# call

companyname: Agilent Technologies Inc.
symbol: A
date: 2018-02-14
year: 2018
quarter: Q1
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Agilent Technologies Earnings Conference Call. At this time, all participants are in a listen-only mode.\\nAs a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Alicia Rodriguez, Vice President of Investor Relations. Please go ahead.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, Jonathan, and welcome, everyone, to Agilent's first quarter conference call for fiscal year 2018. With me are Mike McMullen, Agilent's President and CEO; and Didier Hirsch, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Didier's comments will be Patrick Kaltenbach, President of Agilent's Life Sciences and Applied Markets Group; Jacob Thaysen, President of Agilent's Diagnostics and Genomics Group; and Mark Doak, President of the Agilent CrossLab Group.\\nYou can find the press release and information to supplement today's discussion on our website at www.investor.agilent.com.\\nWhile there, please click on the link for financial results under the Financial Information tab.\\nYou'll find an investor presentation along with revenue breakouts and currency impact, business segment results and historical financials for Agilent's operations.\\nWe will also post a copy of the prepared remarks following this call. Today's comments by Mike and Didier 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 acquisitions and divestitures 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. And now, let me turn the call over to Mike.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Thanks, Alicia. Hello, everyone. Thank you for joining us. In today's call, I want to cover our Q1 business results and talk about Agilent's business momentum.\\nLet's start with the business results. I'm happy to report that the Agilent team delivered an outstanding start to 2018. We exceeded our own growth and earnings expectations.\\nWe continue to outgrow the market. Q1 revenues of $1.21 billion grew 10% on a core basis, and we continue to improve our operating margins. Adjusted operating margin of 22.5% is up 130 basis points from Q1 of last year. I'm proud to report that this is our 12th consecutive quarter of improving operating margins. The combination of strong revenue growth and continued margin improvements drove an adjusted EPS of $0.66 for the quarter, well above our expectations. Adjusted EPS is up 25% over the first quarter of last year.\\nNow on to Agilent's business momentum. When I use the term momentum, I'm describing strong, broad-based growth for all our businesses as we outgrow the market. In this context, our momentum remains very strong.\\nFirst, our chemical and energy revenue grew 13% with broad strength in all product categories. Customers are investing across the spectrum of exploration, refining and chemicals. This is the fourth consecutive quarter of double-digit revenue growth in this market segment. After a long period of deferred investment, we are now seeing increased capital expenditures. Pharma is our largest business and had a strong showing of 8% growth. Growth is very solid across instruments, services and consumables in both the biopharma and small molecule market segments. We remain very confident in achieving our 2018 pharma growth objectives. Academia and government sustained its recent trajectory with 11% growth. Growth was driven by strength in China and Europe. Food revenue grew 8% against a difficult compare of 11% in Q1 2017. Europe growth led our strong results with broad-based strength across instruments, services and consumables. Diagnostic and clinical revenue grew 5% as expected, led by strong demand for companion diagnostics and pathology products. Environmental forensics grew 14%.\\nOur forensic business was particularly robust driven by U.S. government purchases. Environmental growth remained healthy with solid demand for GC, GC/MS and ICP/MS. Geographically, China led the gains with strong high teens growth. Europe and the Americas delivered healthy high single-digit growth.\\nLooking at the highlights from our business groups, the Life Sciences and Applied Markets Group delivered core revenue growth of 11%, fueled by double-digit growth in major platforms led by mass spectrometry and cell analysis, demand in Europe and China and broad strength across end markets.\\nOn the M&A front, we announced the acquisition of Luxcel Biosciences. Luxcel has developed a portfolio of cell-based assay kits that allow researchers to evaluate cell metabolism and function on standard fluorescent plate readers. This technology is highly complementary to our Seahorse Bioscience offerings and further enhances our position in the fast-growing cell analysis space.\\nOur internal focus on innovation continues to receive external recognition. The Ultivo Triple Quadrupole LC/MS system was recognized as one of the top 2017 innovations by The Analytical Scientist. And, (sic) Instrument Business Outlook recognized Agilent as the Company of the Year in the Life Sciences tools market for our innovation across the company. Agilent's CrossLab Group continued the strong performance with 9% core revenue growth. The Agilent CrossLab strategy, launched three years ago, continues to yield exceptional results.\\nOur services business is focused on supporting customers to deliver greater lab efficiencies.\\nAs a result, services growth was strong across all regions and markets.\\nWe continue to introduce new capabilities for our customers.\\nFor example, we launched Agilent Care which extends and expands solution support beyond the traditional first 90 days of solution ownership.\\nWe also expanded the CrossLab Service Guarantee to our multi-vendor service business. If an Agilent instrument under contract cannot be repaired, it'll be replaced with the Agilent equivalent. This improves confidence in Agilent as a customer focused service provider for multivendor instruments. This guarantee differentiates Agilent from our competitors and in the eyes of our customers. Fueled by our innovation investment, our consumables business was strong across both chemistries and supplies. Recently introduced new products and biopharma applications are making a difference in our reported growth. Agilent's Captiva Enhanced Matrix Removal-Lipid technology is one example. The Analytical Scientist also recognized it as a top 2017 innovation.\\nOur digital investments are delivering new capability to our customers.\\nWe have deployed groundbreaking e-commerce initiatives such as e-renewal of support contracts, making it easier for customers to do business with Agilent. The Diagnostics and Genomics Group also delivered strong core revenue growth of 8%. Demand continued to be healthy for our pathology products and companion diagnostic services.\\nWe continue to bring compelling new offerings to our customers. We shipped our first comparative genomic hybridization assay for diagnostic use in the U.S., GenetiSure Dx Postnatal Assay this quarter.\\nWe also made available to customers CRISPR activation and interference libraries. Targeted at the research community, these libraries use state-of-the-art validated gene targets that enable easy and a flexible implementation of targeted functional assays for the entire genome.\\nNow, looking ahead, a few comments on our updated outlook for the rest of the year.\\nWe continue to take a quarter-by-quarter look at the business and stand ready to raise our full-year guidance as business conditions remain favorable.\\nAs such, we are now raising our full-year growth and earnings guidance with our strong Q1 in the books. Didier will share the specifics of the updated guidance, inclusive of the forecasted impact from the new U.S. tax law.\\nWhile future market conditions are often difficult to predict, I can confidently predict that Agilent will outgrow the market in any encountered market conditions. A few closing comments before I hand off the call to Didier.\\nFirst, I'm very pleased with our start to 2018.\\nFollowing our stellar year in 2017, the Agilent team continued to deliver a differentiated customer experience, a great product portfolio and excellent operating results. The transformational strategies initiated we launched three years ago continue to work.\\nWe are maintaining our momentum.\\nWe are delivering on our measures of success to outgrow the market, improve operating margins and deploy capital in a balanced manner.\\nOur One Agilent culture is built on a foundation of core values that puts the customer at the center of everything we do. Agilent's collaborative work environment enables the leveraging of the full power of our team.\\nAs a result, our team provides a superior customer experience while focused on operational excellence, a combination that allows us to produce results.\\nWe continue our commitment to our Agile Agilent program. This transformational initiative continues to streamline the company's operations and drive efficiencies.\\nOur portfolio transformation and innovation engine continues to provide our customers with truly differentiated technology and solutions.\\nOur innovation efforts are complemented by a focused M&A strategy.\\nOur portfolio of offerings is second to none and will continue to strengthen.\\nAs evidenced in our track record of impressive results, Agilent has started 2018 with strength. The results speak for themselves. It's what gives me the confidence to tell our team the best is yet to come. Thank you for being on the call. And I look forward to answering your questions. I will now hand over the call to Didier. Didier?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Thank you, Mike, and hello, everyone.\\nAs Mike stated, we are very pleased with our Q1 performance, well over the high end of our guidance. We delivered a core revenue growth of 9.7% versus a core revenue growth of 4.8% in Q1 of last year, and our adjusted operating margin at 22.5% was up 130 basis points versus Q1 of last year.\\nOur EPS at $0.66 was $0.10 above the midpoint of our guidance and up 25% on a year-over-year basis. Currency had a favorable impact on revenues of $32 million and $6 million versus last year in guidance respectively and an impact on operating profit of $8 million and $0 million versus last year and guidance respectively.\\nOur operating cash flow of $215 million was 85% higher than in Q1 of last year. And finally, we bought back $47 million worth of shares and paid $48 million in dividends. I will now turn to the guidance for fiscal year 2018.