we just don\\u2019t believe we need to directly develop the sequencer ourselves. But our commitment to genomics, including arrays, including NGS continues, and we feel good about it.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. That\\u2019s very helpful. And if I could squeeze last one then on the Bravo Liquid Handling robots that you have obviously are being used widely among the COVID testing community as well and genomics community.\\nSo trying to see if that was a meaningful number of this quarter. And is that something you expect to continue? And if you can \\u2013 if there\\u2019s something you can quantify for along those lines. And I wasn\\u2019t sure, this is in Sam\\u2019s bucket or it\\u2019s actually in the LSAG bucket.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Hey, Puneet. This is Bob. I\\u2019ll tell you it\\u2019s in the LSAG bucket. And that was the majority of the instrument of the COVID-19 testing that Mike talked about one-point tailwind in Q2 and growing.\\nSo\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So that demand has not peaked, and it comes not only with instrumentation, but an ongoing supply of consumables associated with an instrumentation.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. That\\u2019s great. All right, thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"And our next question comes from the line of Vijay Kumar of Evercore ISI. Please go ahead.\\nYour line is open.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Thanks guys for squeezing me in here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Vijay. No problem.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Mike, so I think I just want to make sure I heard this correctly.\\nYou guys say April was down 7%, because I\\u2019m trying to figure it out, If May is in line with April 6.5%.\\nSo if May is, I guess, in line with April or even I guess, if the next \\u2013 forward two months are in line with April. Like how do we get to minus 15%? Maybe just help us understand the range?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"It wouldn\\u2019t \\u2013 Vijay, you wouldn\\u2019t, that would be kind of the \\u2013 towards the lower end, right? So what we\\u2019re saying is, if things kind of backtracked, we didn\\u2019t get any better in the U.S. and Europe and we didn\\u2019t really have \\u2013 there was a sort of a backtrack in China.\\nSo again, we\\u2019re saying we don\\u2019t expect that. We hope that that\\u2019s very conservative. But things are just now opening up in U.S. and Europe. But if you do the math that you\\u2019re saying, you don\\u2019t get there, you get a lot better.\\nYou get towards the minus 5%.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Understood. That\\u2019s helpful, Bob. And then I guess, on that China topic, I know in the past you guys have or I guess, some of your peers have spoken about the stimulus \\u2013 China stimulus. Any details around or thoughts around a potential for stimulus? And perhaps how that could benefit you guys?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nWe haven\\u2019t heard any specifics on that.\\nSo that clearly would be a boost to our view of market demand the latter part of this year, but that\\u2019s not at all in our calculus right now when we talk about a recovering China marketplace for us.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Perfect. Thanks guys.\"}, {\"speaker\": \"Operator\", \"content\": \"And our next question comes from the line of Brandon Couillard of Jefferies. Please go ahead.\\nYour line is open.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks. Mike, I was hoping you could just touch on the small molecule pharma trends in the quarter and around capital equipments. Any disruption in places like India or other geographies?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No, significant disruption, but it\\u2019s relatively flattish I think for the quarter, that\\u2019s about 70% of our pharma business, about 30% it was growing quite strongly in biopharma, small molecule is relatively flattish on the instrumentation side.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. We \\u2013 our business in India is fairly small today.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay. Then just one follow-up for you, Bob, just around the P&L. Can you sort of speak to the cost structure breakdown through fixed and variable? And maybe how we should think about OpEx trends into the third quarter?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I would say, I mean, we\\u2019ve been \\u2013 we were very pleased with our ability to kind of manage the kind of the cost structure here.\\nIf you looked at it kind of on a sequential basis, there was about a $35 million kind of reduction, about a third of that quite honestly was travel related.\\nAs we put the brakes on and I would expect that to be probably even more significant in Q3. Obviously variable and then discretionary spend and then we do have some element of our variable comps that reduces with performance. But what I would say is, Q3 is going to be more challenging because we are protecting those growth investments. But we are very pleased with our ability to kind of manage our costs.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Bob I could just jump in there. I mean, the fact that we were able to increase margins in the quarter in the midst of a pandemic, we\\u2019re really quite pleased with that. And we didn\\u2019t take shortcuts here.\\nSo we \\u2013 there was no COVID-19 layoffs within Agilent. And we\\u2019ve got a team that is not worried about their future employment. They are all worried about winning the marketplace and taking care of our customers.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"And our next question comes from the line of Dan Brennan of UBS. Please go ahead.\\nYour line is open.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great. Thanks for taking the question guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Dan.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"I was hoping maybe to \\u2013 hey, Mike, maybe to go back to China for a moment.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Can you break it down a little bit more, kind of what you\\u2019re seeing in China? I know you kind of highlighted in the deck that food grew and I think you\\u2019ve given some other tidbits. But maybe just give us a little flavor for your segments in China and then specifically if you could also just address maybe an update on food and generics, which had been two big drags for you guys.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I\\u2019ll take it Dan. What I would say is, in the quarter we were very pleased with the performance. All three business groups grew with DGG, albeit, the smallest one growing the fastest followed by ACG and LSAG was up a modest percentage, which is a great testament to the team there. Across the groups all, but I think Academia and government grew to varying levels. And food as we talked about was up in China and it helped drive the global food being up.\\nSo again, very good recovery there. And we\\u2019ve been very pleased with our performance in China.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"And we throw, Bob, and thank you for that. The generic issue obviously maybe gets a little lost right now during COVID and did major\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. From a generic perspective, pharma was up it\\u2019s really driven by the biopharma business. But our small molecule was not significantly impacted.\\nAs Mike said, our small molecule business was roughly flat globally and it was not that far off in China as well. Again, we\\u2019ve got the view that now COVID-19 kind of throws some variables in here, but we\\u2019ve continued to have the view that this ultimately is a good thing long-term for the industry and ultimately for us because we continue to see the customers who win are disproportionally our customers. And nothing really changed in Q2 from that standpoint.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Got it.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Well, I can add to that. The conservation just continued with the generics, but according to our expectations.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Yes. Got it. And I know there was already a question I think \\u2013 thanks, Jacob. And then I know plenty to ask the question on the diagnostics business, but if you think about DGG ex-NASD business, obviously that business should be a lot less sensitive towards discretionary visits given the nature of what you\\u2019re selling there. But can you just give us a little flavor for what you are seeing since there is such a focus on the ability for hospitals to open back up and patient visits? So what do we track there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think actually, hospital access for \\u2013 and patients willingness to go to the hospital, medical care outside of COVID-19 has put a damper on the U.S. business in pathology.\\nSo that\\u2019s one of the areas of \\u201cuncertainty\\u201d we\\u2019re looking at is when will those \\u2013 when will patients start to return to hospital to get those procedures done. We saw that resume, I believe Bob in Europe. But we\\u2019ve not yet seen it in the pathology U.S. business and that puts somewhat of a \\u2013 that\\u2019s put a drag on our Q2 results. We were quite pleased to post a 5% core growth in that business, despite this drag in the U.S., which we think eventually is going to come back. But again, this is when.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And Dan, that\\u2019s one of the variables that we were taking to account with the framework that we were talking about. If in fact, the large labs continue to focus on COVID-19 testing or there\\u2019s not any resumption of non-COVID-19 medical procedures, then that will impact our pathology business because right now, biopsies aren\\u2019t being done. Cancer screening is being deferred. And then if you have cancer, then you go for a biopsy and so forth.\\nWe\\u2019re hoping that that will resume throughout the course of this quarter. But it\\u2019s still very early days. Ultimately we see that as bad for the healthcare of the world, quite honestly.\\nAnd so we hope not just as manufacturers, but as brothers and sisters and mothers and fathers that happens. But that\\u2019s one of the things that is still in front of us.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Terrific. Thank you, guys.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. And that\\u2019s all the time that we have for questions. Ladies and gentlemen, this concludes today\\u2019s conference call. Thank you for participating.\\nYou may now disconnect.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2020-08-18
year: 2020
quarter: Q3
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon, and welcome to the Agilent Technologies Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And now, I'd like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Robert, and welcome, everyone, to Agilent's conference call for the third quarter of fiscal year 2020. I hope that all of you and your families are safe and healthy.\\nOn the webcast today are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining for the Q&A after Bob's comments will be Jacob Thaysen, President of Agilent's Life Sciences & Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Padraig McDonnell, President of Agilent CrossLab Group.\\nYou can find the press release, investor presentation and information to supplement today's discussion on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year, and revenue growth will be referred to on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months.\\nWe will also make forward-looking statements about the financial performance of the Company. These statements are subject to risks and uncertainties and are only valid as of today. The Company assumes no obligation to update them. Please look at the Company's recent SEC filings for a more complete picture of our risks and other factors. And now, I would like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Ankur, and thanks, everyone, for joining us on our call today. The Agilent team delivered excellent results in the third quarter in the midst of a historic global pandemic. Against this backdrop, Agilent's performance once again highlights the strength and resiliency of our team and our business. Agilent's Q3 revenues are $1.26 billion.\\nOur revenues are down just 1% on a reported basis, despite COVID-19 headwinds in what we expect to be the year's most challenging quarter. On a core basis, revenues are down 3%. These results demonstrate the strong resilience we have built into our business over the past several years. EPS is $0.78 per share. This is a 3% year-over-year increase. Operating margin grew 90 basis points over last year to 23.7%.\\nOur Q3 results are further evidence of the success of our profitable build and by growth strategy.\\nWe continue to build a more resilient growth oriented business. Last quarter, I talked to you about the four key priorities we're focused on during the COVID-19 pandemic: Protecting our people; being open for business for our customers; taking decisive action to deliver our P&L and balance sheet; and unwavering commitment to growth. Staying focused on these priorities has helped us navigate through the COVID-19 effects on our team, customers and business.\\nOur customers continue to respond very favorably to our team's engagement and enhanced digital capabilities.\\nIn fact, Q3 customer satisfaction rankings are at all-time highs. In all regions, we're seeing improvement in lab access for our customers and increase non-COVID-19 testing volumes. There are however regional and end-market differences in the pacing of improvement. Labs access improved through the quarter, although still not at pre-COVID-19 levels. Globally, lab access remains limited in academia, non-COVID-19 research and testing labs. We're also seeing continued limited access at some private sector research labs in Europe and United States. Similarly, non-COVID-19 diagnostic testing volumes improved throughout the quarter, but remained down from prior levels. Hospital access in Europe and the U.S. is improving, although disrupted at times by virus spread.\\nWhile there are indications of improvement in economic growth at varying degrees across the globe, caution remains at customer capital expenditure decisions. Consistent with our thinking coming into the quarter, the pace of recovery varied by region.\\nAs expected, China led the way for us and exceeded our expectations with revenues up 11%. China's growth in the quarter is broad-based across all end market and for all business groups.\\nWhile improving the rate of recovery in Europe, and the Americas lags China, given the timing when these reasons first felt the brunt of the pandemic, European revenues are down 5%. Americas market conditions trailed both China and Europe with revenues declining 10%.\\nHowever, as we exited the quarter, we are seeing signs of improvement in service activity, consumables and diagnostic testing volumes. On a total Company basis, we exited July with modest growth across all major markets.\\nNow, let's talk about our performance by business groups.\\nOur Life Sciences and Applied Markets Group grew 2% on a reported basis and declined 4%.\\nOur team is focused and determined to gain market share despite a constrained capital environment. The strength of our portfolio coupled with an energized and stable sales team is paying dividends. I'm also very proud of contributions are selling our cell analysis technologies are making in COVID-19 virus research.\\nOur M&A strategy is working and making a difference in the pandemic fight.\\nOur CrossLab Group revenues grew 1%. Increase in customer activity led to increased sales of consumables and an uptake of on-demand services. The CrossLab team continues to win large, multiyear contracts for enterprise laboratory management that will benefit us moving forward.\\nWe will continue to increase our competitiveness in this space.\\nOur Diagnostics and Genomics Group revenues declined 8%.\\nWhile our overall pathology and genomics businesses are down for the quarter, we did see gradual improvement in diagnostic testing volumes and non-COVID-19 lab openings. Partially offsetting this, our nucleic acid solution business delivered another strong quarter, growing almost 25%.\\nWe are very excited about the future of our NASD business.\\nAs we announced earlier today, we plan to more than double oligo manufacturing capacity and our new Frederick, Colorado site. This expansion helps us meet significantly increasing customer demand.\\nWe are growing double-digit and expect to continue this rate of growth in the coming years.\\nWe continue to advance in our portfolio across all our businesses. Highlights during the quarter included LSAG launching two new LC/MS products in Agilent 6470B Triple Quad and the Agilent RapidFire 400 systems. Both products are in high throughput labs, driving productivity and superior resolution. We launched our CrossLab Asset Monitoring service, which is a new subscription service using instrument sensor technologies to provide data driven usage insights. This helps drive improved customer economics and lab productivity.\\nWhile early, we are seeing strong interest from customers in this service.\\nDuring the quarter, our PD-L1 assay was approved by the FDA for expanded use of non-small cell lung cancer, helping guide physicians in selecting treatments using specific immunotherapies.\\nOur team is very proud of the role their company is playing in the global COVID-19 play.\\nWe are supporting COVID-19 research, testing and therapeutic of vaccine development.\\nOur efforts in the global fight against the virus delivered 2 percentage points of reported growth.\\nWe are accelerating efforts to make a difference in the battle against COVID-19 and have mobilized across Agilent team to maximize customer support.\\nLet me close with few comments on our outlook in the coming quarter.\\nWhile there's still significant uncertainty regarding the continued pace of recovery, we expect the July trend of gradual improvement in our business to continue into Q4. By region, China will continue to be a positive story for us and lead return to growth. Europe is starting to trend upward. The Americas are also expected to improve but at lower rate than China and Europe. Globally, improved lab access, increasing non-COVID-19 testing and a slowly recovering global economy are all positive signs. I remain absolutely convinced Agilent will emerge from this pandemic with a stronger position in the marketplace.\\nOur continued focus action on four priorities, protect the team; support our customers; preserve our P&L and balance sheet; and our unwavering investment in growth are delivering. Entering Q4, we are operating from a position of strength and with momentum. Yes, this pandemic remains unpredictable.\\nHowever, I am cautiously optimistic about our continued gradual recovery and return to growth.\\nBefore I hand the call over to Bob, I'd like to pause and share my hope that you and your loved ones are staying safe and healthy. Thanks for being on the call. I look forward to taking your question after Bob's remarks. And now, Bob, over to you.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thank you, Mike, and good afternoon, everyone. Today, I'll provide some additional detail on revenue, walk through the third quarter income statement and some other key financial metrics. And then, I'll finish up with a framework for thinking about Q4.\\nAs with last quarter, there are still too many unknowns.\\nSo, we're not going to provide formal forward-looking guidance today.\\nHowever, we will provide a framework for how we see things potentially playing out in Q4. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nAs Mike mentioned, our revenue for the quarter was $1.26 billion, down 1% on a reported basis. On a core basis, revenue declined 3.1% in the quarter, currency negatively affected revenue by 1.3 percentage points, while acquisitions added 3.4 percentage points to growth.\\nAs Mike talked about the regional performance, I'll speak to the end-market performance.\\nIn terms of our end markets, pharma grew 2% in Q3 against a very strong comparison of 13% from last year. Both, small and large molecule applications grew and biopharma improved throughout the quarter as drug development labs increased production and access. We experienced softness in diagnostics and clinical, as anticipated. Revenues declined 10%, primarily due to conditions in the U.S., driven by COVID-19-related disruptions to patient visits and diagnostic lab opportunities. Encouragingly, we did see an improvement in routine testing throughout the quarter, especially in China and Europe, while the U.S. lagged. Chemical and energy was down 10%, consistent with our thinking. Revenues were generally flat sequentially with conditions largely similar to what we saw in Q2.\\nAs we've talked about previously, we expect this segment to ramp more slowly than others. The food segment was a bright spot, up 8%. We're seeing ongoing signals that the market in China has stabilized with the transition of more testing by commercial labs. The food market was just one of several bright spots that contributed to double-digit growth in China, including growth in the low-teens for our pharma business.\\nOur environmental and forensics business declined mid-single-digits against the double-digit compare and the academic and government segments declined mid-single-digits, while improving on a sequential basis in Q3. Strength in cell analysis and liquid handling for viral research partially offset the widespread impact of the ongoing academic lab closes.\\nNow, let's turn to the rest of the P&L. I'm extremely proud of how the Agilent team has responded to the challenging environment.\\nDuring the quarter, we continued our focus on managing expenses, while ensuring we continue to invest in our key growth opportunities. These expense management actions we initiated last quarter were on full display in Q3.\\nIn addition, our customer engagement model using digital tools continued to gain traction, while also delivering savings in SG&A.\\nAs a result, operating margins of 23.7% improved 90 basis points over last year on declining revenues. Gross margin at 55.1% was down 130 basis points versus the prior year, largely due to mix, and higher logistics costs.\\nHowever, strong cost management and operating expenses more than offset the decline in gross margin. This combination of factors resulted in non-GAAP EPS for the quarter coming in at $0.78 per share, up nearly 3% from the number we posted a year ago. From a balance sheet perspective, we generated $290 million in operating cash flow during the quarter, which is $48 million improvement over last year.\\nIn terms of capital spending, we spent $25 million, lower than last year and in line with our revised look in Q2. We ended the quarter in a strong position with $2.3 billion in available liquidity, including $1.36 billion in cash. Also during the quarter, we took advantage of low interest rates and refinanced $0.5 billion in short-term debt with a 10-year bond and a 2.1% coupon, the lowest coupon in our portfolio.\\nAs you know, we paused share buybacks in Q2, pending improvement in business conditions. In Q3, our visibility into business trends and cash flow improved, and we resumed anti-dilutive share repurchases late in the quarter. In the quarter, in total, we repurchase 360,000 shares for $33 million.