\\nWe are significantly raising the core revenue growth guidance of 4% to 4.5%. The new core revenue growth guidance is 5.25% to 5.75%. Also, the weakening of the U.S. dollar since our November guidance is expected to have a positive impact of $108 million on full year reported revenue. The total impact of the increase in core revenue guidance and of the currency tailwind is an increase in midpoint revenue guidance of $165 million.\\nAs a result, we now expect fiscal year 2018 revenues of $4.885 billion to $4.905 billion.\\nTurning to EPS.\\nWe are also significantly increasing our November guidance of $2.50 to $2.56. The new guidance is $2.62 to $2.68 with $0.04 of the $0.12 increase due to currency. We're also raising our operating cash flow guidance from $970 million to $1.050 billion. There's no change to our expectation to buy back 2.7 million shares and to maintain our diluted share count at 326 million shares.\\nLastly, I'll provide some insights on the impact of the U.S. tax reform. Because our fiscal year started before the enactment of the new law, we will enjoy the reduction in the U.S. corporate tax rate effective January 1, 2018.\\nHowever, the negative effects, mostly the so-called guilty tax of the tax reform will not impact us until fiscal year 2019.\\nHowever, because these benefits, net benefit of 2 to 3 points would only be temporary, we have decided not to reflect it in our fiscal year 2018 pro forma tax rate and now therefore maintaining the rate at 18%, as we expect this will be our tax rate in fiscal year 2019 and onwards.\\nFinally, moving to the guidance for our second quarter. We're expecting Q2 revenues of $1.2 billion to $1.22 billion. The midpoint corresponds to core revenue growth of 4.25% on a difficult compare as Q2 of last year saw core revenue growth of 8.7%. Comparing guidance to the just finished Q1, Q1 fiscal year 2018's 9.7% core revenue growth benefited from an easier compare, in part due to the date of the 2017 Lunar New Year and a $20 million to $25 million carryover from Q4 2017 when we saw extended order to revenue conversions related to higher European and mass spec demand. Conversely, Q2 fiscal year 2018 projected 4.25% reflects the expected impact of the 2018 Lunar New Year in addition to a tough compare.\\nAs for EPS, we expect Q2 EPS to range between $0.61 to $0.63, a 7% year-over-year increase at midpoint. With that, I'll turn it over to Alicia for the Q&A.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, Didier. Jonathan, will you please give the instructions for the Q&A?\"}, {\"speaker\": \"Operator\", \"content\": \"Certainly.\\nOur first question comes from the line of Ross Muken from Evercore ISI.\\nYour question, please.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Happy Valentine's Day, guys, and congrats.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Thank you, Ross and welcome back.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Thank you.\\nSo, Mike, as you sort of look at the pacing, particularly in chemical and energy, and maybe some of the cyclically sensitive markets and how things have kind of played out so far and the momentum maybe you saw in January, I guess how are you thinking about the duration of some of this upswing? And how do you tease out kind of what's underlying cyclical and what maybe is, you either via product cycle or share or renewed focus kind of growing just above market?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah.\\nSo, thanks, Ross. Great question. I can see you're still on your game after being away for a bit.\\nSo, let me start with the latter part of your question, which is I think what you've got going on here is a really nice situation in terms of both improving market conditions at the same point in time where we've been introducing some pretty compelling new offerings, whether being gas chromatography, liquid chromatography and then spectroscopy portfolio as well, and ACG. All these products are playing into an improved market environment for our chemical and energy.\\nSo, I don't think we're just keeping pace with the market in terms of our performance in the chemical and energy with these double-digit growth rates we've seen.\\nI think we're also obviously picking up some share as well. But it is a nice situation to be in in terms of both strength of portfolio and improved market conditions. Ross, I've kind of given up the idea of any kind of long-term view of these markets having been burned in the past on that.\\nSo, what we've been saying is, the positive momentum is there. I have a hard time, sometimes, with that word. But for next quarter or two, we have pretty good line of sight in that business. We would expect to maintain the momentum we have been seeing in the chemical and energy space. And I think what's been different over the last quarter is, we're seeing the growth across all three segments now that are investing in CapEx both on the expiration now in addition to what have been growth in the chemical side as well as refining.\\nSo, again, I think the outlook we kind of thought about relative to our guidance is in the next quarter or so. And we'll kind of keep an eye on it as we go forward.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"And maybe just on the balance sheet, obviously, with the tax reform formalized, you now have quite a bit of access to some of that trapped cash historically.\\nSo, how should we think about your willingness to maybe do something slightly larger on the deal size? I mean, you've obviously executed fantastically well.\\nYou've kind of earned the right to maybe do something bigger or what you want.\\nSo, I guess, one, how should we think about that improved access to cash and your priorities there? And then secondarily, do you think the business can sort of take on maybe a larger and then very small tuck-in or technology deal, which is what you've done maybe over the last 12, 24 months?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, happy to answer that question, Ross. I'll leave the timing of when we think we may be able to get access to the overseas cash.\\nI think we're still working through that right now. But what I can share with you fairly confidently is both are thinking about these, the cash and then I'll get into your question specifically relative to M&A.\\nSo, when we think about, as you probably gather from Didier's remarks that the tax reform is a positive for Agilent in terms of the access to overseas cash both on, if you will, the one-time repatriation of the cash that has been trapped, but also just an ongoing cash flow advantage back to Agilent in the U.S., but we're in no rush here. We're going to be disciplined with how we use the cash. The priority will remain M&A and capital expenditures, which is really to invest in the business. And as you've heard me talk before, we remain committed to this balanced capital allocation policy.\\nNow, specific to the questions around M&A, I do really appreciate your feedback. I actually believe that we have built up the capability and have now a track record of delivering on the yields we have done.\\nSo, I appreciate that feedback. And our primary focus has been on bolt-ons as you know, where the prices for the deal for Agilent have been in the several million to several hundred million dollar range. But right now, as I had mentioned before, we're open to larger acquisitions but they still have to align with our long-term strategic intent, gaining more growth and earnings expansion for the company.\\nAnd so, while we don't have a predetermined number, we're going to continue to be disciplined and selective. But I do believe the company is in a position that it could consider something larger than we have done in the past, both in terms of based on the operational results we've delivered as a company, but with inside the company we have really grown these muscles and really know how to make these things work with inside the company.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Great. Thanks, Mike, and congrats.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Tycho Peterson from JPMorgan.\\nYour question, please.\"}, {\"speaker\": \"Tycho W. Peterson\", \"content\": \"Hey, thanks. Mike, I want to dig into the pharma numbers here. Nice recovery. Obviously, there was a fair amount of noise coming out of last quarter around some of the deferred revenues in Europe and the replacement cycle, and the NASD lumpiness.\\nSo, can you maybe just talk a little bit about the pickup in pharma, how much of that you think is just catch-up from last quarter versus sustainable acceleration here?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah.\\nSo, thanks, Tycho. And as you may recall from our last earnings announcement, there's one area of concern I'd picked up in the call was, hey, is there something going on with Agilent's pharma business? And at that point in time, we described the situation where we had a very strong incoming order rate, but there many of them were longer lead-time products from an order to a revenue standpoint. And that's exactly what happened. We guided for growth in pharma.\\nI think there was a lot of questions about whether or not that actually would occur after coming off a 5% decline in Q4 2017. And the quarter developed exactly as we had thought.\\nSo, what I would tell you is that we have roughly $20 million to $25 million of revenue that was basically in backlog in Q4 that we shipped them, most of it, in this first quarter.\\nSo, I think we're right on our view of the overall growth for pharma for us, which is in the mid single-digit.\\nSo, I wouldn't want to imply that there's an acceleration of growth, but I think we continue to be very confident in our ability to make the numbers we committed to. And we saw both strength in biopharma and the small molecule side of pharma for us.\\nSo, we really were pleased with the numbers we put up in the first quarter in pharma.\"}, {\"speaker\": \"Tycho W. Peterson\", \"content\": \"Okay. And then on DGG, I know you had a tough comp there. It did decelerate a little bit sequentially. Anything to call out there? Still up year-over-year, but just wondering if there's anything from an end-market perspective you can call out for DGG.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"You want to take that one, Jacob?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes.\\nSo, yeah, you're right, Tycho, that we had another strong quarter on the top line growth with 8% growth. And we're very pleased with that. We saw very strong growth from our pathology and our companion diagnostics business from a margin perspective.\\nWe have five divisions, and the mix continues from (23:49) quarter-to-quarter.\\nSo, the long-term view is still intact and we were actually expecting to be in this level.\\nSo, there's nothing from the market perspective that impacted our performance.\"}, {\"speaker\": \"Tycho W. Peterson\", \"content\": \"Okay. And if I could just ask one last one on Lasergen, that's coming up in terms of you guys making a decision. Anything you can tell us at this point or do we have to wait couple of weeks here?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah.\\nSo, what I would share with the audience \\u2013 thanks for the question, Tycho.\\nWe continue to be very pleased with the progress that Lasergen is making on the program. And as you may know that we have a pre-negotiated deal structure, which would allow us to exercise a call option in March. And I think that's probably all I'm going to say at this point in time beyond the fact that the time of the exercise does fall in the period covered by our 10-Q. And if there would be an exercise, you would note that it'd be in the 10-Q. And just as a reminder, we're thinking about Lasergen along the lines of any other acquisition.\\nSo, it's not been considered in how we guided for the rest of the year. But, again, we continue to be quite pleased with how the program has been progressing.\"}, {\"speaker\": \"Tycho W. Peterson\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Jack Meehan from Barclays.\\nYour question, please.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Good afternoon, and Happy Valentine's Day, as well.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Same to you, Jack.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"So, you have a great cadence of new products coming to market. I was wondering if you could just give us a sense for how much that was contributing to growth in the quarter and within that, maybe an update on the Ultivo cycle and how things are going.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"So, I'll take the first part of that and then I know Patrick would just love to talk about what's going on with Ultivo. That's really a tough question for us to answer, and I'm not trying to dodge the question. We don't really have a quantitation along those lines. I would just say it's part of the story. We know that \\u2013 if you've been noticing the growth rates of Agilent over the last three-plus years, the growth rates are accelerating. And what's been going on at the same point in time is our cadence of new product introductions has also been accelerating, because in the earlier phases of what we were calling then the new Agilent, we're basically redoing a lot of our product roadmaps. And now, we've got them redone and we're actually executing and delivering.\\nSo, I'd say it's a major contributor, but I really can't provide a level of quantitation on that. Patrick, would you like to share some insights on what's going on with Ultivo?\"}, {\"speaker\": \"Patrick Kaltenbach\", \"content\": \"Sure. Thanks, Mike. Yeah.\\nSo, on the Ultivo product, and to what Mike said, all these new products drive a lot of good momentum for us in our end markets. And if you take Ultivo, for example, which we started shipping last quarter, and I'm happy to report that it's well ahead of our own plan in terms of ramped volumes, and we're really pleased with the acceptance that we own in our own field by the customers. We get excellent feedback from the first installations out there, and it's driving a lot of excitement about our product portfolio.\\nSo, it's not only driving the Ultivo volume itself, it's also driving a lot of collateral business for us in the LC/MS business. And I think this pipeline of new products that we have launched over the last two years is a major contribution for us, in our trajectory right now, we're taking market share.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"And, Patrick, if I remember our conversation from this morning, it's both in our expectations relative to unit growth as well as price per unit.\\nSo...\"}, {\"speaker\": \"Patrick Kaltenbach\", \"content\": \"Absolutely.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"...it's been a nice initial story.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. And then in chemical and energy, I was wondering if you could just give us an update in terms of what's built in the guidance for 2018. Obviously, the macro picture continues to be robust. In 2Q, is there anything Lunar New Year-wise that we need to consider there? Just, thanks, any feedback would be great.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah.\\nLet me make a few comments here.\\nSo, there is somewhat of a Lunar New Year. And I told Didier earlier, so I'd hope at one point in time one quarter I won't have to talk. Every year, we seem to talk about Lunar New Year, but this is a reminder for the audience. What happened here is the way the Lunar New Year fell this year, many customers actually wanted shipments of products before they left for the holiday.\\nSo, we had some revenues that we thought were going to be in the second quarter that actually showed up in China in the first quarter.\\nOn the chemical energy, I wouldn't say that's material at the company level, however, but there's a portion of the business that's impacted. We think about the overall guide for the year, I think we're probably \\u2013 if you think about our guide, the midpoint of 5.5%, I think you could probably put us 6%, 6-plus-percent, 6%, 6.5% for chemical and energy. And, again, we're expecting a continuation of the momentum, albeit we're starting to go into a period of tough compares, because, as I mentioned in my call, it's now been four quarters in a row of double-digit growth. And now I have to compare my growth against those hot numbers. But, again, the market environment continues to be positive in chemical and energy, and we're kind of in the 6-ish range for the year.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thanks, Mike.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Steve Willoughby from Cleveland Research.\\nYour question, please.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Hi, Steve.\"}, {\"speaker\": \"Operator\", \"content\": \"You might have your phone on mute.\"}, {\"speaker\": \"Steve Barr Willoughby\", \"content\": \"Yeah. Can you hear me now?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, we sure can. Go ahead, Steve.\"}, {\"speaker\": \"Steve Barr Willoughby\", \"content\": \"Hey, guys. Two questions for you.\\nFirst, Mike, just was wondering if you could comment at all about the kind of pricing and promotional environment of late in some of your analytical instruments. Are you seeing any changes as it relates to pricing either from some raw material inflation or just from a competitive standpoint? And then I guess secondly, it kind of goes along with that.\\nYou made the comment that you feel like you're outgrowing the overall market.\\nJust was wondering, is there any particular areas of notable strength that you feel like you're really outgrowing the market as it relates to the different product categories you're in?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, sure. Happy to address both questions.\\nSo, there's been a lot of talk about the inflation, inflationary concerns. And it's put a drag on the market, as you know, at the time of release, introduced a level of volatility in the market we haven't seen for a while, but we're not seeing that in our market.\\nSo, of course, the markets are very competitive. There're certain competitors who tend to focus more on price than we do. But, Patrick, I think it's pretty fair to say that we're really not seeing a lot of real changes in discounting practices or pricing structures in the marketplace. And that's why I'd actually asked \\u2013 I pointed out earlier, for example, in our new product category that we just introduced, we're actually doing better on the ASP side than we had actually anticipated.\\nSo, we're feeling pretty comfortable about where the price points are. (30:47)\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"And, yes, yes, sorry. Yeah.\\nSo, in terms of market share, we look at the macro numbers and said okay, we know our growth rate's higher than our peers, and then we kind of peer into the different product categories.\\nI think we have a good handle, particularly on our LSAG instrument side because we're able to compare ourselves through and externally, if you will, an independent source of data, ALDA. And we can see where our market shares are really picking up. And I think it kind of spilled out a bit in my narrative, but mass spec was strong double-digit growth; chromatography, spectroscopy, these are places where really we can say confidently we're picking up share relative to the competition. But at the same point in time, even though we don't have the same stats, we know in DGG, on the pathology side we continue to pick up share growing there.\\nSo, it's been a sort of a broad-based story, but in particular we can talk with a lot of confidence because we have external data around our instruments.\"}, {\"speaker\": \"Steve Barr Willoughby\", \"content\": \"Okay. Thanks very much, Mike. I appreciate it.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Thanks, Steve. Thanks for participating on the call.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Puneet Souda from Leerink.\\nYour question, please.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Thanks for taking my question.\\nSo, first one is maybe for Patrick or Mike.\\nJust trying to understand what was the really strong in mass spec area in LSAG? So, what sort of products that are driving the growth here and what end markets? And if Patrick could give those details. And if you could also help me understand how much of that was revenue recognition from the last quarter and how much of that was the contribution into this quarter. And then I've a follow up.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, Puneet. Thanks for that question. And Patrick, if you don't mind, would you mind taking that one?\"}, {\"speaker\": \"Patrick Kaltenbach\", \"content\": \"Yeah, I'll kick it off.