\\nGoing forward, we intend to resume our normal pattern of regular anti-dilutive repurchases, along with additional opportunistic buying.\\nOur overall capital deployment approach remains balanced with the primary focus on growth M&A opportunities, while also returning the cash to shareholders via dividends and buybacks.\\nAs we look to Q4, business and trends have gradually improved, but significant uncertainty remains around the evolution of this pandemic.\\nHowever, let me provide a framework for how we see a range of possible revenue growth scenarios in the coming quarter. We generally expected trajectory of gradual improvement in business results to continue across all regions. Areas where we see a broader range of scenarios include research spending, both in academia and other markets, non-COVID diagnostic testing, especially in the U.S., and the general CapEx environment. The combination of these factors could result in scenarios where our revenue performance could range from a 4% decline to 1% core growth. Also, as a reminder, the BioTek acquisition closed midway through Q4 of last year.\\nSo, the M&A impact in Q4 will be smaller than in previous quarters, roughly 1 point growth and currency is forecasted to be positive in the quarter. The low end of this range envisions COVID-19 flare-ups occurring in the fall in various geographies, limiting and in some cases, reversing the recovery gains we've seen in a period of time. In this scenario, one might expect to see slower or stalled improvements in research, academia and other markets as continued tight cash management leading to lower CapEx spending in the U.S. and Europe. We hope this bottom end of the range is overly conservative, but we wanted to let you know, we have plans in place in case this happens. The higher end of the range assumes continued recovery by region, building on what we have seen in July, with the biggest impact coming from the U.S. This would include a continual increase in elective medical procedures such as cancer screenings, as well as continued lab openings. This view would also include continued China momentum, along with the continued improvement in Europe and other areas in the Americas. Again, this is not guidance, but should provide a sense for some of the variables we see for Q4. Overall, I feel we are very well positioned to deal with this challenging environment, accelerate market share gains and come out even stronger as the global economy continues its path to recovery. With that, I'll turn over things to Ankur to direct the Q&A. Ankur?\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thanks, Bob. Robert, if you can provide the instructions for the Q&A, please?\"}, {\"speaker\": \"Operator\", \"content\": \"Certainly. [Operator Instructions] Your first question comes from the line of Doug Schenkel with Cowen.\\nYour line is open.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Hey. Good afternoon, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Doug. How are you doing?\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"I\\u2019m doing well. Nice work in a tough environment. Can we maybe just start with a clean-up question right off the bat which is just about the prepared remarks. I don't think you quantified COVID-19 tailwinds in the quarter. Again, I may have missed that. But, it just would be helpful to get that so we could try to normalize there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sure, Doug. I touched on it briefly in my comments.\\nSo, there's two points of reported growth in Q3.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. That\\u2019s great. And then, on China, just a couple, I'm just curious if you would share the exit rate. And as we look ahead, I know you're not guiding, I'm just wondering if you think based on what you're seeing, if you think that double-digit growth can be sustained, from here, at least a term. And then, specific on food, it\\u2019s great to see it return to solid quarter first time [Technical Difficulty] seeing some stabilization last quarter. Can the high-single-digit growth rate you saw this quarter be sustained moving forward, given favorable multiyear comparisons? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey Doug. Thanks for those questions.\\nSo, just to make sure it came through the audience. The question was about our view on the growth rate of China for the rest of the year as well as can that high-single-digit growth rate in food be sustained. We think the answer is yes on both. We're really pleased with our performance in China. It was broad based. I tried to really accentuate that in my comments. We saw basically double-digit growth across all end markets in China. And we think that a double-digit growth rate is within the realm of possibility for Q4 in China. And I have to say, Doug, it's wonderful we talking about China food from a different vector. We've been talking about it probably last 18, 24 months of one that will return to growth. We saw some early indications in Q2, we saw strong Q3, and we think that are all numbers probably sustainable for the rest of this year. Want to say something, Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I would just say, Doug, to add, I mean, one of the things that was very positive about China was it was pretty consistent across the quarter, and in fact exited slightly higher than that overall 11%, but we saw solid growth all three months.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Vijay Kumar with Evercore ISI.\\nYour line is open.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Mike or Bob, just maybe on the guidance here. If I step back, the third quarter guidance, down mid-single to down mid-teens, this down low-single was up, came well above expectations I would say, perhaps not surprising than peers, but nonetheless solid execution. Maybe Q4, down 4 to plus 1 implies declines. What\\u2019s the cause of declines, just given in light of performance? Is that that the minus 4 at the low end, is that assuming that Life Sciences [Technical Difficulty]?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Vijay, this is Bob. I'll take that. And as I mentioned in the prepared remarks, we hope that that is overly conservative. What that would imply is actually a retrenchment -- and in COVID-19 flare-ups here in the U.S. as we go back -- as we move into the fall, and you start seeing some elements of shutdown.\\nSo, we certainly would hope that we would do better than that. But, we wanted to provide, hey, that's within the realm of kind of how we're thinking about our spending and so forth.\\nOur July results -- or our exit rate of the quarter was much higher than that.\\nAnd so, we're aiming to do better. But there's still uncertainty in the world with the pandemic, people going back to school and so forth, so.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Bob, I think it\\u2019s probably fair to say, the wildcard is United States, right?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, absolutely.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And we were encouraged by the movement in PMIs.\\nYou probably noticed that. But, let's see how that translates into business in the coming quarter. And again, we have to keep in mind ourselves, as pleased as we are with the result we just delivered, there's still a lot of uncertainty out there because the virus is unpredictable at times.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. That's right, Mike. I mean, if you looked at each one of the major markets, each one of the major markets got better in Q3 versus Q2 with the exception of the U.S., which we expected given kind of the state of affairs with the pandemic.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That helpful perspective.\\nSo, the minus 4 implies that things get worse. Was July flattish or positive? And I'm curious Mike that you mentioned NASD doubling up a while ago. I know, if you turn back the page, we were doubling capacity.\\nSo, is this now versus six months of a quadrupling capacity versus where we were last year? Is that the right way to think about the revenues going from 100, 200 to perhaps, is that the math here?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No, it's slightly different math.\\nI think, we've been consistent with our view of needing to double our capacity. What we ended up doing is actually triggering the decision to initiate expansion earlier than we thought, just given the robust nature of the end market. And as well as we have worked our way to be able to -- in the same space, we challenged ourselves to find ways to drive as much revenue in the same physical space.\\nSo, we are investing a little bit more capital than we initially thought. But, we're also building something slightly different than our first train, which is going to give us actually more volume than our current train A.\\nSo, it's a really -- we thought it was really positive signal. And that\\u2019s why sent out the press release this morning, because we're super excited about our prospects here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And Vijay, let me kind of frame into kind of the numbers. What we were talking about is the Frederick site has the potential of roughly $100 million worth of revenue. And we added capacity that more than doubles that $100 million to give you a frame of the numbers.\\nSo, it's not 100, 200, 400, it's 100, 200 and more than 300 to kind of give you a sense. And in terms of July, we actually came in with growth across all three groups in exiting in July.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Tycho Peterson with JP Morgan.\\nYour line is open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"I\\u2019ll start with the COVID commentary. I guess, if I go back to last quarter, there was some talk about launching the serology test.\\nYou guys obviously have an installed base of real-time PCR instruments. We've got the questions that why you haven\\u2019t launched a PCR test.\\nSo, can you just talk a little bit about, how you think about those tailwinds going forward and how you think about your capabilities on diagnostics side?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Tycho, I'll make some initial comments and then the group presidents are kind of quiet today.\\nSo, I\\u2019ll pull Sam in here as well, to provide his perspective. But, we think that there's still tailwinds in front of us and now two points of growth, and we think we can sustain that at a minimum. That's why I tried to put fairly bullish comments about our stepped up efforts across the Company.\\nSome of these things are going to take a little bit longer. We think there's still room for our own test of quality tests with some different features. But, I think maybe a few comments there, Sam, from your perspective?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Sure, Mike. Hi, Tycho.\\nAs you -- I think you\\u2019d have seen a good pickup in terms of our qPCR instruments, which are our Aria systems, as well as our bioreagents related to qPCR both reverse transcriptase master mixes.\\nOn the antibody side, we\\u2019ve definitely also seen an increase in IgA, IgG and those antibodies.\\nIn terms of our own tests, we are very actively exploring the possibilities of developing those.\\nSo, more to share in due course.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Tycho, I guess, what I\\u2019d just close off here is a broad-based nature of our portfolio is allowing us to play in multiple aspects of this COVID-19.\\nSome of these things may take a little bit longer to actually turn into revenue, right? So, if you're working with, say, a pharma partner or something in the therapeutic area, it may take a while for that to come to market.\\nSo, we think these tailwinds are here to stay for some time. And we're stepping up our efforts here because it plays right into the broad nature of our portfolio.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"I guess, that's a good segue on the NASD expansion. Could you maybe draw to what degree that's tied to the COVID vaccine, and any updates from your add-on capabilities on APIs for mRNA or siRNA vaccines?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Do you want to take that one, Sam?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, sure. No problem. Tycho, I'd start by reiterating a little bit of what Mike and Bob were talking about. It's interesting that it was just last June that we did a ribbon cutting and starting of the new Frederick, Colorado facility. And quite frankly, we've seen demand that exceeded our expectations, just 12 months ago.\\nSo, building really -- sorry, the new manufacturing line that we're building, you can consider it, as we call it, training on steroids as our general. But, it is very-differentiated, both in throughput and the molecules it can do, which is a segue to your -- a little bit of your question that we're able to do multiple iterations or types of siRNA or RNA. We're also actively looking at other different versions of molecules that are oligo based. Though I can't reveal the details, we have had a lot of interest related to COVID-19, all of those used for either COVID-19-related therapeutics or even for vaccines.\\nSo, I can say that we have started to work on some of those programs now.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And maybe Sam to add. That being said, the capacity expansion isn't tied to COVID-19.\\nWe have plenty of demand outside of COVID-19 therapeutics and vaccines.\\nAnd so, this is a broad-based capacity expansion.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And then, just last one, I know we don't have official guidance, but there's a framework for the quarter -- for the fourth quarter.\\nAs we think about C&E and then also pharma biotech, should we expect any kind of material change in either of those end markets for the coming quarter? I know, you talked about restoring activities for C&E. I wasn't sure if that was maybe a positive improvement in trajectory there?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Probably -- C&E is probably the one that's -- I would expect it to be pretty stable and that down 10ish percent -- 8% to 10% in that range. We do expect pharma to continue to improve.\\nSo that 2% certainly even in the low scenario would stay there and then on the high scenario would accelerate, which is consistent with the trends we've seen throughout the quarter of Q3.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Tycho, the supply chain consideration and discussions still happen and it gets added a level of stability, albeit down to this -- into the space. And, again, as you look ahead for the future, this is an area where eventually it'll come back, and again, too early to call. But, I'd say we're pretty confident about the improvement rate in pharma.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. The way to think about those reshoring is those are opportunities and discussions that could happen through the order book, and then will happen actually in '21 and beyond in terms of investments are being made.\\nSo, that's more future looking.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Puneet Souda with Leerink.\\nYour line is open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"So, first question is just on NASD, [ph] it\\u2019s obviously strong in the quarter, but that would imply Dako and clinical business, obviously you pointed that out, it was down in the quarter. But that's a significant decline. Maybe just could you parse that out for us? What is -- it's the COVID impact, for sure, but is there anything beyond that in terms of the way market is fundamentally potentially shifting here to NGS maybe? And if you could just maybe elaborate a little bit of that, clarify? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Happy to do so.\\nSo, it's all market, it\\u2019s all access to labs and patients going for the diagnostic test.\\nSo, it's real all market.\\nI think, we're seeing different pace of pacing throughout the quarter.\\nAll of our geographies in the diagnostic testing front ended up with positive growth in July, but it was down sharply in May and June, particularly in the U.S. And keep in mind also, we -- part of our business in our genomics front is so select into NGS-based diagnostic labs and for genetic disorders, for example, those tests aren't getting done either.\\nSo, it's really all market.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I was going to say, Puneet, actually if you bifurcate those two and look at our performance, actually, pathology performed better than NGS testing volumes, given what Mike was just talking about, as well as some of the academic institutions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"That's good point, Bob. Thanks.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes. Thanks for that. And if you could, I know you quantified it last quarter, Bravo contribution. I was wondering if you can provide that for Bravo Magnis liquid handling system, sort of how much of that contribution happened in the quarter?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. That's part of the story for our COVID-19 tailwinds. And I think probably the biggest contribution this quarter actually came from BioTek, Bob, if I remember correctly?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Between BioTek and Bravo.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bravo.\\nSo, it's kind of like, now we like a one-two punch kind of going there on the core instrumentation. I\\u2019d also remind you, with the Bravo platform comes an ongoing revenue stream associated with the tips that go with those liquid handlers.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. And last one on just ACG. I mean, could you just elaborate on -- in these times, you mentioned, there are some larger contracts -- service contracts and likes that you\\u2019re getting into.\\nSort of what are those sort of COVID-driven, what's behind those and maybe if you can elaborate on geography there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Puneet, happy to have Padraig jumping on here and provide his perspective on that.\\nSo, Padraig, in the call script I talk a bit about the large enterprise deals you guys won.\\nSo, why don\\u2019t you talk about that a little more detail?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nSo, thanks, Mike. We launched our CrossLab Asset Monitoring service, which has seen a big uptick. And what we're seeing from customers is a large demand for sourcing from one vendor. And because of our capabilities in terms of the asset monitoring capability, relocation services and our core delivery services, which are extremely in strong demand. We're seeing a big uptick from large customers, and we expect that to continue as we go through the quarter, next quarter.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And I was going to say that I think the geography Puneet is largely in the U.S., but there are some global opportunities as well. It\\u2019s really non-COVID-19 related. I mean, this is part of the core growth strategy for Padraig\\u2019s business to continue to expand our market share on the Enterprise Services front. And we're really delighted that we made some big pharma deals.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Derik de Bruin with Bank of America.\\nYour line is open.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"So, a couple of questions. Very impressive margin expansion in the third quarter. How should we think about the operating margin into Q4? And then, I guess, how much of these costs are permanent removals versus what has to come back in '21?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Let me take that, Derik. It's great question and we certainly are very pleased with how the team has responded, as I mentioned before.\\nAs we talked about, a large amount of the cost, we have not done things like furloughs. We stabilized the team.\\nWe have not reduced base pay and things like that.\\nSo, these are discretionary expenses that a lot of them we think had the opportunity to stay away, be travel and things like that, which our digital tools have enabled us to really continue to support our customers.\\nAnd so, there aren't any kind of one time things that happened in the quarter.\\nIn terms of going forward to Q4, we are looking at probably less of a margin -- incremental margin improvement because we are looking for ways to continue to invest to drive growth as the economy recovers.\\nWe also have some startup costs in the NASD new facility as well.\\nSo, it's probably less than what we've had historically had, which is call it 30% to 40% incremental. But it's really to drive growth.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey Bob, if I could maybe add a comment on your -- on the first remark.\\nSo, this is really, Derik, all about a new way of working in Agilent.\\nSo, I'm preparing for a manager's call later this week. And what we're talking to our team about is more digital, less travel. And we're really going to make sure that when we get on the other side of COVID-19 pandemic that we don't revert to our old ways of traveling. And we know from our customer satisfaction scores, they love the responses we have now with our digital platforms.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"And two questions on LASG (sic) [LSAG]. I guess, the first question is, if you look at your numbers in China versus some of your major peers in that area, I mean, you really outshone in China. Can you just talk about just share dynamics there that are going on? I mean, as I said, there was a pretty stark comparison between you and your main LC competitor there. And I guess, also along those lines, can you talk about potentially any sign of a budget -- any sign of a budget flush into sort of thinking about 4Q trends? What are you hearing in terms of people with budgets? And are they going to be allowed to roll things over and to -- or are they going to have to use it or lose it? Just some dynamics in terms of growth on the fourth quarter and just sort of to your general thoughts on what customer spending habits are?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I'm going to have Jacob handle the first question. And Jacob, you can pass it back to Bob and I for the second question. And I know Jacob would be just delighted to talk about the share dynamics in China, which we think are very positive for Agilent?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Thanks for that. And the number speaks for itself. It's clear that both in China but I think actually globally that we right now will be taking care. And this doesn\\u2019t come like coincidence.\\nWe have been executing our strategy to make a deal over the past year. And the customers are really buying into our value proposition.\\nWe are playing a game where we are leveraging our whole portfolio, not going after one product line versus each other and the customer really likes that we\\u2019re outcome based.\\nSo that's what is happening right now. And we see here in the crisis that not only are they excited about the investments we have done over the past year, but also, as Mike talked about, in the digital world, into the work world, we have been very optimistic and super responsive they have taken off the digital, we take challenge variable very, very good and the customers responded very, very positive to it. They know that when they work with Agilent that we are there for them in this crisis.