\\nSo, when you look at the LC/MS space, we definitely have seen the strongest growth in the Quadrupole space, meaning single-quarter and triple-quarter. And a lot of that was driven by the product launches we made last year at ASMS. We introduced the Ultivo, we also introduced a new single-quad product, both drive healthy growth for us in LC/MS. And in terms of growth that drove in revenues in Q1, yes, some of it was driven by the strong order growth we had in Q4 last year, but we see a continued momentum behind these products.\\nSo, I'm not concerned on the outlook of these products. The funnel looks pretty healthy. When you look at the end-market space, as Mike mentioned that pharma is doing very well for us in the LC/MS, but we also see it in Applied Markets like in food analysis where this product is heavily used.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. That's very helpful. Thanks. And then a second question that I have is, we saw a large set of promotions that were running on both instruments and consumables in the LC business. The consumables are no surprise to me, but instrument discounts were intriguing at the end of first quarter where it seemed like the benefit looks to land in fiscal second quarter. Hoping to see if you can elaborate something on that. And essentially if there are drivers, what were the drivers of those promotions? And if there was any benefit in 1Q from that and how should we think about the second quarter fiscal in light of those promotions?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, Puneet. Thanks for that insightful question. And this is a general statement. We tend to run promotions on a regular basis. And this is part of our mix when we're trying to target certain areas or certain geographies or certain market segments. And then, we have gone down a path of promoting, if you will, the entire solution and not just picking an element of a particular purchase that a customer would be interested in.\\nSo, I think it may be a specific question about, maybe you can comment specifically, Patrick, about what's going on in the liquid chromatography area between you and Mark on the column side.\"}, {\"speaker\": \"Patrick Kaltenbach\", \"content\": \"Yes. Yeah, I think what we're really doing here is, we are leveraging the strength of both instrument and the aftermarket business in the consumables. When we launched last year the Infinity brand LC consumables as well, we thought it's also now a product that really put some stronger campaigns behind it, again, as Mike said, this is nothing unusual. We do this really to extend our market region, we try to reach customers which potentially have not considered Agilent in the past, like at the lower end of the portfolio is what you have seen there.\\nSo, it's not a strong discounting account across the entire portfolio. We're really trying to target also entry-level systems and customers who want to benefit from the Agilent performance and quality of our instruments and aftermarket solutions that have not considered us today. And this was part of that promotion you probably referred to.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, I mean, the strategy here is really to get new incremental growth, new customers, not sell to existing customers at a lower price point.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"That's great. It looks like you guys are winning there.\\nSo, thanks again. Thanks for taking my question.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"You're quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Paul Knight from Janney Montgomery.\\nYour question, please.\"}, {\"speaker\": \"Paul Richard Knight\", \"content\": \"Hi, Mike. Can you talk about...\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Hey, Paul.\"}, {\"speaker\": \"Paul Richard Knight\", \"content\": \"Hey, congratulations on the quarter.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Thank you.\"}, {\"speaker\": \"Paul Richard Knight\", \"content\": \"I want to save Valentine's Day for other people, but regarding where you are in the stage of your operating margin expansion, can you detail some of the efforts ahead and are you in inning one or two or three of that margin expansion program? And then secondly, regarding I know CrossLab has been part of your strategy to take share. What's your visibility? Is this the multiyear share gain still ahead for you?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, what I'm going to do is, I'll take \\u2013 by the way, thanks for the comments, Paul. I'm going to go ahead and take the first question. And Mark, if you could pick up the second question on ACG's longer term outlook.\\nSo, in terms of the margin expansion, we were really just delighted to see the 130 basis points of improvement in Q1. And as you may recall, we had a bogey we had put out last year to hit 22%. And I told us, listen, that's just a milestone along a longer journey of continued margin improvement.\\nSo, fundamentally, we think that we can continue to improve operating margins about a 35% incremental moving forward. And then to your question, we have some real specific programs lined up.\\nSo, I mentioned in my remarks about our Agile Agilent program and we're still finding ways to simplify the company, streamline the company. A lot of the focus now is in our back office operations as well as how we handle the incoming orders from customers.\\nWe have still a very manual process. And we think that we can really automate that, and we have what we call a touchless transaction initiative inside the company. And, again, I think it leads to more seamless customer experience and increases our velocity of transactions we handle. And we don't have to continue to add people at the same rate as revenue.\\nSo that's one area of focus for example.\\nThe second area, and I think is actually much more significant in terms of P&L impact is the initiatives that we have underway in our order fulfillment organization.\\nSo, the evolution of that was phase one was really about moving products into lower cost geographies . And now phase two is really heavily focused on three aspects, which is, one, is focusing on the material costs for the company which last time I looked was well over $900 million of purchases. We're in the midst of a major transformation of our procurement organization and how we engage and work with suppliers. And it's already starting to translate into some lower costs, while maintaining \\u2013 or in some cases, even improving quality.\\nWe have a major initiative of value engineering, where we basically use our engineering prowess to reengineer certain components for lower cost while sustaining improvement of performance of the product. And the last area is logistics where we continue to find ways to lower cost. And you may have caught a recent announcement, if you follow the local news in Tennessee where we have made a major move to insource logistics from FedEx in Tennessee.\\nSo that will also be one more example of things we're doing in the supply chain to lower cost. And then the third thing I would just say is, in general, across the entire company we have this continuous process improvement mindset where we continue to find ways to streamline what we do to make it more efficient and make people's work inside the company more enjoyable while also having the great benefit of doing a better job for our customers, and obviously the P&L.\\nSo, I think those things are sustainable.\\nI think we're still in middle innings, if you will, on this.\\nWe haven't run out of ideas and we think we continue to sustain this performance. Mark, in terms of sustaining performance, perhaps you can share with Paul and the audience your thoughts about the long-term growth prospects for ACG.\"}, {\"speaker\": \"Mark Doak\", \"content\": \"Thanks, Mike, and thanks Paul for the question. Obviously, we're very pleased with our ongoing very consistent high single-digit growth performance. And we're confident in our ability to grow. And it's not just from a market share gain perspective, it's also bigger account penetration into our current accounts and also portfolio expansion. And Mike alluded to this at the beginning of the call, what's fundamentally been a growth driver for us. And we saw accelerating growth throughout the remainder of 2017 and now into 2018 has been our consumables portfolio. This started well over a couple years back. And there's never going to be a single big product area inside our consumables business that that'll drive top line, but over the course of FY 2017 we added over 1,000 new products into our portfolio. And as you probably can guess, those then get pushed through our channels, our expanded e-channel reach and then ultimately they have long-term annuity streams that in many cases last over a decade.\\nSo, I'd say across the board, if we look at it from our enterprise business, our instruments service business and our consumables business, we continue to see great opportunity to continue to grow across those dimensions that I just mentioned.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"And we're by no means done yet, right?\"}, {\"speaker\": \"Mark Doak\", \"content\": \"By no means. Yes, by no means.\"}, {\"speaker\": \"Paul Richard Knight\", \"content\": \"Great color. Thank you.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Thanks, Paul. And Happy Valentine's Day.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Derik de Bruin from Bank of America Merrill Lynch.\\nYour question, please.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hi, good afternoon. I jumped on a little bit late.\\nSo, my apologies if I'm...\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Hey, Derik. No problem.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hey, I'm not going to wish you a Happy Valentine's Day, though.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Okay. I'm hurt, I'm crushed, Derik.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"You can be mine. There you go.\\nSo, I'm just curious about sort of like the pacing. I mean, obviously you gave guidance in mid-November, and then I think we all were sort of feeling a little bit conservative on \\u2013 I think we all assume are being a little bit conservative, but I think the quarter's results were a little bit above and beyond certainly what even the most bullish people were thinking.\\nSo, what was sort of happening in the pacing in December/January? Was it bigger budget flush than normal, just better order trends? I mean, was there any sort of inflection that you saw in terms of the outlook?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah. Great question, Derik. And I think what we saw was, overall, if you look at the strength which really surprised us was, we saw stronger than forecast growth in academia and government. We weren't expecting that kind of number, 11%. Chemical engineering we knew was going to be good, but we didn't think it was going to be that good. And in Europe, we knew it would be good, but not that good.\\nSo, I think things just came in stronger than we forecast. The year-end budgets were there.\\nSo, we had a lot of order strength coming into the calendar year. And we were able to turn a lot of that into revenue in the first quarter. The one that we hadn't anticipated in addition to those points I just made relative to the market environment was, customer behavior in China, which is, what we had was a timing issue or we had some Q2 revenue pull in from the Lunar New Year because typically customers want their products, says, ah, Lunar New Year, we'll deal with this after we come back. But for some reason, this year, which I can't really explain, they were looking for products to be taken earlier.\\nSo, we actually had more revenue in China. I mean, we had upper teens growth in China for the quarter. We think China's still going to be a source of growth, high single digits, maybe 10-ish for the year, but it won't grow upper teens like it did in Q1.\\nSo, I think of all the things that one I think we hadn't anticipated from a standpoint of different customer behavior in China, although we didn't think the budget would be as strong as well in certain market segments.\\nSo, it was a quarter where everything came together very, very nicely. And we're happy with the numbers.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Okay.\\nSo then China pull forward, and then maybe a little bit from the Easter holiday, although and for the timing of that that's sort of the basis for the 4.25% core guide for the next quarter?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah. And Didier, I forget as to how much we had estimated might have been pulled in from the China?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"About $10 million.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"About $10 million. And then \\u2013 oh, sorry.\\nLet me try that again.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"So, yeah, about $10 million we have pulled in and then we'll have another $10 million feed because of the Chinese New Year in Q2.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Right.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Okay. Thank you. That's very helpful.\\nJust one other follow-up question. This is actually another China question. I noticed on your slide deck you launched this Value line of consumables for China. And just can you talk a little bit more about that? Maybe I just missed it. I wasn't familiar with that as something going on and sort of talk about that and is that something that's applicable more globally?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, I think I'll have Mark make some comments here.\\nSo, this is relatively your closed study of the company, because it's relatively new introduction for the company.\\nSo, Mark, why don't you share with Derik your thoughts about what's going on in China and whether or not this model may play out in other geographies.\"}, {\"speaker\": \"Mark Doak\", \"content\": \"Hi, Derik, Mark.\\nAs far as China is concerned, we've gone on record that we wanted to look specifically at China's marketplace, look at a portfolio that's fine-tuned to China. And our Value line offering in China was to address customers who are still looking for higher quality, but not quite as much capability in our supplies in chemistries business. And we're obviously very pleased with the initial results of this and extending that portfolio. At this juncture, we certainly see the opportunity to move this to other areas where we could see the same value proposition, whether it be parts of Southeast Asia or India. We're not ready quite to pull the trigger on that, but our primary focus is China, just because of the enormous market opportunity there. But that was the intent with this Value line is, same quality they expect from Agilent that at a performance that's relative to the tests they're trying to accomplish there.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"And, Derik, I would just add. We don't see this as cannibalizing our current business, we actually see it as an addition.\\nI think there was some concern, oh, we've introduced new product, are we going to cannibalize our own business? This is type of segment we're not able to address right now.\\nSo, we're pretty excited about this.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Great. Thank you, Mike.\"}, {\"speaker\": \"Mark Doak\", \"content\": \"Mike, just go ahead and reiterate that comment, it really has been a bolt-on to our current business in China.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Patrick Donnelly from Goldman Sachs.\\nYour question, please.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great, thanks. Maybe one for you Mike. On Intuvo, has your view changed at all on that adoption curve trending, probably the sharpest acceleration hitting maybe three years into the launch? And then, now that we're 18 months into the launch, are you seeing more customers come back with multisystem orders?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, absolutely.\\nSo, speaking for Patrick, I'll jump right on this one, which was, we are starting to see repeat orders and multiunit purchases of Intuvo GC, particularly in high throughput applications where they're also using mass spec.\\nSo, it's playing out just as we thought it would. But I will tell you it takes the customer some time to understand exactly what it is we've delivered to the marketplace. I can just share with you firsthand, last week I was in India and I sat in on a seminar with some of our key VIP customers who are very knowledgeable in gas chromatography and they had a lot of questions and there had been some hesitation because it was so new, but once they had opportunity to really understand it and see it, really see how unique the innovation here is. And, in fact, one of the customers said, listen, gas chromatography has been sort of the same way for decades, this is really quite something different and you really have changed the thinking about innovation. It really is easy to use.\\nSo, customers who have it have been really pleased, and we're now starting to see repeat buys and multi buys, so, that ramp rate is starting to occur.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. And then how should we be thinking about potential larger scale pharma M&As impacting? I mean, I assume there would be a pause in the instrument purchases, but could that actually be an opportunity on ACG to accelerate growth just with the operations in productivity side?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"That's exactly the answer.\\nYou've got it.\\nSo, we've been through these kind of cycles before, but we're actually \\u2013 if, in fact, they would occur, but the company is in such a different position than it was during some of the other bigger consolidations we've seen in the past.\\nSo, yeah, you would have a pause on new instrument purchases. At the same point in time, it'll create new opportunities for us in the ACG business as it relates to both enterprise services, relocation, also refurbished business units. We'll probably get very actively involved in taking some of the excess equipment that customers may have and taking it back into Agilent and redeploy in other set market segments.\\nSo, we're not overly concerned about this. And we've also found historically when there's been merger and acquisition where they tend to want to consolidate or put more spends on to a fewer vendors, it plays to our strength, really reliable equipment that has high performance and really has a cost of ownership advantage to them.\\nSo, I think the ACG story is one thing that really allows us to say, if this would occur, it'll be mitigated by some of the change we've made in terms of the company's portfolio and capabilities we offer to the marketplace.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Helpful. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Brandon Couillard from Jefferies.\\nYour question, please.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks. Good afternoon.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Hi, Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike, a question about the government and academic segment. I mean, two straight quarters of double-digit growth. Could you give us a sense of how that looks geographically and what areas you think you're gaining share and if it's something you changed commercially that might be contributing to that?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah.\\nSo, the funding environment has been improved in Europe and has remained strong in China.\\nSo, geographically, we're pointing to Europe and China as the source of strength for academia and government. But your intuition was spot-on, which is we've really fundamentally changed the commercial approach to this marketplace. And that's why it is always hard to predict market share gains when you're doing your guide and your forecasts. But I think that's one of the reasons why we're seeing such strong growth because what we've done is we fundamentally have \\u2013 we reorganized our academia and government channel. And I think that would be in quotes because a couple years ago, it was a very fragmented approach to these university and government market.\\nNow we have one focus channel backed up by a company-wide academia program supported by a number of initiatives such as our Thought Leader Awards and other access programs we had with our Agilent Labs.\\nSo, this combination of a new go to customer model in academia and government backed up by some new company level programs I think is starting to yield dividends.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Super. And then one more.\\nIn terms of the Nucleic Acid Solutions facility expansion, just want to check and see if there's many change in the timeline. And when do you plan to start the validation process? And how long does that take?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Great question. It's actually very timely, as we just had a review on that just a few hours ago.\\nSo, Jacob, if you can remember the details perhaps you can handle that question.