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And then, on the other question, Derek, what we're hearing from our customers, particularly in the public sector and we\\u2019re seeing it in our order book, and while I'll offer my perspective here, and feel free to build on my comments here. But, there's a real sense of making sure they commit to the budgets.\\nSo, we're seeing it both in our order book as well as order activity, where there is a lot of uncertainty what's going to happen post elections as we go into 2021.\\nSo, they want to commit those funds. And it's actually quite amazing the amount of deal activity that's going to occur without visiting a customer face to face.\\nSo Bob, I don\\u2019t know what you're hearing from field\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"The only thing I would add is just reiterate what Jacob was saying, because it's not just China.\\nI think, when you look at our LSAG portfolio, I think what people don't fully appreciate is, is how we've actually changed the portfolio to technology platforms, they're probably the best -- in the best shape they have been in probably five years in terms of new products and so forth. And I think you're seeing that across the globe. And when we think about where we ended up in Q3, LSAG was certainly the standout relative to where we thought they were going to be. In a capital constrained environment only down 4% on a core basically speaks to our responsiveness to customers.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Brandon Couillard with Jefferies. Please go ahead.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Bob, on the gross margin line, you mentioned higher logistics cost in the third quarter. Is that a new trend? And then, could you help us just think through some of the puts and takes, whether it's logistics costs or mix and how those puts and takes might evolve in the fourth quarter?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Sure.\\nWe\\u2019re hoping that's not a trend that's going to be around for a while, but it certainly was exacerbated in the Q3. That being said, I would say three quarters of that was probably mix, when you look at the various businesses across each one of the groups. But, where we saw logistics, challenges are, it's lower capacity and freight and air capacity. But we would expect that -- and we actually saw that through the quarter to kind of relax. And I think as you\\u2019re starting to see more intercontinental travel, both from a passenger standpoint as well as freight standpoint we would expect that to kind of relax over time.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay. And then, Bob or Mike, you're not quite giving formal forward-looking guidance yet, but you do feel comfortable enough to restart the buyback program.\\nJust what are your latest thoughts just around comfort as far as capital deployment goes and maybe your appetite for M&A right now and what the funnel might look like there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sure, Brandon. And I'll start off here, and Bob, feel free to jump in. But, we felt quite comfortable resuming our share repurchase program on the non-dilutive perspective, and we'll be looking at opportunistic as well. And cash flow remains strong. We felt for some time that the third quarter of this year would be the toughest quarter for us for the year.\\nWe\\u2019re through that now. And the third quarter actually was significantly better than we had thought. And we saw positive growth across all the businesses in July.\\nSo, we think, okay, barring some kind of major flare-up, we should be able to continue to see this gradual improvement of growth in the fourth quarter, sort of our message.\\nSo, we have the comp.\\nWe also narrowed the framework that we provided, it\\u2019s more narrower than it was in Q3. But again, I think we need to keep in mind ourselves that we still -- there's still a lot of uncertainty associated with the pandemic.\\nI think, our capital deployment approach remains unchanged, which is, we certainly wanted a balanced approach to capital deployment across dividends, cash, share repos and with the prioritization of investment in business, we just made a significant commitment in capital with our new NASD expansion. And we're still on the hunt for deals that make sense for Agilent.\\nSo, our approach to capital deployment really fundamentally remains unchanged. We paused a bit in the second quarter just because -- on the share repo because of the -- in the early part of the third quarter, given what was going on in the environment outside of Agilent.\\nSo, we feel pretty good about where we are right now and have a reasonable level of confidence, and there is decent level of stability about the business.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Leonard with Wells Fargo.\\nYour line is open.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"So, maybe just to circle back\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey Dan.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Hi Mike.\\nSo, maybe this is a question for Bob, talking again about the Q4 framework.\\nSo, if your business grew in July and the world improves month to month through October, what does that imply then the high end should be above that 1% organic growth number?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"It could be. I'll just leave it at that. There's still a lot of uncertainty and so forth. But certainly, we wouldn't complain if it was better than that.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. And then, my follow-up, whoever wants to take it, on the NASD business. Can you elaborate on, what's the lead time for that announced expansion? Is it something that would take a year or multiple years to put in the new line, or is it a quicker turn? And can you comment on your willingness to commit capital inorganically in that business in addition to your organic commitments?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I'll take the first one just real quick. And then, Mike, if you want to add something on the second one. We announced that we would make that $150 million investment and we would expect it to go live towards the end of 2022.\\nSo, it's taking a little longer than just a regular train. Sam mentioned train A on steroids.\\nSo, it's bigger, and probably take a little more capital. And obviously with COVID-19 there's some activity there in terms of little long lead time. But, we feel like we have the capacity to be able to manage us through that time, and then that will come online at the end of 2020.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think, it\\u2019s perhaps end of '22. And don\\u2019t specifically talk about specific targets or areas of focus, certainly, but it's not out of the realm of reason that I would say, why wouldn\\u2019t we want to further expand this business inorganically as well? So, that's not out of the realm. I'm not singling anything near-term happening. But we think we're operating from a position of strength here in this business. We had a first -- get our new factory up and running and build for that.\\nSo, we now think we have a, if you will, a beachhead to build from both, organically and inorganically.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Catherine Schulte with Baird.\\nYour line is open.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"I guess, first, despite the relatively good LSAG results in the quarter, it sounds like the outlook on the capital equipment side is still a bit uncertain. Can you just talk to how the services and consumable side of the business trended in July, and what your expectations are for instrumentation trends in the coming quarters?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think -- Catherine, this is Bob, all three of our businesses actually performed better in July than they did in May and June, which was very positive. The ACG business actually led the charge in terms of that, as you would expect, given the resumption of activities. There's some catch up there, in terms of -- we saw that kind of phenomenon actually in China, in April. But ultimately ACG was there.\\nI think, LSAG capital is going to continue to be constrained. But I think what we've seen in our business is we've talked about this in the past kind of this flight to quality. And with our instrumentation and the reputation that we have, I think in a capital constrained environment, those dollars are precious. And we think our positioning is very good vis-\\u00e0-vis the market.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. I tried to hit that in my remarks, which as I really say, hey listen, we know we're picking up share in a tight market. And I think you saw that on C&E, right, which is if a C&E capital purchase is going down, it's coming Agilent\\u2019s way. And that's why -- and the market is still cautious, but you see PMI starting to creep up a bit, so.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Catherine, just one last thing, to give you maybe a little more color. If we look across the groups, we would expect LSAG to still be negative in Q4. I mean, it's probably going to lag, given the [Multiple Speakers] big fourth quarter last year as well.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"And then, Mike, you mentioned seeing growth in all regions for the non-COVID diagnostics business exiting the quarter. Can you just give us a sense of where those activity levels are in the U.S. versus China and where they bottomed out across the different regions?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\\nSo, I think, I\\u2019d say China is in lead position in terms of if you -- almost full recovery. Europe is second and the U.S. is trailing.\\nSo for the first -- throughout the quarter, if I look at Sam's business in the U.S., for example, the first two months were negative of diagnostic testing values in pathology. But we saw actually improvement to growth in July.\\nSo, I think that's sort of the pattern of how the pandemic has flowed around the world. China is back. Europe's on its way. And I'd say, U.S. is still in the early stages of recovery.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And I would say, in the U.S. it\\u2019s probably -- and keep me honest, Sam it\\u2019s -- we're probably still at about 80% pre-COVID levels from a diagnostics perspective, but improving where it was. It was below that at the beginning of the quarter, so. Does that sound, Sam?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"It does.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Steve Willoughby with Cleveland Research.\\nYour line is open.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Just one question for you. A lot of my other questions have already been answered. 90 days ago, you made a brief comment about potential onshoring back in the U.S.\\nJust was wondering if there's any update on that at all?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Steve. Happy to comment on that.\\nI think, that's still going to happen. And these things take time. But, there's active discussion. And, by the way, I wouldn't say it's just confined I the United States. I mean, many geographies are now looking at the security of their supply chain, both in the pharma side as well as in the chemical marketplace where they're providing precursors into the APIs for the pharma chains.\\nSo, there's nothing significant to announce relative to the impact on business, but there does seem to be an overall trend in this regard. And I can say also from an Agilent perspective, we're working hard to make sure that our supply chain is secure as well.\\nSo, I think that the COVID-19 pandemic is a real wake up call to really some vulnerabilities in some aspects of supply chain.\\nSo, we're kind of working both sides of it, which are to ensure our own ability to deliver product under multiple scenarios, as well as we do see some market trends underway. Bob, I know you take a look at this pretty\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nJust to build on that, we talked a little bit about earlier in the call. We would expect that to see some of that opportunity show in our order book. And that's probably more a \\u201821 timeframe for revenue. I wouldn't expect any of that to happen in Q4, just given the kind of timing. But you're seeing it in multiple end markets in multiple regions. We think this is a trend that will continue.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Brennan with UBS.\\nYour line is open.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Maybe first question just on chemical and energy, obviously, you've already highlighted a few comments throughout the call. But just wondering if you can kind of walk through a little more color separate trends within that segment by customer in chemical and if it's worth seeing if there's going to be divergence here between chemical and A&P and R&M? And then secondarily, maybe just remind us of how much of that business is tied towards like QA/QC versus R&D and kind of what are we looking for to determine whether or not this down 10% begins to improve more reliably, or if it's going to save the slow steady progress that you believe?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Bob, why don't I make some initial comments, and then we can check our notes to see if I missed anything. But, I think unlike the last quarter, the mix here -- and I think both the chemical and the energy later side had about the same dynamics where both were down about the same, primarily on the instrument side. And on one hand, the chemical side of the business was really benefiting -- continues benefit from the low oil prices. But, some of their end markets are weak, whether be automotive or some of the other markets that they service are weak.\\nSome of them are getting a little bit of help on COVID-19 related products. But overall, I'd say both, the chemical side, as well as the energy side of that are down about the same, but stable. And I have to say that Bob and I had talked to at some length about this in our last call. And our prediction at the time was we thought we were going to be in a stable situation relative to this. That wasn\\u2019t going to get any worse. That was sort of the question we were getting last call.\\nSo, I think we're really pleased to see that that came through this quarter. And we expect that eventually this thing will start to move back to grow.\\nI think it's probably a 70-30 mix, where most of it\\u2019s in QA/QC. And that's why these facilities are running, albeit maybe not at full volume.\\nSo, QA/QC equipment will be needed as well as consumer services that go with it.\\nSo, they can only hold off the depots on that side for so long. There is an element of research. But I think in the chemical and energy space, the biggest driver for that is the QA/QC side of the business.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And the only thing I\\u2019d add, Dan is we would expect this, as you said, kind of steady slow progress going forward.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Okay. And then, maybe one different follow-up, I know -- a couple of questions on China. But maybe could you just go a little bit more into detail on what you saw in food and generics? Obviously COVID is impacting the globe and the recovery. But, you've got some pretty unique issues with food and generics that are maybe a little different.\\nSo, dependent upon the improvement or lack thereof, that could drive notable changes in China.\\nSo, what did you see there? And what's the outlook as we look forward to those segments?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I was going to say, Dan, one of the things we were incredibly proud of in China was all three of the business groups grew and all of our end markets grew, really led by food, which was up over 20%. It's been a while since we've been able to say that.\\nAnd so, we think that -- we talked about kind of the moves away from the government labs or the central labs into the commercial labs, and we think that that's stabilized, and team has really been able to garner share, or our view of capacity in that space. And then, in pharma, it continues to perform very well. Actually, pharma was up roughly 10% in China, and that's a combination of both, large and small molecule. And I think that our thesis around that continues to play out, which is that the winners of the 4 plus 7 or the tendering process are -- customers that where we are over indexed, and we continue to see that positive momentum, we actually saw acceleration from Q2 to Q3 in both, food and pharma, and the rest of the businesses were positive as well.\\nSo, I think, it\\u2019s broad-based.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Patrick Donnelly with Citigroup.\\nYour line is open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Mike, maybe just one for you on -- I know, there\\u2019s been a few questions in July obviously. But with all the businesses returning to growth, I guess, is it safe to assume you guys didn't see too much of a pullback around the second wave here in the U.S., even the first few weeks of August? It sounds like you're a little more cautious on Americas versus other geographies. But, just wondering, any surprises on an end market basis in the U.S., as you went through July and even early August, given the reoccurrence of virus?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No, I'll jump in on this. But from our perspective, I don't know real surprises. Maybe we're -- like all of us are watching what was happening with the pandemic as it worked its way across throughout the U.S. and we saw the case numbers go up and lab access was down for the early really sharply April, May, June and we started seeing some recovery.\\nSo, I think no real surprises versus what we thought.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I would agree. I mean, Patrick, this is Bob. The Americas, as Mike said earlier, is in fact the biggest variable because it's further along in its recovery than both Europe and China. And I think, the thing that we're watching is those COVID flare-ups and the potential impact on elective procedures, which would impact our diagnostics business. That's probably got the biggest variability going into Q4 relative to LSAG and ACG. But, to Mike's point, we did not see any significant change with these flare-ups in August -- or excuse me in July and early August.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"And then, bunch of that good commentary on the chemical and energy and industrial side.\\nJust want to and just clarify, I mean it certainly seems like the industrial sentiment feels like it might have bottomed. It seems like your tone is little bit better from three months ago.\\nYou know again, chemical and energy is probably going to be down similar this quarter and again next quarter. But, I guess what you're hearing from customers there on spend plans? Again, it sounds like you're a little more optimistic and talking a little more bullishly about '21.\\nSo, I'm just wondering, I guess, as we enter into the end of this fiscal year into '21, are you seeing things improve a little bit? Obviously, you\\u2019ll come up against very easy comps, but it does seem like the tone is a little more positive.\\nSo, are you hearing from customers, things that are trending a little bit better into '21?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think that's a fair assessment of what I was trying to communicate today.\\nFirst of all, the fact that we do think it's bottomed. And that was our thesis when things started going directly down and the pandemic hit.\\nSo, we do see that. Again, I don't want to get too far out and describe some big dramatic increase in growth in this space. But, customers are working on the plans. Chevron actually is making some big investments in Iraq.\\nSo capital -- these are ongoing concerns, and they can hold back their capital for a while, but they're going to want to maintain their operations at the highest capabilities.\\nSo, we're hopeful that the budget environment will be a little bit different in '21.\\nI think once we get a little bit more clarity, once our customers feeling more clarity in their view where the economy's gone, then they can make their decisions a lot more confidence.\\nSo, the PMIs are good view of how some of them may be changing.\\nSo, again, don't over interpret this for fourth quarter, but it does point to '21 being perhaps a better environment.\"}, {\"speaker\": \"Operator\", \"content\": \"And your last question comes from the line of Jack Meehan with Nephron Research.\\nYour line is open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"So, I wanted to go back to the NASD business and just get a little bit more color. Are you working on any of the mRNA-based COVID-19 vaccine? I guess, curious because the trials are going so quickly. I was curious to get your take if one [indiscernible] and into commercial within the next six months, how would you manage the business to deliver on the capacity that customer might need for that?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Sam, I\\u2019m going to pass that to you.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. no problem, Mike.\\nSo, I can't comment specifically on the molecule or the molecule of the projects that we're doing related to COVID-19. But, two things I will point out.\\nAs Bob indicated earlier, this is business separate for or different than the business we're already doing or it's not taking the place of business, if you will. And we believe, we have the capacity and that's -- if the demand is there related to certain things playing out related to COVID-19 and the molecule that we happen to be working on, we believe we will be in a position to be able to supply that material as the volume required.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"And then, one more follow-up on LSAG. I'm just curious, as you're looking at the research labs around the globe, kind of in this conversation around deferral versus cancellation, what are customers telling you? Is it still mostly deferrals versus cancellations? And on the deferral side, when do you expect these, how far out is it getting pushed something that you think it hits before the end of the year or probably more likely in calendar '21?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey Jack. Happy to answer this question. This is something we've been monitoring pretty closely, deferrals versus cancellations. And we've really been pleased, our cancellations are actually lower than last year. And our thesis is they\\u2019re being pushed and actually funds will be deployed this calendar year.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. That's what we actually -- we saw that -- Jack, some of that actually happen in Q3. And as people are going back into the labs physically there, then they can install the instrumentation. But to Mike's point, we've seen no cancellation -- or lower cancellations than what we would have last year. There's always some level of it. I would say that we've been extraordinarily pleased. And I would expect it to happen this calendar year.\"}, {\"speaker\": \"Operator\", \"content\": \"This concludes the allotted time for our question-and-answer session. I'd now like to turn the call back over to Ankur for any closing remarks.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Yes.\\nSo, that concludes the call for today. Thanks, everyone for joining us.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today's conference call. Thank you for participating.\\nYou may now disconnect.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2020-11-23