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah, absolutely. And we are pleased to report that we continued to move forward according to our expectations meaning that our validation efforts will start in early next year and then continue. We actually believe it will take quite a while. This is a unique setup we have.\\nSo, validation will take a while to get through. It's not something that happens within a few months, but over a period of time. And we do believe that would be all done by end of next fiscal year. And then start to see revenue into 2020, sometime in 2020. Hopefully a little bit in 2019 too.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"A little bit of 2019, I was just checking our notes.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"That's right. I'm buffering my expectations, but yeah, right into 2019, we would start to see revenue.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"But we're really feeling happy about where we are. We just had a very detailed review of the production progress. We're pretty much almost done the construction side of the production. Capabilities are bringing on and then we'll start moving into, as Jacob mentioned, validation.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Very good. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Doug Schenkel from Cowen.\\nYour question, please?\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"Hi. This is Ryan on for Doug. Thanks for taking my questions.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Very well.\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"Really strong Q1 in bumping up guidance pretty significantly for the full year, despite comps getting a bit tougher as you talked about. Can you confirm that your overall guidance philosophy hasn't changed? I guess, what I'm getting at is, if end markets continue to hold up as expected, do you still feel there's plenty of room for you to do better than your revised guidance as has been the case for the past couple Q1s?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah. Thanks for the recap of the guide. And you're exactly right. There's been no change in our thinking about how we guide the company. And I tried to call that out in my script, and I think I used the word we'll continue to take a quarter-by-quarter look. And we stand ready to raise our full-year guidance as business conditions remain favorable. And that's what we'd said for example the Q4 of 2017. And that's exactly what we've done here in this first quarter.\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"Excellent. And then maybe one on cell analysis.\\nYou've called out cell analysis as a key growth driver over at least the past few quarters.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah.\\nYou noticed.\\nYou noticed.\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"How much annual revenue do you have in this area now including the recent Luxcel acquisition? And is this business still growing 15% to 20%, which I think is what you called out around the acquisition of Seahorse?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah. We don't report directly the specific numbers around the vision of the company. But I think you can probably gauge the relative size if you can go back and look at what we said at the time of the acquisition of Seahorse Bioscience. And it is growing in the ranges you just described.\"}, {\"speaker\": \"Patrick Kaltenbach\", \"content\": \"Absolutely, yeah.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah. And Patrick thinks it'll grow faster with Luxcel now? I guess, we can tell them, right?\"}, {\"speaker\": \"Patrick Kaltenbach\", \"content\": \"Well, that's the plan, yes.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Okay.\"}, {\"speaker\": \"Ryan Blicker\", \"content\": \"Excellent. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Emily Stent from Robert W. Baird.\\nYour question, please.\"}, {\"speaker\": \"Emily G. Stent\", \"content\": \"Hey, guys. Thanks for taking the question.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Sure, Emily.\"}, {\"speaker\": \"Emily G. Stent\", \"content\": \"Looking at the final market, we've heard about massive job cuts at Teva. What's your opinion on the overall help of generics market? And what's your revenue exposure to these customers, and Teva, specifically? And then could you break out what you saw in recurring pharma revenue versus instrument?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah, sure. Happy to address a number of points that you've asked about.\\nSo, first of all, I can just share with you, I think Teva is a company-specific challenge, not an indication of what's happening in the macro market environment. And I mentioned earlier that I'd been in India, and, of course, the generic industry is quite important in the Indian marketplace. And I was with a number of executives from generic pharma companies, and they're really excited about where things are going.\\nI think there's something like $50 billion worth of new drugs coming off of patents in the next two years, on the small molecule side. They're making a lot of investments in biosimilar.\\nSo, that marketplace is very healthy. And I think Teva is going through some of its own internal challenges, but I wouldn't say that's indicative of the overall marketplace. They are a customer of ours, but I think it's not material at the company level in terms of the business volume there. And then I believe the instrument aftermarket ratios are fairly dissimilar in pharma as they are in the rest of the company, maybe \\u2013 yeah, yeah, which is probably in the range of 55% or so aftermarket, 45% upfront. Hope that helps.\"}, {\"speaker\": \"Emily G. Stent\", \"content\": \"Great. Yeah. Thank you very much.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Hmm-mm.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Dan Arias from Citigroup.\\nYour question, please.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Good afternoon, guys. Thanks.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Hey, Dan.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Hey, Mike.\\nI think you guys got the high points here, so, maybe just one for me on the segment margins. LSAG was up pretty nicely in the quarter. Do you think you'll continue to stay at that 100 bps to 200 bps range, just given what seems like there's some good leverage potential there. And then, I guess on the flipside, where do we think about DGG margins going, just given the step down for the quarter?\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah.\\nSo, I'll make some initial comments and then invite Patrick and Jacob into the discussion.\\nSo, I just saw exceptional performance in LSAG with 11% growth. That really shows you when we get to top line, we get a lot of leverage in the margins there. And as we mentioned earlier, we think the pricing is holding up.\\nSo, we're pretty confident about the margin going forward. I don't think we can expect that level of improvement every quarter, would be my guess, Patrick.\"}, {\"speaker\": \"Patrick Kaltenbach\", \"content\": \"You'll not see the same level of improvement for sure. But, again, to your point, is what we definitely see is that the new products have better gross margins. They are very competitive in pricing, which is, again, driving a lot of it. And when the volume picks up, as we have seen the last quarter, then you get these exceptional results.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Right.\\nI think it also shows our business model side of the company. Hey, when volume picks up, we don't go on a spending spree here. And that's how we can get the margin expansion. And I think it's important, maybe as we shift over to DGG, is, there's a lot of puts and takes each quarter in DGG given just the nature of the business.\\nAnd so, again, we've had a great run in terms of margin expansion and we think we're going to be in a solid position as we begin exit 2018. But perhaps maybe just a little bit more insight in terms of how you think about where you are on the margins, Jacob.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah. Thanks, Mike. And as mentioned before, we came in low. We always do that in Q1 since we have a strong run rate business and very dependent on the number of days in the quarter. But at the same time, we have a relatively high fixed cost space. This is the impact you will have in Q1. And we have that basically every year. And then there is, on top of that, some mix that can move from one quarter to the other. And that is really what you have seen in this quarter, but overall came in as expected.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"Yeah. Thanks, Jacob.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Okay. Very good, guys. Thank you.\"}, {\"speaker\": \"Michael R. McMullen\", \"content\": \"All right. Thanks, Dan.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. This does conclude the question-and-answer session of today's program. I'd like to happen the program back to Alicia Rodriguez for any further remarks.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, Jonathan. And on behalf of the management team here in Agilent, we'd like to thank you all for joining us today.\\nIf you have any questions, please give us a call in IR. Thanks, again.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program.\\nYou may now disconnect. Good day.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2018-05-14
year: 2018
quarter: Q2
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good day, ladies and gentlemen, and welcome to the Q2 Agilent Technologies Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, today's program is being recorded. I would now like to hand the call over to Alicia Rodriguez, Investor Relations. Ma'am, you may begin.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, Amanda, and welcome, everyone, to Agilent's second quarter conference call for fiscal year 2018. With me are Mike McMullen, Agilent's President and CEO; and Didier Hirsch, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Didier's comments will be Jacob Thaysen, President of Agilent's Life Sciences and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Mark Doak, President of the Agilent CrossLab Group.\\nYou can find the press release and information to supplement today's discussion on our website at www.investor.agilent.com.\\nWhile there, please click on the link for Financial Results under the Financial Information tab.\\nYou will find an investor presentation along with revenue breakouts and currency impacts, business segment results and historical financials for Agilent's operations.\\nWe will also post a copy of the prepared remarks following this call. Today's comments by Mike and Didier 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 acquisitions and divestitures within the past 12 months. Guidance is based on exchange rates as of April 30.\\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.\\nBefore turning the call over to Mike, I would like to remind you that Agilent will host its Analyst and Investor Meeting in New York City on June 6. Details about the meeting and webcast will be available on the Agilent investor website. And now I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Alicia. Hello, everyone. Thank you for joining us on today's call.\\nBefore I discuss the Q2 financial highlights with you, I'd like to first welcome Jacob Thaysen and Sam Raha to the first earnings call in their new roles. Most of you know Jacob from his former role as the President of Agilent Diagnostics and Genomics Group. He now is transitioned into a new role as the President of our Life Sciences and Applied Markets Group. Sam is replacing Jacob as the new President of Agilent's Diagnostics and Genomics Group. Sam, as you may recall, rejoined Agilent a year ago as Senior Vice President of Corporate Strategy and Business Development. Both Jacob and Sam have extensive backgrounds in life sciences, wide industry knowledge and connections. Both are highly experienced at building and leading large organizations. Agilent is fortunate to have a deep leadership bench to draw upon to fill these two roles.\\nNow let me turn to our Q2 financial performance. I can report that the Agilent team delivered another strong quarter.\\nOur momentum continues.\\nOur core revenue growth of 4.3% is at the midpoint of our guidance.\\nOur adjusted EPS of $0.65 exceeded our expectations and is above the high end of our guidance.\\nOur adjusted EPS is up 12% from a year ago. We delivered adjusted operating margin of 21.9%. On a currency adjusted basis, this is our 13th quarter in a row of improving operating margins. After two strong quarters to start the year, our core growth now stands at 7% with adjusted operating margin of 22.2% and adjusted EPS of 19%. I'm making some references to our first half results as Lunar New Year had a material impact on the timing of our reported revenues. In Q1, our Chinese customers requested deliveries earlier than anticipated.\\nAs a reminder, this pulled in approximately $10 million of revenue from Q2 into our first quarter. In Q2, we also estimate that the reduced number of selling days due to Lunar New Year had a negative impact of close to $10 million on our ACG annuity business. These two factors reduced Q2's reported company growth by 2 percentage points. Back to our Q2 results and turning to our end markets. Pharma, our largest business, continued a strong showing with 8% growth. Strength in mass spectrometry, consumables, services and genomics led the results. Growth was strong in both the biopharma and small molecule market segments. We remain very confident in achieving our 2018 pharma growth objectives.\\nOur chemical and energy market revenues grew 5%, in line with our expectations and against a difficult compare of 14% growth last year. The global chemical and energy market environment remains favorable although we noted a slight pause among our U.S. customer base, which may be attributable to some concerns about trade policies. We grew 2% in academia and government, driven primarily by strength in LC/MS, cell analysis and our CrossLab services and consumables business. Diagnostics and clinical grew 3%, led by strength on our reagent partnership and genomics business and offset continued weakness in the U.S. pain management market. Food revenue was down 1%, reflecting initial impact of the Chinese government reorganization of the food safety ministries. On March 21, the Chinese government announced the creation of the National Market Supervision Administration, NMSA, consolidating many previously independent agencies, such as AQSIQ, SFDA and SAIC into one market supervisory agency. This has resulted in a temporary slowing of new instrument purchases as ministries are being consolidated and decision makers are being clarified.\\nWe expect the reorganization will take as long as 1 year to be completely finished, with expected slowdown of six to nine months in new instrument purchases. Environmental and forensics grew 2%, driven by strong gains in our global forensics business. In March, the Chinese government also announced some changes to the structure of the environmental ministries. These changes, however, are not as large as those for the food market ministries.\\nWhile we did see some slowdown in new instrument purchases, we expect business to return to higher levels of growth in the next quarter or 2. Geographically, the Americas and Europe grew strongly with high single-digit growth. China was flat in Q2 due to the timing impact of Lunar New Year and the recently announced changes to the government food and environmental ministry agencies.\\nFor the half, our China team delivered a strong 9% core growth.\\nNow I'll cover some of the highlights from our business groups. The Life Sciences and Applied Markets Group delivered core revenue growth of 3%. Growth in chemical and energy remained robust, offset in the weakness in the food testing market. From a product perspective, we saw strength in LC/MS, cell analysis and ICP-MS.\\nOur new LC/MS, Ultivo, continues to be well received by the market and performed ahead of our targets.\\nOn the M&A front, we announced the acquisition of Advanced Analytical Technologies, Inc. Agilent is known as an innovator in capillary-electrophoresis-based instrumentation, and this acquisition will add complementary technologies to our portfolio. The regulatory review is underway. After the quarter end, we also now plan to acquire Genohm, which closed today. Genohm is a developer of highly differentiated, on-premise and cloud-based software solution for laboratory management. The Genohm team would join Agilent as part of our LSAG group. Customers are looking to do more with their data. By integrating Genohm's platform into our OpenLAB portfolio, Agilent and its OpenLAB value proposition encompass the management of all the context and content in the lab.\\nWe continue to build out our cell analysis business. In collaboration with BioTek Instruments, we announced a new integrated solution that combines cellular metabolic balances and imaging technologies. This collaboration provides new capabilities to our Agilent Seahorse analyzers, which help biologists measure cell activity in real time. Agilent CrossLab Group continued its consistent, outstanding performance with 7% core revenue growth, gains across our major end markets led by double-digit growth in pharma and academia and government. Performance was balanced across consumables and services. China delivered double-digit growth, and all other geographies grew in mid- to high single digits.\\nDuring the quarter, we made progress on our mission to prove both the science and the economics of our customers' laboratories. We introduced an innovative and extremely stable new GC column that is receiving a very positive response from customers. ACG service has expanded to Agilent-enabled services pilot to include additional platforms across Agilent. The pilot is aimed at improving the customer onboarding experience by shortening their time to value after they purchase our solutions.\\nWe also opened a new Global Solution Development Center in Singapore to meet the increasing demand for integrated end-to-end solutions.\\nOur online capabilities continue to gain momentum.\\nOur China online business has seen double-digit growth since the beginning of the year. And our China WeChat services program has attracted more than 13,000 active customers since its roll-out at the end of last year. The Diagnostics and Genomics Group delivered core revenue growth of 4%, as expected, led by strength in our genomics business.\\nOn the innovation front, we introduced several new products this quarter.\\nOur launch of HRP Magenta for the Dako Omnis, Agilent's flagship instrument for immunohistochemistry and in situ hybridization, allows pathologists to more easily visualize cancer in skin and lung tissues.\\nWe continue to expand our portfolio of in situ hybridization probes with the release of 7 new probes for Omnis to maximize our differentiation in automated ISH staining.\\nOn the genomics side, we announced -- we enhanced our industry-leading target enrichment portfolio for next-gen sequencing.\\nOur recent introduction of the SureSelect All Exon V7 is being well received by customers as it improves both performance and cost effectiveness.\\nOn the genomics informatics front, we released a new module for the Alissa Clinical Informatics Platform. This new module further simplifies informatics processes and accelerate timed results for our customers.\\nWe continue to invest for future growth. We signed a definitive agreement to acquire the remaining shares of Lasergen and close the acquisition on May 7.\\nAs many of you may recall, we made an initial investment in Lasergen in 2016 for a 48% ownership stake. This acquisition brings into Agilent a powerful sequencing chemistry and a world-class group of scientists and engineers dedicated to bringing our integrated clinical workflow solution for molecular diagnostics to the market.\\nWe are very excited to have the Lasergen scientists and engineers on the One Agilent team.\\nWe expect to invest about $35 million per year to deliver our molecular clinical workflow solution to the market in 2020.\\nNow let me provide a few remarks on where we are in our journey at Agilent and our outlook for the rest of the year. The Agilent team continues to execute, and our momentum remains.\\nWe are right where we want to be for the first six months of the year. We delivered strong growth while improving operating margins and deploying our capital on a balanced manner. Once again, our EPS growth is in the double digits.\\nOur R&D innovation engine continues to strengthen our portfolio. We're all excited of the new capabilities through M&A. We believe this combination of organic growth-driven investments and complementary M&A, together with our execution capabilities, will deliver continued strong growth relative to the market.