year: 2020
quarter: Q4
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon, and welcome to the Agilent Technologies Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And now, I'd like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, and welcome everyone to Agilent's fourth quarter and full-year conference call for fiscal year 2020. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Bob's comments will be: Jacob Thaysen, President of Agilent's Life Sciences & Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Padraig McDonnell, President of Agilent CrossLab Group. This presentation is being webcast live. The news release, Investor presentation, and information to supplement today's discussion along with the recording of this webcast are made available on our Web site at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our Web site. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year, and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency, and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of October 31, 2020.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties, and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. Also, as announced, we will hold our virtual investor day in a few weeks, on December 9. The event with include presentations from our CEO, CFO, and the three group Presidents, followed by a Q&A. We look forward to having you join us on December 9. And now, I would like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Ankur, and thanks to everyone for joining us on our call today. Today, I want to get straight to our quarterly results, because they tell a very compelling story. The Agilent team delivered a very strong close to 2020. We posted revenues of $1.48 billion during the quarter. Revenues are up 8% on a reported basis, and up 6% core. Operating margins are a healthy 24.9%. EPS of $0.98 is up 10% year-over-year. These numbers tell the story of a strong resilient company that's built for continued growth.\\nOur better than expected results are due to the strength of our core business, along with signs of recovery in our end markets. Geographically, China continues to lead the way with double-digit growth. From an end-market view, both our pharmaceutical and food businesses grew double-digits.\\nIn addition, our chemical and energy business grew after two quarters of declines, exceeding our expectations.\\nWe also saw a rebound in U.S. sales during the quarter. Overall, COVID-19 tailwinds contributed just over two points of core growth. Achieving these results in the face of a global pandemic is a tribute to our team and the company we've built over the last five years. I couldn't be more pleased with the way the Agilent team has performed over the last quarter and throughout 2020.\\nWe have again proven our ability to work together and step up to meet any challenge that comes our way.\\nDuring the quarter, all three of our business groups grew high single-digits on a reported basis.\\nOur Life Sciences and Applied Markets Group generated $671 million in revenue, up 8% on a reported basis, and up 4% core. LSAG growth is broad-based. The cell analysis and mass spec businesses both grew at double-digit rates.\\nIn terms of end markets, chemical and energy returned to growth, food grew double-digits, and pharma high single-digits. LSAG remains extremely well-positioned and is outperforming the market. The Agilent CrossLab Group came in with revenues at $518 million. This is up a reported 9% and up 7% core. ACG's growth is also broad-based across end markets and geographies.\\nOur focus on on-demand service is paying off as activities in our CrossLabs continues to increase. The ACG team continues to build on it's already [deep] [ph] connections with our customers, helping them operate through the pandemic, and continue to drive improved efficiencies and lab operations. In the Diagnostics and Genomics Group, revenues were $294 million, up 9% reported, and up 7% core. Growth was broad-based, with NASD oligo manufacturing revenues up roughly 40%. The Genomics and pathology businesses continue to improve during the quarter. I'm also very proud of our NASD team for successfully ramping production at our new Frederick site this year.\\nWe have built a very strong position in this attractive market, with excellent long-term prospects for high growth.\\nLet's not shift gears and look at our full-year fiscal 2020 results. Despite the disruption, uncertainty, and economic turmoil dealing with a global pandemic, the Agilent team delivered solid results. We generated $5.34 billion in revenue, up 3% on a reported basis, and up nearly 1% core. To put this in perspective, it's helpful to recall the progression of our growth. In Q1, we delivered 2% core growth, as you saw the first important of COVID-19 in our business in China. Both Q2 and Q3 declined low single-digits as the pandemic spread across the globe and governments instituted broad shutdowns. With 6% core growth, 8% reported in Q4, we're seeing business and economies start to recover.\\nAs a result, we are clearly exiting 2020 with solid momentum.\\nOur recurring types of businesses, represented by ACG and DGG prove resilient, growing low to mid single-digits for the year. In a very tough CapEx market, our LSAG instrument business declined only 2% for the year, and returned a growth in the final quarter. China led the way for our recovery with accelerating growth as the year progressed. In our end markets, pharma remained the most resilient, and food markets recovered most quickly. Full-year earnings per share grew 5% during fiscal 2020, to $3.28. The full-year operating margin of 23.5% is up 20 basis points over fiscal 2019.\\nAs we head into 2021 we do so with tremendous advantage.\\nOur diverse industry-leading product portfolio has never been stronger.\\nOur building and buying growth strategy, with the focus of high growth markets continues to deliver.\\nOur ability to respond quickly to rapidly changing conditions is also serving us well. The way our sales and service teams have been able to quickly pivot to meet customer requirements during the pandemic has been nothing short of remarkable.\\nYou know, last year this time, I used this call to remind you of the Agilent shareholder value creation model.\\nOur approach is focused on delivering above market growth, while expanding operating margin, along with a balanced deployment of capital. We prioritized the plan of our capital both internally and externally on additional growth. A few proof points on our growth-oriented capital deployment strategy. A year ago, we spoke about recently closing the BioTek acquisition and the promise of growth that BioTek represented. Today, BioTek is no longer a promise, but a driver of growth. In total, the cell analysis business generated more than $300 million in revenue for us during the year, with double-digit growth in Q4, and continued strong growth prospects. Similar to last year, I was talking about ramping up our new Frederick site facility, a $185 million capital investment.\\nIn addition to successfully ramping Frederick as we planned, we did so with an expanding book of business.\\nWe also recently announced additional $150 million investment to add future manufacturing capacity.\\nWe are aggressively adding capacity to capture future growth opportunities in this high-growth market. Even in the face of a pandemic, we stayed true to our build and buy strategy.\\nWe have clearly seen the advantages of our approach. I'm confident our strategy will continue to produce strong results for us. The strength of our team and resilience of our business model has served us well, and as you can see from the numbers, our growth strategy is producing outstanding results for our customers, employees, and shareholders.\\nWhile uncertainty remains as we being fiscal 2021, we're operating from a position of strength. Because of this, we're cautiously optimistic about the future.\\nWe have built and will sustain our track record of delivering results, and working as a one Agilent team on behalf of our customers and shareholders.\\nAs I noted earlier, I couldn't be more pleased with the results the Agilent team delivered in the fourth quarter and throughout the year. Thank you for being on the call today, and I look forward to your questions. I will now hand the call off to Bob. Bob, you're up.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thanks, Mike, and good afternoon, everyone. I my remarks today, I'll provide some additional revenue detail, and take you through the fourth quarter income statement, and some other key financial metrics. I'll then finish up with our outlook for 2021, and the first quarter. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nWe are very pleased with our fourth quarter results as we saw strong growth exceeding our expectations, especially considering the ongoing challenges associated with COVID-19.\\nFor the quarter, revenue was $1.48 billion, reflecting core revenue growth of 5.6%. Reported growth was stronger, at 8.5%, currency contributed 1.7%, while M&A added 1.2 points of growth. From an end market perspective, pharma, our largest market, showed strength across all regions, and delivered 12% growth in the quarter. Both small and large molecule businesses grew, with large molecule posting strong double-digit growth.\\nWe continue to invest and build capabilities in faster growth biopharma markets, and offer leading solutions across both small and large molecule applications. The food market also experienced double-digit growth during the quarter, positing a 16% increase in revenue.\\nWhile our growth in food business was broad-based, China led the way. And as Mike noted earlier, our chemical and energy market exceeded our expectations growing 3% after two quarters of double-digit declines. Well, one quarter does not a trend make, we are certainly pleased with this result, and the growth came primarily from the chemical and materials segment. Diagnostics and clinical revenue grew 1% during Q4 led by recovery in the U.S. and Europe.\\nWe continue to see recovery in non-COVID '19 testing as expected, although the levels that are still slightly below pre-COVID levels. Academia and government was flat to last year, continuing the steady improvement in this market, and revenue in the environmental and forensics market declined mid single-digits against a strong comparison to last year. On a geographic basis, all regions returned to growth. China continues to lead our results with broad based growth across most end markets.\\nFor the quarter, China finished with 13% growth, and ended the full-year up 7% just a great result from our team in China. The Americas delivered a strong performance during the quarter, growing 5% with results driven by large pharma food and chemical and energy, and in Europe, we grew 2% as we saw lab activity improved sequentially benefiting from our on-demand service business in ACG, as well as from a rebound in pathology and genomics as elective procedures and screening started to resume.\\nHowever, while improving CapEx demand still lags are servicing consumables business.\\nNow turning to the rest of the P&L, fourth quarter gross margin was 55%. This was down 150 basis points year-over-year, primarily by a shift in revenue mix and an unfavorable impact of FX on margin.\\nIn terms of operating margin, our fourth quarter margin was 24.9%. This is down 20 basis points from Q4 of last year.\\nAs we made some incremental growth focused investments in marketing and R&D, which we expect to benefit us in the coming year. The quarter also capped off with full-year operating margin of 23.5%, an increase of 20 basis points over fiscal 2019.\\nNow wrapping up the income statement, our non-GAAP EPS for the quarter came in at $0.98, up 10% versus last year.\\nOur full-year earnings per share of $3.28 increased 5%.\\nIn addition, our operating cash flow continues to be strong. In Q4, we had operating cash flow of $377 million, but more than $60 million over last year, and in Q4, we continued our balanced capital approach to repurchasing $2.48 million shares for $250 million.\\nFor the year, we repurchased just over 5.2 million shares for $469 million, and ended the fiscal year in a strong financial position with $1.4 billion in cash and just under $2.4 billion in debt; all-in-all, a very good end to the year.\\nNow let's move on to our outlook for the 2021 fiscal year. We and our customers have been dealing with COVID-19 for nearly a full-year and are seeing our end markets recover. Visibility into the business cadence is improving, and as a result, we're initiating guidance for 2021. There is still a greater than usual level of uncertainty in the marketplace across most regions and so while we're providing guidance, we're doing so with a wider range than we have provided historically. It is with this perspective that we're taking a positive, but prudent view of Q1 in the coming year.\\nFor the full-year, we're expecting revenue to range between $5.6 billion and $5.7 billion, representing reported growth of 5% to 7% in core growth of 4% to 6%. This range takes into account the steady macro environment we're seeing. It does not contemplate any business disruptions caused by extended shutdowns like we saw in the first half of this year.\\nIn addition, we're expecting all three of our businesses to grow led by DGG.\\nWe expect DDG to grow high single-digits with the continued contribution of NASD ramp and the recovery in cancer diagnostics. We believe ACG will return to its historical high single-digit growth, while LSAG is expected to grow low to mid single-digits.\\nWe expect operating margin expansion of 50 to 70 basis points for the year, as we absorbed the build-out costs of the second line and our Frederick Colorado NASD site, and then helping you build out your models, we're planning for a tax rate of 14.75%, which is based on current tax policies, and 309 million of fully diluted shares outstanding, and this includes only anti-dilutive share buybacks. All this translates to a fiscal year 2021 non-GAAP earnings per share expected to be between $3.57, and $3.67 per share, resulting in double-digit growth at the midpoint.\\nFinally, we expect operating cash flow of approximately $1 billion to $1.05 billion and an increase in capital expenditures to $200 million, driven by our NASD expansion.\\nWe have also announced raising our dividend by 8%, continuing an important streak of dividend increases, providing another source of value to our shareholders.\\nNow, let's finish with our first quarter guidance, but before we get into the specifics, some additional context. Many places around the world are currently seeing renewed spikes in COVID-19 that could cause some additional economic uncertainty, and while we're extremely pleased with the momentum we have built during Q4, we are taking a prudent approach to our outlook for Q1 because of the current situation with the pandemic.\\nFor Q1, we're expecting revenue to range from $1.42 billion to $1.43 billion, representing recorded growth of 4.5% to 5.5%, and core growth of 3.5% to 4.5% and first quarter 2021 non-GAAP earnings are expected to be in the range of $0.85 to $0.88 per share.\\nBefore opening the call for questions, I want to conclude by echoing Mike's comments about the amazing work the Agilent team performed during fiscal 2020. To be where we are now, after knowing where we stood in March, is truly remarkable. Add to this the strong momentum we saw in Q4, I truly believe we are well-positioned to accelerate our growth in fiscal 2021. With that, Ankur, back to you for Q&A.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thanks, Bob. David, let's provide the instructions for Q&A.\"}, {\"speaker\": \"Operator\", \"content\": \"Certainly. [Operator Instructions] Your first question comes from the line of Vijay Kumar with Evercore ISI.\\nYour line is open.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hey, guys, congrats on the blueprints here, and a couple of questions for me.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Vijay.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Mike, maybe first on the guidance part here, I guess with a Q1 guidance of 4.5% to 5.5% core, does it have -- does it assume any core tailwinds because, I guess you look at Q4, I mean 6% core, any reason why the core should slow down sequentially?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, let me start with, Bob.\\nSo again, thanks for the earlier comments, Vijay.\\nSo how to characterize our Q1 guide is positive, but we're using a very prudent approach, and that we got a lot of confidence in that in terms of we're reinstating the guidance, and we had very good momentum in Q4, and we looked at the backlog, we feel very confident about reinstating guidance, but the virus is still out there, and we still think there's still a higher level of uncertainty that calls for a prudent approach, so hence the positive but prudent approach. If it turns out better we'd be -- we'd love to be in a position of being able to raise our outlook for the year, but we thought for the first guide for the year, including Q1, and should take a positive and prudent approach, this is recognizing that the virus is still out there. Bob, I don't know if you'd like to add anything to that.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Vijay, I think a couple of things, you know, the thing that I would say is we didn't end the year with emptying the tank out, and feel really good about that, but that being said, we do have some business that is somewhat susceptible to some of these areas, and so we probably have greater visibility or variability in some of our diagnostics businesses.\\nSo, as Mike said, we're taking kind of prudent approach there, and the other areas is we want to see more than just one quarter in the chemical and energy business.\\nI think that's one of the areas where I think -- we think we're biased to the upside and the way we're kind of thinking about the business, but it's certainly with a recovery. We do expect some COVID tailwinds, to your point. It's probably on the order of roughly about one-and-a-half to two points, kind of consistent with what we've seen in the last -- the last several quarters.\\nSo that's kind of how we're thinking about it.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That's helpful, Bob; and Mike, one bigger picture question for you.\\nI think you mentioned NASD was up 40% in the quarter. Did that business accelerate NASD, and I'm curious, the longer-term opportunity here when you think about it, how -- can this end up being a $500 million product for Agilent as you look at four or five years out? I'm curious to know your thoughts, and Bob, I think you mentioned the 50 to 70 basis points of margin expansion inclusive of investments in Frederick facility. What do you think the impact was of those investments on the margins, or I guess what I'm asking is what should margin expansion have been without those investments? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Bob -- thanks for the questions, Vijay. How about I take the first part, and then you can take the second part.\\nSo that's not out of the realm of reason, your first question in terms of the longer-term potential total revenue for Agilent. We kind of put a teaser out there earlier about our December analyst and investor day, so we'll talk a bit more about NASD when we meet, but as you know, we are really pleased with -- and we've talked about in the past in terms of getting to that exit rate of over $200 million business, and while our capacity in terms of the physical capacity is built, we're now just finishing up the first year of operations, so we're -- just like we did with our [indiscernible] continue to find ways to drive more productivity and efficiency out of that asset, and we just announced another expansion of another production line within that existing facility.\\nSo I hope what you're hearing is a very bullish tone, both in terms of the market growth but also our ability to get our -- more of our unfair share, if you will, to the capital share in a growing market.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Vijay, this is Bob.\\nJust to build on that, what Mike talked about, the beauty of that business is it continues to accelerate throughout the year, and that 40% -- that roughly 40% in Q4 was the highest it was all year, and that team has don't just a fantastic job of scaling that business, and we're not done, and as Mike said, we're making incremental investments in building out that capacity, which we'll continue to make throughout the course of next year. That is probably about a 20 basis point headwind next year and in the operating margin just rough numbers there, Vijay, but extremely pleased with the work that that team has been able to do, and continuing to drive that growth, and so we feel very good about that business.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Thank you, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Puneet Souda with SVB Leerink.\\nYour line is open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes, hi, Bob and Mike. Thanks for taking the question.\\nSo, Bob, actually on one of the question on guidance, and this is probably a favorite topic for you, the Chinese Lunar New Year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Oh yes. That's the New Year again, isn't it?\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"That time of the year.\\nSo, this time, obviously, you are seeing how the troops are acting on the ground, how things are there, and I would suspect it would be a lesser impact this year, lesser travel, but correct me if I'm wrong on that, and then in light of that, I mean the guidance again appears conservative. Is there anything that we ought to keep in mind for a market that is growing double-digit for you already, and is a sizable portion of your revenue? So just walk us through how are you thinking about the Lunar New Year impact here.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, that's a great question, Puneet, and as you accurately state, our expectation is the impact is going to be much less this year than it was last year for all the things that you just talked about, less travel, timing of when it is, and so forth, relative to Q1, and what we're seeing is actually very strong continued recovery and performance in our China business, and I would say that there's -- Q1 is no different, and so, the story there certainly remains in tact, and I would expect it to be very strong performance in Q1.\\nI think what we're trying to do is there's nothing in particular, but I think we're just probably taking a little more prudent approach in Europe, and as we're seeing some of the shutdowns, particularly in some of these areas. And I think as we look at where are the things that could potentially be upsides or downsides, I think that continued recovery in chemical and energy across the business, also continued performance in Americas. We're expecting kind of an average budget flush, so to speak. That's another question that's probably -- if people are thinking about by -- for the end of the year and both of those things could be better than expected.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Bob, if you could just jump into that, just amplify the point, Puneet, that Bob made. We're very, very happy with our China business, and we exited the year with momentum, and that's carrying forward into 2021. We're positioning ourselves with a wait-and-see moment on C&E, and that could be a source of upside for the year, and [like I said earlier] [ph], we're fully prepared to reflect that in a revised outlook, and I would just use the word, maybe, prudent as a way to describe as the adjective Bob and I have been using to describe our guide.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay, that's -- no, that's very helpful, thanks, and if I could get a sense on the -- in the cell analysis business, that business continues to be really strong for you, BioTek, as you host other products in that product line, just wanted to get a sense of what are some of the key drivers there, is it largely the cell and gene therapy, the cellular product and drug product market, or is there something in the academic end that is driving that growth or specifically in China? Would appreciate and helping frame what's exactly happening there, and the opportunity there longer-term.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Puneet, thanks for the question, and as I mentioned in my call script, we're really pleased with how we've been able to integrate the BioTek team, make them part of the Agilent family, and then how that collective has lead to having us have a very healthy cell analysis, just north of $300 million, growing nicely for us, and I know that Jacob would love to be able to have an opportunity to talk a little bit more about the cell analysis, back to Jacob, your thoughts on the specific questions that Puneet put forward?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"First of all, let me just echo that I think it's very impressive what Agilent has been doing here the past year, and the growth actually stems from many multiple dimensions here.\\nFirst of all, we have seen, so first of all, with the testing that a lot of our BioTek portfolio has been using for that for the ELISA testing, and -- but we also see, generally speaking, imaging being very relevant in the academic markets, but also in the biopharma markets, and the [CS] [ph] portfolio with the flow of tachometry is also seeing quite a lot of interest.\\nSo it's really broad across both academic and biopharma and COVID-related that we see interest. Lifestyle analysis was where we felt a few years ago that this was an area that would continue to see in our growth. Particularly that point about immune-oncology, we're pleased that has moved into a broader understanding on the immune system, right now on COVID, but generally speaking I think would be a focus for many years to come.\\nSo very pleased, and we continue to expect good growth in that business.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, and hey, Puneet, just one thing because you mentioned China, and we see really China as a huge opportunity for us going forward. The real growth has been primarily in the U.S. and Europe. I mean it's growing in China as well, but it's off a very small base.\\nSo when we think about the opportunities going forward, leveraging the large infrastructure that Agilent has is really a big opportunity for us for many, many years to come in the cell analysis space.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Great.\\nOkay, thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from the line of Tycho Peterson with J.P. Morgan.\\nYour line is open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hey, good afternoon. Mike, I wondering if you could talk a little more on the biopharma strength, 12% on a 7% comp is obviously phenomenal. I know you had 2% from NASD, and you just talked about cell analysis, but can you maybe just talk more broadly on the strength in biopharma. Was any of this a catch-up from slower setting in the first-half of the year? And how do you think about the sustainability of demand. I know you mentioned you're thinking about an average budget flush, but can you just talk to the broader strength in biopharma?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure, happy to do so, Tycho, and without giving away too many of the tidbits that I want to talk about more -- in more depth in a few weeks. There was no catch-up here. This is part of this continued strength in the biopharma area. It's an area of focus, and we'll go into some more detail with you in a few weeks, but it's an area of focus in terms of increased investments relative to our biopharma tools, but the instrumentation along with chemistry platform, a real workflow focus there across the whole value chain, but we're getting growth, as you mentioned earlier, NASD, but that's -- the story is much bigger, and bigger, and that's to be honest with you. And then, obviously, we're picking up some growth here in the cell analysis.\\nSo I think it's really a multifaceted strategy that really driving this growth. We think it's sustainable. We think a double-digit outlook on the biopharma portion of Agilent's business is quite reasonable. We're really excited, and it's an investment priority for us.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, and Tycho, maybe if I can add to Mike's point, in terms of -- because it's not only the platforms in the portfolio that we have on the instrument basis, which we've been making some heavy investments in, but it's also been the informatics and the software piece, which is has allowed us to be able to kind of plug in to the labs, the analytical labs, and then you bring in the ACG services portfolio that helped them manage the labs, and particularly with everything that's going on right now, the last thing they want is their scientists to be managing the instrumentation. They want them to be doing the science, and so, we think we've got a very compelling software and tools offering, and I think it's showing up in the marketplace across multiple technology platforms really.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Great, and then Mike, you used the phrase, wait and see mode for C&E a couple minutes ago, and it's good to see that back to growth, can you maybe just talk on some of the data points you're watching in your customer base and how you're thinking about the recovery curve there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, thanks Tycho.\\nSo, my comments come back from my first year as a CEO when I tried to call the trend of the C&E business, and eventually it turned out I think it was all by several quarters.\\nSo I learned my lesson, so to speak.\\nSo as Bob mentioned, one quarter trend does not make but we're very encouraged by that, because it's the first time we've seen some growth after those two double-digit declines earlier this year. And we look at a couple of things, Tycho one is the PMIs and the positive moves in the PMIs are indicative of improved end market strength, particularly in C&E, we also look at what we estimate to be the age of the installed base, because a lot of aged equipment out there, and that's been probably at very high levels, and then we look at the deal flow.\\nSo, kind of all those factors, the macro outlook from PMIs what we know to be the current environment for customers in terms of the age of their installed base, and then also overseen in our funnels, and you know, Agilent has a real strength in this market.\\nSo I think we will benefit from returned to growth, again we're not ready yet to put it into numbers for Q1 in the full-year, but we're hopeful that that trend will continue. There're some indications that it could, but let's give it another quarter or so.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay, and then lastly before I hop off, one quick one on China, one of your coolest companies, Mettler, talked about pent-up demand kind of suggested that what they saw may not be sustainable. Have you seen anything in your order book that would suggest what you're seeing in China?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, no, Tycho really appreciate you asking that question because not at all, I mean, this has been a continuing steady flow of business. We think the end markets are really strong here. We see a lot of strength in China Government funding to make sure they stimulate the economy, and then we talked earlier about just overall their investments in improving the quality of life, you noticed the strong growth in the food market, continued strength in pharma.\\nSo no, we've seen this.\\nNow, I think we really look closely at the pacing and it's all nothing unusual.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Tycho, I think we've been extraordinarily pleased with the way our China businesses performed throughout the course of this year, and when you think about kind of our cadence through Q1, Q2, Q3, and Q4, we've seen accelerated growth.\\nSo we saw our lowest growth in the first quarter where we saw the impact of COVID-19, but then what we've seen is improvements as opposed to this real huge increase, and then kind of a drop-off.\\nSo, we're not expecting any drop-off, and we haven't seen that in our order book or any of the conversations that we've had with our customers that there was sort of a material catch-up.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay, thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're quite welcome, Tycho.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Brandon Couillard with Jefferies.\\nYour line is open.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Hi, thanks. Good afternoon; Mike, a couple of questions on LSAG.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"I'm curious, if you could speak to the order book in the fourth quarter, and to the extent that you may have built some backlog there, and curious to speak to perhaps the margin compression in the fourth quarter, but that was mostly mix or is today's dynamics there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Happy to see you, Brandon.\\nSo, one of the reasons why we were able to reinstate guidance this year was what we saw in the LSAG order book, and as you know, we stopped a few years ago talking about specifics around orders, but I think in today's call, it's really prudent for us to give you a sense of why Bob and I have this confidence around the outlook.\\nSo we didn't guessed as we ran across the finish line for 2020, order book was strong in LSAG and as continued into the fairly few weeks of this year.\\nSo again, all the other caveats aside being prudent and recognition of the virus, we feel pretty good about our ability to reinstate guideline because as we mentioned earlier reinstate guidance as mentioned earlier, LSAG was one where we hit the most early on the year, and I think we're feeling pretty good about that. And Bob, as I recall, most of the gross margin is really just a mix of the various instrument platforms.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, that's right. I mean, I think Brandon, to read what Mike is saying, I mean we feel very good, orders exceeded revenue and exceeded our expectations, and so, it was a bit of a mix shift that is impacting that, but we would expect that to kind of normalize out throughout the course of next year, and so, we feel very good about kind of where that business is going into 2021.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Brandon, just one additional thought here which is, we've seen a real change in the price environment.\\nSo, that's why we can say pretty common that has happened to be the mix product this quarter.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Super, and one more for Bob, you mentioned currency with the drag to margins in the fourth quarter, could you quantify that, the magnitude of the operating line, and then what you penciled in for impact of FX to operating margins in '21?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, it was roughly about 40-ish, 45-ish on the COGS line, and some of that was offset through the bottom line, and for next year less impactful, much less impactful than that, probably less than about 10 points, 10 basis points.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Super, thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Leonard with Wells Fargo.\\nYour line is open.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Thank you.\\nSo, to start off, on the guidance, a question for probably you Bob, you've touched on this in pieces, but can you give us at a high level what your key assumptions are, by region and by end-markets?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, so by at the highest level, we're expecting steady improvement throughout the course of the year from the standpoint of the economic perspective, if I think about it from a geography first, China's going to lead the way with high single-digit growth continuing the momentum that we've seen, we ended this year FY '20 about 7%, and we're expecting that or better into next year, and then what you would see as a recovery in the Americas getting back to kind of mid to high single-digits, and then followed by Europe, which would be kind of the low to mid single-digits.\\nSo that's kind of on an end market perspective, how we would think about it, it's predicated on that continued recovery, and that we would as I mentioned before, not have any extended periods of shutdown that would disrupt business.\\nI think the good thing is what we're seeing not only ourselves, but our customers are being able to operate in a different environment than they had the first time these were shut down.\\nSo we're not expecting any material impact there, and from an end-market perspective, the strength is really going to be the continued strength that we've seen in the last several years really driven behind our pharma business, which is probably high single-digits with biopharma as one of the earlier questions came out, probably growing double-digits going forward. And then food, we'll probably expect maybe a little tempering, where it'd be great to have 16% every quarter, but we're not ready to put that into our plan, but I would expect continued recovery there probably in the mid-single-digits and also recovery in our diagnostics and clinical business, particularly in that same kind of mid-single-digits, and probably ramping throughout the course of the year, probably more muted on the academia, and government probably flattish to low, and as we talked about before chemical and energy flattish, but that's really one where we're hoping that we're biased, and there's more upside than downside here, but certainly given the momentum, but one quarter is too early to put a forecast on there, and so, we're assuming roughly flat and then probably recovery in the environmental and forensics market low-single-digits.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay, thanks for that overview, and that's my follow-up, you touched on there being a wider range of outcomes in '21 and typical and mentioned at the bottom end doesn't capture any threats around reestablishment of lockdowns or whatnot. Do you feel the high-end of guidance really captures all the benefits from easy comparisons, any potential upside there might be or how would you frame, what you're capturing in the high-end there?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I'd say it's continued momentum, but I think that there's probably more upsides and downsides in the way that we're trying to capture that certainly exiting at a 6% growth rate, there are we're probably the biggest areas are around chemical and energy and the pace of recovery in academia and government, and if those continue, I would say - let me put it this way, if chemical and energy continued at 3% and growing, we'll be that number.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Yes, absolutely. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Dan.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Douglas Schenkel with Cowen.\\nYour line is open.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"Hi, good afternoon guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good evening, Doug.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"Maybe I have a few cleanup guidance questions, but before I get to that one, I just wanted to talk about your performance specific to your mass spec product line.\\nYou talked about another quarter of double-digit growth. I'm just wondering if you'd be willing to unpack that a bit more and just talk about what's driving this, and specifically is China and more specifically China food, a major driver, I guess I'm just trying to get at which segments of the portfolio or specific end markets or geographies that really stand out within a pretty robust and impressive growth rate there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Doug really appreciate the opportunity to have Jacob comment more deeply on that, but as you know, I highlighted that in my script, we were able to call out that double-digit growth. We're extremely proud of that. And Jacob, I think you've got some additional insights that you could share with Doug.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, that's a great question, and I'm certainly proud of what the team has been doing over the past years, because this is not only a quarterly effect here, but we have done a quiet and overhaul of our master portfolio, particularly the LC/MS portfolio over the last few years, both on the high-end triple quad, but also the single quad, and [indiscernible] the team applications, and this is really what the customer is looking for right now.\\nSo, you can really see that the investments we have done really resonates with our customer base, and right now, I would say in most geographies and in most end markets, but if you look into it's biopharma and China is definitely a big part of this story, but -- and the other element into it is that we pivoted very quickly to remote customer engagement during this beginning of this year, and when the customer has to shut down the laboratories, we were there for them. We did support them when the tough times, and you can see that pay dividends today that they also continue with the partnership with accidents.\\nSo, I actually believe that we are in a quite good momentum here with the mass aide business.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"Yes, all right.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"Yes, that sure does. Thank you for that, and then maybe just a few guidance questions, yes, so this'll be kind of a speed round in a way, because you have got some questions about these already, but on China, did you expect double-digit growth in fiscal '21? On gross margin, you talked about some of the headwinds you saw in Q4 becoming less pronounced moving forward.\\nSo, do you expect gross margin overall to get back up to the 56 plus level? And then on COVID-19, I think you talked about just over two points of COVID tailwinds in the quarter. I'm just wondering if looking forward either fiscal Q1 or for the full-year, if you could see a scenario where this would accelerate over time if serology volumes began to inflect in a positive way and same thing on the antibody business, could those in combination drive more of a tailwind moving forward, so China gross margin and COVID-19?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, so China, high single-digits, maybe low double-digits based on the range that we gave you in terms of COVID what I would say is, we are expecting less incremental the growth, but certainly the things that you talked about are baked into our guidance.\\nSo more serology our antigen based testing or even vaccine driven volume is not fully baked into the numbers that we are -- it's just too early to tell, but those are certainly be things that are potential upsides, and then the last one, I know which was your second question around gross margin, I would expect it to stabilize and not see this the same level of decline.\\nNow, what I would say is you will have some mix shifts, right, because our ACG business, which is lower gross margin than the instrument business, but much higher operating margin helps us with that.\\nSo, you do see a dampening effect on the gross margin side, but you will more than make up for it on the operating margin side.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"Okay, Bob.\\nSorry.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Doug specific to COVID-19 we'll hit a little bit more of that when we have our Analyst Day, but we are planning to launch in early 2021 our serology test, and there are some things that we're working on that aren't baked into the guide. We'll see how that they play out.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"Okay, that's great. Thank you guys for all the time and happy Thanksgiving everybody.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Same to you.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Derik de Bruin with Bank of America.\\nYour line is open.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hi, good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Derik.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Hi, Derik.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hi, so I'm going to do this similar to Doug. I've got a couple of focus questions. I got one guidance cleanup.\\nSo I guess specifically, Bob, you mentioned some software pushes in business between the pharma business. Can you be a little bit more specific on that? I mean, is OpenLab taking share against Empower, you winning have be replaced Empower and some of the accounts there, I'm just sort of curious on what the dynamics are in the CDS market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. What I would say Doug, excuse me, Derik, is that we feel very good about our competitive positioning with OpenLab and the rest of our products.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Okay.\\nNow I'll live with that I guess. Yes, and by the way, I'm better looking than Doug.\\nOn the Core Genomics business, I mean, we don't really have talk about that. I mean, you talk about the NASD and some other things here, but what is going on in your Core Genomics business, you've got SureSelect, I mean, you've had some pressures and some of that end market there. What is that underlying business growing?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, actually a great question because we didn't highlight that, but actually when you look at sequential performance, that was one of the things that was very, very positive in the DDG business. It recovered very nicely into Q4, and maybe I'll let Sam talk about some of the details there.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, sure. Thanks, Bob.\\nAs you said, as we went into the heavy part of the pandemic, if you will, late Q2, Q3, some of the Genomics business also serves clinical diagnostic customers be it for SureSelect being the backbone and some of the leading cancer diagnostic and US-based tests as well as other inherited diseases.\\nSo we definitely saw the effect of that, but coming into Q4, we've seen a steady stream of increase there, and we've also seen a positive effect in parts of our portfolio that are related to qPCR be it instruments, be it our consumables that are used and also we have the leading Genomics QC portfolio as you're probably aware of, and we see a number of those products, including our fragment analyzer being used increasingly for picking up conventional or sorry, would the pickup of conventional clinical testing, but also being used for example for some siRNA vaccines that are in development.\\nSo, all-in-all, the trend is looking encouraging for our Core Genomics business.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Great, and then just one housekeeping question.\\nFor '21, the other income expense line, how should we think about that for '21? Bob do you want to handle that or you want to take that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, that'd be slightly better than where it is this year.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Jack Meehan with Nephron Research.\\nYour line is open.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hello, Jack.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thanks. Hi, good afternoon.\\nLet me go back to biopharm, Mike, I was curious if you're seeing any change in terms of customer spending patterns at all, because of COVID-19, there is just been such a focus on bioprocessing, the support vaccines and therapeutics. What's that doing in small molecule if you can call out any trends?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Jack, great question.\\nSo, to our delight, it really hasn't seen them cause any kind of material shift. I mean, we're seeing -- in fact, I think Bob in his script, where we saw strength across small molecule and bio -- large molecule.\\nNow the small molecule is not growing as fast as large molecules, it was growing, and\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Jack to give you some numbers, I mean for Q4 small molecule grew high single-digits, and for the year it grew low single-digits.\\nSo despite all the hoopla, small molecule is not dead.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Yes. Great, and maybe just to build on that, so the high teens ACG growth in China, could you just parse out for us? How did food do versus how did maybe generics do in terms of some of that consolidation there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, as I recall, and I'd like Padraig on this, I think it was broad-based across all end-markets. Everything was in that double-digit range, and Padraig anything you could add to that?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"No, I think you said it well, Mike, I think across both sides of the business, both the chemistries serves as very strong demand in all markets, and we see certainly a strong demand for our installation familiarization and startup services.\\nSo I'm really strong across the board in China.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great, thank you, guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Patrick Donnelly with Citi.\\nYour line is open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Hey guys, thanks for taking the questions.\\nLet me follow-up on the --\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Patrick.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Hey, Mike, just on the chemical and energy side, it certainly sounds like that's the biggest area of upside, maybe the biggest variable for next year.\\nSounds like chemicals and material things are improving, can you just give a bit more detail around the customer tone there, and then is energy the bigger variable for '21 maybe just talk through kind of the scenario analysis as you guys think about it certainly seems like there's upside, but maybe just kind of what parts of the business you feel like are the biggest variable there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I think that sort of all the kind of this always helpful reminder, but in a kind of our mix, so it's 70:30, 70:30 in chemicals and materials, and 30% energy. Actually the upside on the chemical and material, energy lags, and we aren't really seeing a lot of indications of why that would, that would pick up, but you have to remember some of the chemical companies are actually providing products and such into end markets that support COVID-19. They're feeling, what drives this marketplace? Yes, we talked about PMIs, but really all the PMIs are really related to the view of global growth, and I think that customer base is feeling more confident about where the economy is going and things this shut really slowed down earlier this year just for a must kind of purchases, but I think it's a prove view of the overall economic outlook for the chemical and materials side plus the fact that they have some kind of COVID-19 tailwind to help out. I wouldn't say that's the entire story is just the element of it.\\nI think the biggest part here is just the fact that there's much more common in the customer base about the growth environment from an economic standpoint, Bob anything you would add to that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thank you, Mike. I don't.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay, yes, that's very helpful, and then maybe just on a capital deployment side.\\nYou guys always take the balanced approach, and I'm sure we'll hear more about it in a couple of weeks, but how are things trending in the pipeline on the M&A side, your cash flow has actually been pretty strong? How active should we expect you guys to be on that front? Any changes and thoughts around the size of deals you want to pursue, and any metrics you can throw out there would be helpful? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No, no we continue to be very interested in deploying capital for growth standpoint along all the dimensions we talked about earlier. We said that the BioTek size deal, which we were really quite happy with that, that was largest deal we've done to-date. That doesn't mean that would be the largest deal we would do. We've always said, I think it was not magnitudes of delta, and although we didn't closed any deals this year, I think that really was somewhat tied into some of the COVID-19 challenges of doing due diligence and working with potential targets, but we still see this as a key part of our, what we call, our build and buy growth strategy, and think that M&A can be a nice attitude to our core growth businesses.\\nSo you guessed right, so we'll talk more about it in a few weeks. We still have aspirations in the space, but really sticking to the model, the framework that we've been using before, which is M&A in markets at a higher growth investor company that aligns strategically with us where they can benefit by our scale and are accretive to the P&L.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I would say Patrick, just to build on what Mike was saying. I mean, we feel very good about the acquisitions that we made, the last two which was BioTek and ACEA were probably the fastest growing parts of our business, if you take out NASD, and so, I think it validates the space that we're looking at, and we don't see a reason to need to change our M&A framework.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay, thanks guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Your final question comes from the line of Steve Beuchaw with Wolfe Research.\\nYour line is open.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Hi, thanks for sneaking me in here. I'll just ask one maybe I guess it's a two-parter; one part for Mike, one part for Bob, and\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay, I'll be giving easy one.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"I think you're going to like it.\\nI think you are going to like it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Mike, so last call, you raised this concept, you called it a flight to quality, and you talked about how the team with the execution has been able to drive share gains, I wonder if you could talk about whether you think that as the pandemic subsided in some ways and labs are opening up again, if you think that dynamic has become any more or less acute, and if you think it's sticky, I'm going to go ahead and ask the second part of my -- I guess I'll call it COVID discovery question for Bob; Bob, like a lot of CFOs, you've had a chance to see how much you can save within operating expenses, as we're all working remotely and being more digital. Have you thought about putting any numbers around how much of the savings that you've discovered here could end up being permanent? Thanks a bunch, everybody.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, thanks, Steve.\\nSo, in regards to the first one, we probably talked about the flight to quality when money is tight, but we also think tied it to stability, and how we protected our overall field team and our ability to support our customers during the pandemic.\\nSo, I think those two things are going to carry us forward.\\nSo we think that the stickiness will remain there, and I don't think that the quality will fall out of fashion, and I think as you continue to grow your position in the installed base, it just gives you an upper hand in terms of next buy when they get around to making the next capital purchasing decision.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I would agree with that, Mike, and I think that, you know, I think two things; one is, we were there when the customers needed us the most, and our team particularly in the field, helping support critical operations and so forth, and that flight to quality on the instrumentation side only pays dividends going forward.\\nSo, I think there is no -- there will be no follow-up there, I truly believe that.\\nOn the cost side, we're still working through some of those things, a big thing, probably the biggest variable here, and it's got a couple of different tentacles to it would be around travel, and I think we had talked about before at one point in time we're spending roughly $10 million a month in travel, and that that is down, I would say substantially, and our goal is that will be back to $10 million a month, and so, that doesn't say that we're going to necessarily drop it all to the bottom line, but reinvest in some areas that will drive growth going forward, but certainly those, and then there will be more efficient ways of doing things like marketing outreach to our customers, and even operating, one of the things is we still operated and launched new products, despite not having been in the labs for the most part for nine months out of the year, and so, our teams are finding innovative ways to continue to actually move things around without having to spend incremental dollars, so more to come on that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We think [some things] [ph] are going to stick. Particularly, as it relates to your digital engagement with customers, because there's a huge element of being responsive, and we think that digital cable is a big part of that story, and yes, it has been accelerated by COVID, but we don't think there's any going back either.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Got it. Thank you for all the color, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today's conference call. Thank you for participating.\\nYou may now disconnect.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2021-02-17
year: 2021
quarter: Q1
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon, and welcome to the Agilent Technologies First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. And now I'd like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Jason, and welcome, everyone, to Agilent's first quarter conference call for fiscal year 2021. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Bob's comments will be Jacob Thaysen, President of Agilent's Life Science and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Padraig McDonnell, President of Agilent CrossLab Group. This presentation is being webcast live. The news release, investor presentation and information to supplement today's discussion, along with the recording of this webcast, are made available on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year, and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of January 31.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. And now, I would like to turn the call over to Mike. Mike?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Ankur, and thank you to everyone for joining us today on our call. I'm very pleased to be on the call with you today.\\nWe are off to an excellent start to our fiscal year. The Agilent team delivered outstanding results in the first quarter. The momentum in our business continues. Revenues for the quarter are $1.55 billion. This is up 14% on a reported basis and 11% core, exceeding our mid-January revised expectations. Also, as expected, COVID-19 tailwinds added roughly 2.5 points to our overall growth. Operating margins are healthy, 25.5%. EPS of $1.06 is up 31% year-over-year. Overall, a very impressive start to 2021.\\nOur growth is broad-based. All 3 of our business groups delivered double-digit growth. All regions grew, with the 2 largest leading the way. China grew 25%, and the Americas posted 13% growth.\\nWe continue to see strength in most of our end markets, led by pharma growing 20%. These results are a testament to our build and buy growth strategy and the Agilent team's relentless customer focus. Demand remains strong for the full breadth of our offerings.\\nWe have been gaining market share in key areas.\\nWe are clearly keeping our foot on the gas.\\nNow, let's take a look at our performance by business group. The Life Sciences and Applied Markets Group generated $722 million in revenue, up 13% on a reported basis and up 11% core. LSAG's growth is broad-based across end markets and geographies.\\nWe are particularly pleased with our cell analysis business. Cell analysis grew in the high teens, led by BioTek, which grew 26%. Growth is also strong at liquid chromatography and mass spec product lines, with both growing in the teens. Overall, our LSAG business saw very strong demand as many customers utilized their end-of-year CapEx budgets and our market share gains continued. From an end market perspective, food and pharma led the way for LSAG. Continuing our biopharma investment focus, we introduced new updates to our MassHunter LC/MS software. This new software enables data integrity consisting important regulatory requirements for our biopharma customers.\\nAs we continue to build our digital lab, we introduced the Agilent 7850 ICP-MS System, which provides new smart digital tools to improve workflows. LSAG's broad and continually strengthening portfolio is well positioned and continues to outperform the industry. The Agilent CrossLab Group posted revenues of $532 million. This is up a reported 13% and up 10% core. ACG's growth is also broad-based across end markets and geographies. Growth is strong in both services and consumables.\\nOur digital investments and scale are adding significant value.\\nWe continue to drive improved attach rates to Agilent's large installed base of instruments. Annual service contract renewal rates and growth were strong in the quarter as we continue to build a more resilient and higher growth business. The Diagnostic and Genomics Group, revenues are $294 million, up 18% reported and up 15% core. Growth is broad-based, led by our NASD oligo business.\\nOur genomics product portfolio grew double-digit, aided by COVID-19-related qPCR demand.\\nWe also achieved strong growth in our core NGS sample prep business.\\nAs mentioned earlier, overall company growth is broad-based across most of our end markets. The pharmaceutical food businesses led the way, both growing strong double-digits.\\nWe also posted 10% growth in the environmental and forensics market. Chemical and energy grew 2%, and we've seen increased business activity in the C&E space. The academia end market is down 1%, with many university labs still operating in a constrained environment.\\nWe are also continuing our efforts in the battle against COVID-19.\\nWe have completed our development and clinical validation for a serology assay to detect COVID-19 antibodies. We plan to submit to the U.S. FDA for Emergency Use Authorization within the next month.\\nIn addition, we're making progress on our qPCR-based test for COVID-19 detection and plan to launch in Europe in the next couple of months and submit for Emergency Use Authorization in the U.S. within the same time frame. I'm also pleased to share that Barron's again recently named Agilent One of America's Most Sustainable Companies. This marks the third year in a row we have been included among the top 3 companies in this ranking. We've also been a leader in our industry all 4 years that Barron's list has been published. We're very proud of this honor. Sustainability is a key priority for our company. When I look back on the uncertainty we faced this time last year, I'm so proud of what the Agilent team accomplished, all-time high customer satisfaction ratings, building momentum in all our businesses and delivering excellent results.\\nOur first quarter results are another compelling proof point that we\\u2019re building an even stronger company and market position during the pandemic.\\nAs we discussed at our December investor event, our diverse industry-leading product portfolio has never been stronger.\\nOur building and buying growth strategy with a focus on high-growth markets continues to deliver.\\nOur M&A funnel is robust and remains focused on growth-accretive M&A opportunities.\\nWe are targeting companies in markets where we see potential for significant long-term growth, and Agilent is in a strong position to win.\\nAs we look ahead, we have a sense of realistic optimism.\\nWe have solid momentum. We're winning in the market, and we have the right team to continue to succeed.\\nAs a result, we are raising our core growth guidance range to 6.5% to 8% for the year.\\nAs you may recall, we recently guided to a long-term core growth rate of between 5% and 7%, so we are certainly off to a good start in 2021, and we have no intention of slowing down.\\nWe have also raised our earnings guidance for the year. In December, I shared Agilent's long-range plan of margin expansion at 50 basis points to 100 basis points a year.\\nWe are now guiding towards the top end of that range for 2021. Bob will share more details on this in his remarks. I couldn't be more pleased with how we have started the year.\\nWe have momentum.\\nOur team is strong and energized.\\nWe are gaining market share in key areas, and we have an even more promising outlook for the full year. Thanks for being on the call today, and I look forward to your questions. I will now hand the call off to Bob. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thanks, Mike, and good afternoon, everyone. In my remarks today, I'll provide some additional details on Q1 revenue and take you through the first quarter income statement and some other key financial metrics. I'll then finish up with our outlook for 2021 and the second quarter. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nWe are very pleased with our first quarter results as we saw strong broad-based growth exceeding our revised expectations. Revenue for the first quarter was $1.55 billion, reflecting reported growth of 14.1%. Core revenue growth was 11.3%, while currency contributed 2.8 points of growth.\\nNow before I get into the end markets, Mike's earlier comments bear repeating. All 3 business groups delivered double-digit growth -- core growth in the quarter.\\nOur superior value proposition continues to resonate with our customers and our team executed well, capitalizing on recovering demand in our end markets. Pharma, our largest market, was strong across all regions, delivering 20% growth. Growth was led by NASD, which experienced significant growth in the quarter, albeit against the easiest comp of the year. NASD contributed 4 points to the overall pharma growth rate.\\nWe continue to be very pleased about the ramp of the Frederick oligo facility, and the recently announced capacity expansion in Frederick is on track. Small molecule grew mid-teens, while biopharma, excluding NASD, delivered 20% growth driven in part by strong demand for LC and mass spec instrumentation. We saw strong year-end demand from pharma customers. We're also seeing increased business related to the characterization of oligo-based therapies and vaccines. The food market also experienced strong double-digit growth during the quarter, posting a 22% increase in revenue.\\nOur business grew in all geographies driven by increased demand for food safety and quality testing. China is leading the way, driven by investments in both commercial and government entities. Environmental and forensics grew double-digits, coming in at 10% core growth. Broad regional growth reflected strong tech refresh or replacement demand from contract labs.\\nOur diagnostics and clinical revenue grew 9% during the quarter and has benefited from growth in COVID-related applications, primarily in the Americas and Europe.\\nOur pathology business grew slightly as non-COVID testing continues to improve but has not yet recovered to pre-pandemic levels globally.\\nWhile our diagnostics and clinical end market in China is still small, it experienced strong growth due to improvements in non-COVID testing and the uptake of our clinical LC/MS. The chemical and energy end market continued the recovery we saw last quarter and grew 2% in Q1.\\nWe continue to see signs of increased business activity, particularly in specialty chemicals and engineered materials along with encouraging improvements in the macro environment. And while we are optimistic, we are not yet reflecting a change in our forecast for the rest of the year. And as expected, the academia and government market recovery has lagged the other end markets, down 1% year-on-year as research labs are still not operating at full capacity.\\nWe continue to expect a slow but steady recovery throughout 2021. On a geographic basis, all regions grew. China grew 25%, leading all geographies, led by the food and pharma markets. The Americas delivered a strong double-digit performance during the quarter with 13% growth, while Europe was up 6%, both also led by pharma and food.\\nNow turning to the rest of the P&L.\\nThe first quarter gross margin was 55.8%, up 10 basis points year-on-year. Adjusting for the exchange rates, gross margins improved 50 basis points.\\nOur operating margin for the first quarter came in at 25.5%. This is up an impressive 260 basis points from last year, driven by volume and spending discipline. And this result includes the impact of increased strategic investments we started last quarter.\\nOur top-line growth, coupled with our operating leverage, helped deliver EPS of $1.06 per share, up 31% versus last year.\\nOur tax rate was 14.75%, and our share count was [309 million] shares, as expected.\\nNow onto the cash flow and the balance sheet.\\nOur operating cash flow continues to be very strong. In Q1, we had operating cash flow of $238 million, a 43% increase over last year after adjusting for last year's 1 year -- one-time tax payment. This performance shows the strength of our business model and provides financial flexibility going forward.\\nWe continued the balanced capital deployment strategy we highlighted at our Annual Investor Event in December. In the quarter, we invested $41 million in capital expenditures, paid out $59 million in dividends and repurchased 2.9 million shares for $344 million. And as we announced earlier today, our Board of Directors authorized a new $2 billion share repurchase program replacing the current program. We ended the quarter in a strong financial position with $1.3 billion in cash and $2.5 billion in debt.\\nNow moving on to the outlook.\\nWe have had a strong start to the year. And while there are still uncertainties in front of us and the business environment remains fluid, we have solid momentum, and we see continued recovery in our end markets, albeit at different rates. And as a result, we're increasing our full year projections for both revenue and earnings per share.\\nFor revenue, we are increasing our full year to a range of $5.825 billion to $5.9 billion, up over $200 million at the midpoint and representing reported growth of 9% to 11% and core growth of 6.5% to 8%. This increase reflects strong Q1 results and some improvement in our outlook for the remainder of the year. The increased guide assumes stronger performance in most of our end markets. The academia market continues to track as expected in our initial plans. And while business activity in the chemical and energy has picked up, we have not yet included any improvement in that market in this updated outlook.\\nIn addition, we have not included any revenue associated with either the serology or qPCR COVID assay in the outlook.\\nAs Mike mentioned, we also feel very good about expanding our margins.\\nDuring the Investor Event in December, we provided long-range plan of annual margin expansion in the range of 50 basis points to 100 basis points.\\nGiven the volatility in results during 2020, our margin expansion profile will vary each quarter.\\nHowever, we feel confident about our full year margin expansion being towards the top end of that range while also investing for future growth. The higher sales and margin expansion coupled with maintaining our tax rate at 14.75% and a lower share count of roughly 307 million shares, increases our fiscal 2021 non-GAAP EPS to a range of $3.80 to $3.90 per share. This is growth of 16% to 19% for the year.\\nNow for the second fiscal quarter, we're expecting revenue to range from $1.37 billion to $1.39 billion, representing reported growth of 11% to 12% and core growth of 7% to 9%.\\nWe expect second quarter 2021 non-GAAP earnings to be in the range of $0.78 to $0.80 per share, with growth of 10% to 13% as we approach the 1-year anniversary of the significant reduction in expenses in Q2 of last year.\\nNow before opening the call for questions, I want to say I couldn't be more proud of the Agilent team in driving such strong performance.\\nWe have gotten off to a great start this year, and I'm personally very excited to know what this company is capable of moving forward.\\nWe have very strong momentum, the right approach that leads me believe that we're on a very solid path for Q2 and the rest of 2021. With that, Ankur, back to you for the Q&A.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thanks, Bob. Jason, if you can provide the instructions for Q&A, please.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions].\\nYour first question comes from the line of Tycho Peterson from JPMorgan.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Congratulation here on the preannouncement. On that note, Mike, actually, I'm wondering if you could talk a little bit about what drove the delta to the preannouncement. And then importantly, on sustainability, it sounds like you're not really calling out any kind of pull forward here. Curious as we think about it, and particularly that biopharma strength and the mid-teens growth you\\u2019ve had in LC/MS, how are you thinking about the sustainability there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Well, first of all, Tycho, thanks for the recognition. Really proud of the performance to even top our earlier revised expectations for the quarter. And I'd say that as we got into January, business in January was stronger than we had anticipated. And I think it was -- from a geographic perspective, we saw the strength in China. Obviously, that was higher than we had. We're thinking as long as very -- really good strength in the Americas, led by pharma and the food market. I'm sure we'll dial in today on the call about the food market, which is both growth in China as well as in Americas. And then no pull forwards.\\nSo it was a clean quarter with January being stronger than we had anticipated, when we already had announced an increase in our revenue outlook for the quarter. Bob, I don't know if I missed anything on the...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No.\\nYou got it.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And on the LC/MS strength, up mid-teens, certainly better numbers than we're seeing from a lot of your peers. Can you just talk to that?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I think that it's a continuation of story that's been underway for several quarters. We've continued to innovate and provide value to the customers really see in our offerings, coupled with our approach to our field engagement and really maintaining our field force when our customer needs us most. We're getting the business. And it's very clear that not only is it a -- was there -- we saw, particularly in some of the pharma and non-COVID areas where they were basically making sure that they spent the capital had allocated for 2020, we got all that business, but it's more than that. It was a market share gain story as well for us.\\nSo I think it was a combination of a backtrack of investment by the pharma world but also our ability to gain share. And Bob, I know you've taken a close look at this and...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I think, Tycho, to Mike's point, I think one of the things we feel really good about is just our portfolio and our offerings to our customers.\\nI think one things that we've seen is our responsiveness continues to improve, and that's been evidenced by the increased customer satisfaction that we've seen. And as Mike said, as the year-end CapEx spending happened, we were there, and I think we took more than our fair share. And we do think that this is an area that we continue to invest behind. Mike talked about the investment in the MassHunter software, which I think is going to really help continue this momentum that we have going forward from a compliance standpoint, and it's an area of focus, and we're very excited about the biopharma business going forward.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And there's a real holistic story here as well.\\nYou know the story already Tycho with our ACG business complementing, on the services and consumables complementing what we can do on leading innovative instrument solutions.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And before I hop off, just one on ACG, you grew mid-20s in China off a low-teens comp.\\nSo it's not like the bar was low. Are you doing anything there structurally to kind of drive that acceleration?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"What -- I'm going to let Padraig talk a little bit about that. Padraig, why don't you share your thoughts on that?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Thanks, Mike.\\nI think it's a combination of our scale on our service business in China and our connection with customers. And also, we've been investing in a number of years in our digital capabilities in China, which is really seeing a lot of pull-through from the customers and all markets are really driving the business forward, and we see it sustaining over the next period.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Tycho, just to build on what Padraig is saying, I mean, this is an area where we've also increased our investments in people on the street. And as we think about, Mike mentioned this in his script, actually our focus on actually turning ongoing revenue into service contracts, this is an area where we've had a specific focus in China there, and it's really helped us.\\nAnd so we're -- that productivity aspect continues to play out in China.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Brandon Couillard from Jefferies.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Maybe, Mike, could you elaborate on your comment as far as beginning to see some improved activity in the C&E market? And maybe, Bob, could you give us some color on instruments versus aftermarket growth in the first quarter?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, we're really talking about order activity, right? So we're seeing a lot of discussion with our field teams, particularly in the area what I would call high-value chemicals, specialty chemicals.\\nSo there's a lot more discussion going on with our field teams right now. And I think our customers are feeling more confident about the economic outlook and the end market demand that they can anticipate in the coming quarters. And as you know, this is against a backdrop of a lot of pent-up demand where investments have been deferred. And we're seeing -- continue to see strong PMIs. But as you heard me share the story forward, Brandon, I'm always reluctant to call a turn until we actually see a couple of quarters.\\nSo while we're optimistic about what we're seeing so far, we're not ready to yet to put it into the formal guide for the year.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And just on the second part of your question, Brandon, our instrumentation was roughly flat, and ACG was up mid-single-digits.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Then one follow-up for you, Bob. Gross margins in the first quarter were better. Do we expect that -- are you still thinking that the full year is still relatively flat to down? And any chance you could quantify the impact of the NASD capacity built on gross margin in the first quarter?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. It was a little lower than what -- we would expect that to be higher in the back half of the year as we continue to ramp up.\\nSo it didn't really have a material impact on the first quarter.\\nIf you recall, we talked about that being roughly about 20 basis points for the full year, and that really didn't have an impact in the first quarter. And in terms of the overall year, I would say we're slightly more optimistic, kind of given where, certainly, the first quarter came in. And that's part of the increasing our top end, I would say, the margin expansion. It's a combination of a little more in gross margin, but most of it actually will be in the operating expenses.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Vijay Kumar from Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"I guess for my first one, Mike, the guidance here, I guess Q2, your comps are pretty easy.\\nYou just did 11 in Q1. Could you perhaps comment on the Q2 and why that should step down? And when you look at the annual from an end market perspective, if C&E didn't change, I guess, is this biopharma that's changing for the annual outlook?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, let me take a shot at it, and then I'll turn it over to Mike, Vijay. Thanks for the acknowledgment. Yes, I'll take the second question first and then go back to the first -- second quarter. If we think about where the full year is, it's mainly in that pharma and food markets across all of the regions that we see the uptake. And we are optimistic about chemical and energy, but we're not yet putting it into the forecast. It's still at the end of the quarter.\\nAs Mike said, we're seeing a lot of business activity. We're seeing the order funnel build and so forth, but we want to actually see those translate into orders and then ultimately into revenue.\\nSo everything there is moving in the right direction, and we would expect that to continue to play out throughout the course of the year. If I look at Q2, we did have a higher-than-expected budget -- year-end budget dynamic that helped, obviously, the 11%. That doesn't repeat itself in Q2. And -- but if you looked at -- we feel very confident about the continued momentum of the business going forward.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And that was probably a couple of points of growth maybe.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. It's hard to estimate, but that's the best guess that we have, yes.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Understood. And then I guess, just for my follow-up. Is the guide assuming, this COVID tailwinds that you mentioned 200 basis points in Q1, is that going to sustain? And I'm curious, what is driving the margin strength here, I guess, relative to your prior guide?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo I'll take the first one. Yes.\\nSo we're still in that 2 percentage kind of revenue range for COVID.\\nSo that's a good number to lock into.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And I think the growth on the margin expansion has been just really the strength in our volume. And I think that, that -- when we have that strong growth, you actually see it going to the bottom-line. When you look at last year, our spending profile changed pretty dramatically quarter-on-quarter as we were reflecting the pandemic and so forth. If we think about Q1 to Q2 this year, our spending, think about it as roughly flat sequentially.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And Vijay, I'm sure you had a chance to look at Jacob's margins for the first quarter, but LSAG had very strong margins. And that's -- when you have double-digit growth in LC, the strength in the cell analysis business, we had indicated when we acquired BioTek that we are buying not only high growth but also a high-margin company, I think you're seeing it in the numbers.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Puneet Souda from SVBL.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"So my first question is on China, which you alluded to a little bit before. Obviously, a strong quarter, but just walk us through where do we stand today in China food and where the products are resonating? What's your outlook here? Obviously, this has been a market that has been improving for you after some disruptions a while ago. And just want to get a sense of where it stands and how should we think about it going forward?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Puneet, thanks for your kind comments. And I'll make some initial introduction comments here about China food, and I'll invite Jacob into this conversation as his solutions are a big part of the story here.\\nSo this is a quick remind to the audience.\\nYou may recall that we saw a slowdown for the better part of over 2 years in the China food market as a result of the reorganization of the China food ministries, and we always have been pointing to the fact that there had been really deferred investment at the national level. And now that situation has completely changed, which are -- there's reinvestment going into new technologies at the national level.\\nIn addition too, the testing volumes continue to grow for the contract testing lab side, picking up that volume. And Jacob, I think we've got a pretty good position here in the marketplace with our mass spec portfolio.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, certainly, Mike.\\nSo you're right that we are seeing a broad-based interest from our portfolio. But particularly, what stands out is our triple quad, both the LC/MS and the GC/MS, which is sought after, especially for pesticide testing where both technologies are used. And what we have developed here is one workflow, one sample press that can be used for both technologies.\\nSo that is very much better performance versus many others where you have to have 2 different kinds of setups.\\nSo we see a lot of interest in that.\\nAnd so the triple quad is really paving the way right now.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Jacob invested in a China solution center as well.\\nSo we actually, again, based on these leading technology platforms, are able to tailor our solutions for that China food market.\\nSo we're really excited about the change in the business volume there, as you can imagine.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"That's great. And if I could also ask in terms of pharma in China, could you maybe just elaborate your positioning there? You had really strong growth here in terms of both small molecules and biomolecules as well. Maybe just if you could characterize that, is that biomarker growth largely coming from NASD? Is that what's driving that part of the component? And the small molecules, you had really strong growth, too, so maybe if you could parse that out.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Specific to China, there's no NASD volume at all. It's zero in China.\\nSo that's purely on the -- on what we call the LSS side, which is ACG and LSAG business.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And I was going to say, Puneet, as we said in the call, our -- if you stripped out NASD, biopharma in total, so this would be our ACG and LSAG businesses together along with some contribution at DGG, grew 20%. And that was really broad-based across all regions. Actually, it was faster than that in China. But if you look across, they were all kind of neck and neck in terms of the performance across the regions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Bob, I'd just add one thing.\\nAlthough we don't have direct NASD business in China, as Bob highlighted in his script, we're seeing a lot of demand for LC/MS-based solution for oligo-based R&D research. And the fact that we're in this business ourselves with our own API business and that we have a state-of-the-art facility in our Frederick, Colorado site really helps us be able to sell solutions to our customers doing research in this area as well.\\nSo I do think there's a linkage of the oligo business into China, albeit on what we're seen on the research side.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And that small molecule in China was very strong.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Oh, yes, sorry about that. I missed that one. Yes. How can I miss that one?\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Leonard from Wells Fargo.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"So first question, still trying to think of how to interpret your chemical and energy comments. The comps get pretty easy for that end market. And it doesn't sound like the 2% you reported in the quarter reflects what you're currently seeing on the order side. Are you still expecting kind of flattish chemical and energy performance through the balance of the year? Or could you help me with that?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think the headline here is potential upside to our guide. And then, Bob, maybe you can answer the...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Mike mentioned the headline quite well.\\nAs we think about the chemical and energy, we've built in some slight improvement in Q1 and Q2, but have not made any changes to the back half.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And by the way, Dan, I'm not trying to be coy here or cute. We've just seen this market can easily can turn on the dime. And I've had experience where I've called it too soon.\\nSo once we feel confident about the book of business we have inside Agilent, we will be sure to give you an updated view of the outlook for the year.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Mike, I think it's worth mentioning again that our competitive positioning is very strong here. And as you know, we have invested very heavily into our portfolio, both from an instrumentation, but also from an informatics point of view.\\nSo when the market comes back, we will certainly see a lion's share of that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. It should have been part 2 of my headline. When the business is there, we're going to get it.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. And I appreciate that. And Mike, you've seen a lot of budget cycles. Could you maybe -- what we just saw in the quarter in context, you had a strong quarter, and I know share gain is part of that. All your peers had a really strong quarter. Are we going to look back at this period a couple of years from flush, particularly in pharma? Was this 1 for the history books? Or was this just a good flush? Like how would you characterize that?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I sure hope that's for the history books because it had a backdrop of a pandemic, and what we saw was some deferred capital investment that had been -- normally would have maybe been invested in the -- our Q2, Q3 because of COVID-19 concerns. And just the fact that customers weren't working, deferred the capital. But again, I would have to say there's more to the story in our Q1 than just that budget flush.\\nSo -- and -- but...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I was going to say, I would say it certainly was bigger than the last several years. I don't know -- and -- but I think as we think about the momentum that we've seen, when you look at where we were in Q4 as well, we started seeing the turnaround. And we saw it continue through Q1, and we're expecting that to continue into the rest of this year as well.\\nSo it's not just a one-quarter phenomenon. Certainly, it was stronger than we anticipated. But we have higher expectations going forward for growth in pharma.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Doug Schenkel from Cowen.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"So my first question is on share gains. In your prepared remarks, and actually, I think in -- even in the press release, you highlighted market share several times in the context of the strong revenue growth you delivered in the fiscal first quarter. I'm curious if you could opine on where you think you're taking the most share and how sustainable this is? So that's the first topic.\\nThe second is on M&A. And the balance sheet is clean.\\nYou're re-upping on the share buybacks. I'm just wondering how you're thinking about M&A, and more specifically, the parameters that you are using to evaluate potential acquisitions moving forward?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Doug, thanks a lot for that. Happy to opine both questions.\\nSo yes, we really wanted to make sure the story came through that we had this a great start to 2021, and it wasn't just about a year-end budget flush. There's some really good things that have been going in for several quarters, and this continued in the first quarter. And we very specifically chose the language in key areas.\\nSo we're gaining share in some of our biggest product line areas. I would point to liquid chromatography. I\\u2019d point to mass spectrometry, both gas phase, liquid phase and the inorganic side. I'd point to our services business. And -- what else might you add to that? I mean, I think it's pretty much broad-based.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, and in our oligos business.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, oligos because it always comes in 3, the oligos, I mean we had outstanding growth in Q1.\\nSo we're getting market share gains in the product lines where they really are collectively needle movers for the entire company. And then relative to the M&A, yes, we were in the market repurchasing shares this quarter, this past quarter, I should say, being anti-dilutive. But our priority remains, as we communicated, our December Investor and Analyst Day, which is we want to invest in the business, not only in terms of capital expansion building down NASD, for example, but also growth accretive M&A. And that remains our priority.\\nYou may have picked up in my comments, prepared comments that the discussions with potential targets, the deal activity is picking up. And I think -- and we've seen a number of other deals announced in our space. But I'd say the volume of discussion has much increased over the last quarter or 2.\\nSo nothing to announce, but that remains our area of focus for utilization of our strong balance sheet. And Bob, anything else you want to add?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, the only thing I would say is, Doug, as we think about the markets that we compete in, our framework really hasn't changed. We're looking at markets that are faster-growing than the markets that we are in or sub-segments of those markets. We think the last couple of acquisitions have really borne that out with ACEA as well as BioTek in the cell analysis space, and it's really helped continue that shift to higher-growth markets, and that's the area that I would think -- and there's really opportunities across all of our -- both in instrumentation as well as in kind of consumables area or that recurring revenue stream as well.\\nSo that's the way I would think about it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And Doug, we continue to look for companies also not only to meet that criteria, but also we think there are strong cultural fit that really would be part -- could really be a key part of the overall Agilent family, so to speak, and also a business where we think we can make that business even better.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Matt Sykes from Goldman Sachs.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Nice solid quarter, guys. I just wanted to focus on, if you -- when you look at the DGG operating margin in the fourth quarter, it was obviously very strong.\\nJust in terms of sustainability for that, what was driving that? And what should we expect as we go forward in '21?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Bob, do you and Sam want to tag team on this?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I'll start and then turn it over to Sam. I mean you see the strength really was volume-driven here -- and when we look at it. And as we ramp up that NASD facility, that's generated a very nice incremental growth on the bottom-line.\\nAs we mentioned in an earlier call, we haven't had the start-up costs really start showing up yet there. But I think that -- and then some of the qPCR activities and related have really helped drive this. Sam?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, Bob, great lead-in. I'll just add as you said, NASD, that business, we are in a place where we are getting -- using more and more our capacity. And that's a good thing as it relates to margin.\\nOn the genomics and pathology side as well, we have high-value products, such as our SureSelect NGS target enrichment platform, which had a good quarter, and we anticipate that continuing to grow. That's high margin.\\nWe have leadership in NGS quality control. And it's not just instruments there, there's ongoing consumables that go along with standards.\\nSo we expect our leadership position for that to grow. And we haven't talked about in a little while. But this past quarter, we also announced our seventh indication for PD-L1 to go along with KEYTRUDA for triple-negative breast cancer, and that's another place where we have leadership and drives good margin for us.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great. And just one quick follow-up.\\nJust more of a high level.\\nAs you continue to grow your ACG franchise, could you just talk about how that impacts some of the divisions? And as you expand your reach, does that really help drive the LSG division and other types of segments that you have, just given that it just continues your reach within the market and deeper customer penetration?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Matt, you're on the right theme here.\\nSo in fact, when I talked about this most recently inside Agilent, I talked about this is where our LSAG and ACG businesses come together. And there really is a very symbiotic relationship here, which is both businesses help one another, right? So I pointed earlier to some of the strength we saw in the pharmaceutical industry in LC, LC/MS in Q1, but also was tied to the enterprise services story we've been talking about for a number of years. And when you start to get yourself into a different relationship with customers, they truly see you as that valued partner. And for example, when they've had several years of an enterprise service arrangement with you, and you show them collectively -- or I should say, actually, objectively, what's been going on the lab with various different vendors in terms of equipment, it will point to, for our case, a decision to let's move more of our business to Agilent instrument side. Also, I think as Bob mentioned, we were there on a responsiveness standpoint. On our services, digital capabilities, we were able to respond to customers even in the midst of the pandemic, and they remember that, that we were there for them. And that translates into instrument business when they're doing their next round of capital purchase.\\nSo I think there really is a very close symbiotic relationship. And although we run them as we show the outside world, 2 separate business group results, they work very, very closely together, not only inside the company, but most importantly, with customers.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Mike Ryskin from Bank of America.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"This is Mike on for Derik. I want to follow-up on one thing you touched on it earlier. I mean, we've already hit on LC and just broader pharma markets a little bit.\\nYou had a comment of higher growth and pharma expected going forward. I just wanted to go a little deeper and try to get a sense for what are the key drivers here because there's so many moving pieces.\\nYou've got the end of your flush and maybe some catch-up in COVID early in the year. NASD obviously doing very well. Selling out is becoming a bigger part of the picture.\\nYou've got the share gains.\\nSo I'm just wondering, as you strip some of those out, are we seeing broader, higher levels of spend in pharma? Are we at to start of another LC replacement cycle? If you pay off some of those individual drivers, are we just seeing a better environment in pharma going forward for the next couple of years that would give you confidence that that's a little more sustainable? I got a follow-up to that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo maybe just kind of parse out a couple of thoughts here, and then Bob we welcome your commentary here as well.\\nSo some of the things that you mentioned are clearly areas of higher growth today and expected to be higher growth for years to come. And that was part of our story back at the December Analyst Day, where we talked about, hey, we think RNA-based therapeutics are an area of very, very strong growth for years to come. And that's why you're seeing this growth in NASD happening right now as well as our continued investments to capture more of that future growth. Immuno-oncology is an area of major investment right now, and that's why we went after the cell analysis business several years ago.\\nSo we expect those segments of the market to be really strong double-digit growers for many years to come.\\nSo I think that's part of the story there, which is to really have focused our investments and our portfolio towards those segments of the marketplace, which we expect to have even higher growth in the overall pharma market space.\\nI think in general, we expect the biopharma R&D investments to continue the move to large molecule. When I get the question around LC replacements, the replacement cycle is always going on. And -- but what I do think is going to happen is, it's going to be stable, strong funding environment for pharma.\\nSo we're very optimistic about the long-term outlook for pharma. And I think it's a market I know we're betting on right now at Agilent.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"And then my follow-up on that is, by our math, if you take the magnitude of the 1Q beat and then also the stronger FX tailwind for the rest of the year, that accounts for roughly $175 million of the raised fiscal year guide. And maybe you have these other items coming in.\\nYou mentioned the COVID test.\\nYou've got the -- all your comments on the strength in the current market.\\nSo where exactly is the downside risk? I mean, especially given the comps over the next couple of quarters, what are the areas we should be keeping an eye on that would keep you from doing something closer to 10%-plus quarterly?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, it's a great question. And I think one of the things, we still are in the midst of the pandemic, right? There's still the variance out there.\\nWe haven't seen any impact of that to date, but those are some things that we're watching. And we haven't built any of the COVID testing that you just talked about into the numbers.\\nSo that would definitely be something that when we get those approved, that would be upside to this. And that's not all within our control. The development and those timings are within our control. But ultimately, that's a bet that both on the serology side as well as the qPCR side that we feel confident about, and that would be on top of these. And then as we talked about before, the variability potentially in the C&E market is more biased towards the upside as we think about the forecast going forward.\\nAnd so we feel good about where we are. We're early in the year and...\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We\\u2019re just one quarter in.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"But we don't expect the momentum to abate.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Daniel Brennan from UBS.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"I guess first question is maybe on China first, just I don't know if I missed it. Did you give what number or what growth rate you're assuming for the full year? And then within that, could you just discuss a bit more detail on the components of that, in particular, food, obviously, very strong this quarter. But how much more catch up potential is there in food, given how weak that business is then?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nLet me take -- I'll take the first one, and then we can jump on and we can tag team, Mike, on the second one.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, absolutely.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"In China, we had forecasted roughly high single-digits at the beginning of the year. It certainly started much stronger than that.\\nSo we're expecting it be double-digits for the full year, really driven by both pharma and food. Those would be the two -- the upside drivers to our initial guide. And then I think on food, we've seen -- we saw stabilization really in the first half of 2020, saw an improvement in Q4. And that improvement continued here into Q1. And we would expect that to continue, given kind of the overall environment and sensitivity around food testing and so forth. But we're not quantifying how long or how much is left to catch up, so to speak.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think also with food, I'm not sure I would really would use catch up describe this because, clearly, where you had some of the pharma companies just weren't having the research in and didn't work, had deferred investment, I think this has been part of the coming together of the new 5-year plan for China, and that's what's really driving this.\\nSo we would expect to see sustained investments, albeit not at this double-digit level.\\nI think it's hard to know, Dan -- we've always felt this thing was not a market that was shrinking, wouldn't shrink long-term, which it had been for a few years, but it's more like a high single-digit longer term. And I think that's probably where we'd land, on your question, although I think we'll do double-digit for sure this year in '21.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. We -- Mike, to your point, in our initial guide, we assume kind of a mid-single-digit as the recovery, and it's probably high single-digit to double-digit for the range for the full year.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Great. And then maybe just one follow-up on the NASD? What was the dollar contribution this quarter? What's kind of assumed in the full year? I don't know if you've changed that at all. And I know you've touched upon this, but in terms of other modalities besides interference, I guess, is that still -- it sounds like it's something that could possibly come, but we're still going to wait to hear from you guys on that.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. What I would say, Dan, is we're at our full run rate capacity, which is, as we've talked in the past, $200 million a year. We hit that kind of where we expected to in Q1.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We're really happy with how that business is ramping.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And we're not done yet.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Hey, Bob, I would just add to that, that as I mentioned before, RNAi interference is our primary focus, but we are doing programs on Guide RNA for CRISPR, and we are at full tilt with that. But we are always looking to be in tune with new modalities. And if they're relevant, if they're sufficiently meaningful, we're definitely apprised of that as well.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Patrick Donnelly from Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Mike, maybe one for you.\\nJust on the chemical and energy side, certainly appreciate the conservatism baked in here. Can you just talk a little bit -- I know in the past, you've talked about kind of the shift from insourcing to outsourcing from customers and how that should play nicely into your strengths. Can you just talk about, I guess, where we are in that process and how big of an opportunity that is for you guys? .\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I think we're still early days on that.\\nI think it's -- that's part of the discussion.\\nI think the investments that are going to happen this year, if they drop, are going to be more tied to deferred tech refresh. But I think it's probably more of a 2023 kind of -- excuse me, '22 event from the onshore and insourcing that we've been talking about. And I think this probably points to us being able to be able to sustain a mid-single-digit kind of end market.\\nSo it's -- I mean, it points to the fact that chemical and energy with these kind of longer-term outlooks coming from our customers will not be a drag on the overall growth rate, any material extended off.\\nSo I think it's an adder to the thesis that there is growth in the C&E market as well, albeit it can be a little bit -- it can move a little bit, depending on what's happening in the overall economy.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay.\\nNow it's going to be the year of durability at least. And then maybe just one...\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I like what you said, I should have used durability. How was the short to answer your question.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"All good. I appreciate that. And then maybe just one on the academic side. Obviously, that's been lingering a little bit on the soft side, not only for you guys, but for much of the industry. I guess, where do you think we are there in terms of whatever metrics you guys look at, whether it's customers in the labs or whatever it may be? Maybe just kind of dive in that a little bit.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Great question.\\nSo when we\\u2019re talking to our team and our customers, here's our view of it right now. We think about -- if you think about 30% of the research labs are fully operational now, we think about 60% are working at reduced capacity. We think about 10% are closed. And we really think it's going to be -- all this is really tied to ability to get the infection rates down, to get the vaccinations out.\\nI think until that changes significantly, we're expecting kind of more of the same, I'd say, Bob, for the -- until we actually see a change in the overall\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I think the real catalyst for us, Patrick, to Mike's point, is what's going to happen in the fall semester for classes?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Are people -- are students going to be back full? Or is it still going to be at kind of reduced rates and so forth.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"So we're expecting continued recovery, albeit slow, really, and that's what we're looking at in addition to some of the kind of the macro levels.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I would say, though, that the conversation with customers is very robust right now.\\nSo it's just a matter of things opening up.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Steve Willoughby from Cleveland Research.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"I had a follow-up question to Mike Ryskin's question as it relates to guidance, Bob. Maybe trying to ask it a different way. Have you really changed your organic or core growth assumptions over the remainder of the year? Because even in the first quarter here, you back out a couple of hundred basis points from sort of end-of-year budget spending.\\nThe first quarter still did basically twice what you were initially expecting for growth in the first quarter. And just looking to your guidance and doing some math, it looks like you really haven't made too much of a change for the organic growth over the remainder of the year. Is that fair to assume?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I would say we took Q1.\\nWe also upgraded Q2 and made some modest changes to the back half of the year, but most of that would be in the areas -- once we get further into the year, that would be an opportunity to revisit the forecast going forward.\\nSo I think bottom-line, you're in the ballpark.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Okay. And then just a follow-up question on diagnostics.\\nSo I guess 2 things to it. One, do you think we return to 2019 or normal levels in your non-COVID Diagnostics business this year? And then also, could you just provide a reminder on where you see your PCR test potentially fitting once it does come to market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You want to take the first one and Sam the second one?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. The short answer is yes, we expect it to get back, but again, latter half of this year. We're starting to see improvement.\\nIf you look at it by region, China is back. Certain pockets in Europe are back and certain places in the U.S. are back as well. But I think overall, it's probably going to be a few more months at least before it gets back to pre-COVID levels.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. With regards to your second question on qPCR, for COVID-19, our master mixes, our instruments are already being leveraged as part of other testing systems by customers around the world. When our own test comes to market, we see the opportunity. There's still a dearth of robust testing solutions that are available.\\nSo we'll have the right performance going after the right fragments or looking at the right elements of COVID-19. And it's really about our broad ability to distribute, make it available and also something that could be automatable on multiple platforms.\\nSo we think we'll have a play.\"}, {\"speaker\": \"Operator\", \"content\": \"Our final question today comes from the line of Paul Knight from KeyBanc.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"So obviously, you've got a full array of products in the analytical instrument marketplace. And it goes back to, I think, Doug's question in terms of M&A, an opportunity. Where do you think you are in the full solution in cell analysis? Is there a lot to build? Is there a lot to buy in that particular market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We think so.\\nIn fact, thanks for the question, Paul.\\nYou may recall -- and Jacob, feel free to jump in on this question as well. We teed up a fairly large -- although we're fully really proud of the business we've built so far, we think we have scale at a $300 million-plus business. We're playing in a much larger SAM. And we think there's both opportunities to further build out but also buy here as well. Jacob, your thoughts there?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, certainly. We've been very intentional about how we build out our portfolio.\\nFirstly, it\\u2019s with instrument platforms that we ensure we can get some footprint and a scale in the market. And the next thing that would be the -- logic next step is to look at content, how do we actually get content on our instrument portfolio.\\nSo that's clearly an area we're looking into. But I actually think with the footprint, there's also opportunity to add other technique modalities into that.\\nSo we are -- we have open eyes. We follow what we call the tale of strains -- strain for all. And -- but -- and we wait to put another firm on that strain.\\nAnd so we are -- keep our eyes open and then see what happens.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"And then the last question would be you had mentioned your cost-cutting program that had started in the second quarter of last year, where you are -- where are you in that process? And what happens to cost-cutting when travel and entertainment might come back kind of post-COVID?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. We're seeing some of that.\\nAnd some of that is lapping this quarter because we saw a significant drop, and so you're not seeing the year-over-year changes. We're not seeing it go back. And our goal is to not have it go back.\\nSo we think we're at a new watermark here in terms of spending, particularly in travel and some of these other areas.\\nNow we are increasing investments in places like digital and some of these other places that are driving demand as well as some of the capacity that we talked about before. But certainly, in those types of things, travel and so forth, we're not looking for that to go back. It will go back some, but certainly not back to the way we have been doing business before. Customers don't want it, and we are not going to let it happen.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely. To Bob's point, as I spoke the other day to our global field team, and we were talking about embracing our new ways of working. And of course, a lot of people drove and love to be back on the road. But not everybody feels that way. And the customers certainly don't feel that way because we're much more responsive and attentive to their needs by using digital platforms, there is a place for face-to-face, but it has to be based on the customer need, not because we want to be in the road to be out there doing things in a very traditional way.\\nSo we're keenly aware of the question you posed, Paul, really challenged ourselves to make sure that we really continue forward with these new ways of working. And this allows us to put money into areas that really do matter to customers.\\nSo I'd rather invest there rather than travel and entertainment.\"}, {\"speaker\": \"Operator\", \"content\": \"That concludes Q&A, and it also concludes today's Agilent Technologies First Quarter 2021 Earnings Conference Call. Thank you, everybody, for joining.\\nYou may now disconnect.\"}]"