\\nFor the past three years, our focus has been on building the company's foundation, a foundation that will leverage the One Agilent company culture, innovation and execution capabilities to generate above-market growth and earnings expansion.\\nOur platform for top line and earnings growth is now in place.\\nWe are delivering. When we're rebuilding the company, I also want to focus on making the company more agile and responsive to our market environment.\\nLooking forward, we continue to proactively assess market forces and moving the agile manager to capture most promising opportunities.\\nAs you know, our two largest end markets are pharma and chemical and energy. Through the first half this year, our pharma performance has been above our expectations and we are raising our full year pharma outlook.\\nOur full year guide for the chemical and energy market business remains unchanged.\\nWe expect a strong mid to high single digit growth. Geographically, we are bringing down our expected full year growth rates in China to about 7% as a result of the expected pause in businesses from the realignment -- realignments of the government agencies. At the same time, we remain confident in the strength of our European and Americas business and have raised our full year outlook for these geographies from the Q1 guide assumptions.\\nWhile there are some end market and geographic give-and-take, our overall model remains intact.\\nFollowing the significantly raised guidance last quarter, we are reaffirming our full year core growth guidance and earnings guidance, inclusive of currency headwinds and increase in our molecular clinical workflow offering. The Agilent team is confident, energized and excited about our future, our next phase of growth and delivery of results.\\nWe are looking forward to sharing more about what is behind this outlook in our upcoming Analyst and Investor Day. Thanks for being on the call and we look forward to answering your questions and seeing you in June. I will now hand off the call to Didier, who will share more insights on our Q2 financials and updated outlook. Didier?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Thank you, Mike, and hello, everyone.\\nAs Mike stated, we delivered another strong performance this quarter and year-to-date.\\nFor the quarter, our core revenue growth of 4.3% was in line with our guidance, and we over delivered on operating margin and earnings per share.\\nOur core revenue growth would have been more than 1 percentage point higher if not for ICP-MS shipment delays and the recently announced reorganization of Chinese government ministries.\\nOur adjusted operating margin of 21.9% was 40 basis points above the implied guidance, and EPS of $0.65 was $0.03 above. Further adjusting for currency, the operating margin was 22.4%, i.e. 30 basis points above last year and as highlighted by Mike, represented our 13th quarter of increased year-over-year operating margin. We delivered $303 million in operating cash flow.\\nDuring the quarter, we bought back 674,000 shares of Agilent stock for a total of $46 million and paid $48 million in dividends. I'll now cover the guidance of fiscal year 2018.\\nWe are maintaining our core revenue growth guidance of 5.5% even as we anticipate that the reorganization of Chinese government ministries may push out about $20 million of revenues into fiscal year '19.\\nWe are also maintaining our EPS guidance of $2.65 while absorbing $22 million or $0.06 for FX and our technology investments in Lasergen and Genohm.\\nRegarding Lasergen, we forecast to spend $15 million this second half and about $35 million in both fiscal year '19 and fiscal year '20 when we plan to commercialize our solution. There is no change to our operating cash flow guidance of $1.05 billion and CapEx guidance of $200 million. I'll now turn to the guidance for our third quarter.\\nWe expect Q3 revenues of $1.185 billion to $1.205 billion and EPS of $0.61 to $0.63. At midpoint, revenue will grow 4.3% on a core basis. With that, I'll turn it over to Alicia for the Q&A.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, Didier. Amanda, will you please give the instructions for the Q&A session?\"}, {\"speaker\": \"Operator\", \"content\": \"Absolutely. [Operator Instructions] Our first question comes from the line of Derik De Bruin of Bank of America.\\nYour line is open.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Hi, good afternoon.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Hey, Derik.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"The operating margin guide, it's - for the year, it's down about 20 bps. Is that FX and the diluted impact of the acquisitions, is that what's going on there?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"There's a little bit of the, certainly, FX and the rest is on the acquisition front.\\nYou're absolutely right.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Got it. And I think you already answered my question about what you're going absorb in terms of Lasergen. But what are these other deals, the ATT, the - I'm sorry, the Advanced Analytical and the Genohm, going to add in terms of the top line for M&A contribution? Do they have significant revenues?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Yes. Well, the -- so Lasergen doesn't bring...\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"It isn't about the AATI. It hasn't closed.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"AATI and Genohm.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, yes.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Yes. Because it hasn't closed, we have not included it at all in our guidance projections.\\nWe will only do that once it closes.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And then Genohm was a few million on the top end...\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Exactly\\u2026\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"A few million on the top end, about 40 people coming in. It's primarily a technology acquisition.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Got it.\\nAnd so I'm a little bit curious on the China comments. It's -- none of the -- just having -- you guys are at the end of earnings season and none of your elder life sciences peers sort of commented, and it sounds like this happened late in March about the Chinese food reorg. I'm just sort of wondering, can you talk a little bit more about that and exactly what's going on and why you think it's going to take a year to sort of wind through the system?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, sure.\\nAs you may know, they have these two big annual sessions they call -- I won't read out the full abbreviation, but the NPC, the National People's Congress, and the CPPCC, which they had these two annual events. And after those events occurred, on March 21, they announced the reorganization of the ministries. And where we came of the estimate of about a year was based on our experience in 2014 and '15 when there was a similar reorganization within the CFDA and we saw a pause of six to nine months of business during that period of time. And we're using that as a similar rule of thumb. It's very consistent with the estimates on our teams.\\nSo - and I can remember we, on the earnings call at that time, are saying, listen, the businesses are not going away, but we know that there will be a pause at least on new instrument purchases as they work through all the changes.\\nSo that's our - that's a guideline.\\nOf course, legacy will be shorter, but we wanted to be somewhat cautious on our outlook given our prior experience with the major, major changes such as this. The change on the environmental side is much less significant and should have a shorter-term impact.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Great. I\\u2019ll get back in the queue. Thanks.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from the line of Tycho Peterson of JPMorgan.\\nYour line is open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hey, thanks. Maybe I'll start with academic.\\nYou had a similar comp this quarter and the last quarter, obviously the results a little bit later. Is that just the timing dynamic? Or is there something else going on?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, Tycho, you hit it right on the head. It's just the timing. That business can be a little bit more lumpy, but we're actually positive on the overall funding of academia and government.\\nSo I wouldn't over-read into that quarterly result. And of course, we also had the shortened period of business in China, which also affected that a bit as well in academia and government.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And then chemical and energy, you called out the slight pause in the U.S. Can you maybe just talk about that dynamic and if trends have proved at all in May?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, thanks, Tycho. I mean, the numbers were solid. I mean, we had 5% growth off of a really difficult compare, but there's some kind of noise in the system particularly in the U.S. Business is good, but it could have even been more robust. And I think there's this -- as you know, business doesn't like uncertainty. And there's lots of uncertainty, what's going to happen in terms of trade policies and tariffs.\\nAnd so I just -- we thought it's prudent to mention that it didn't affect materially the results, but the noise is out there although we, as you can see in our guide, we still remain very confident of our ability to grow this year in chemical and energy. And I know we're going to talk a bit about China today as well, but that's one segment of the China market that is really, really strong. And we can expect goodwill there for years to come. But again, we just thought it was good to share with the audience what we've been hearing from some of our customers.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And is it fair to say you're not yet seeing meaningful benefits from Intuvo at this point in chemical and energy?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, it's ramping, as we said. It's part of the story there, but we still have a lot more runway with that product.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. And then last one on Lasergen. Are there milestones we should be thinking about on the development pathway here in terms of placing additional beta units? Or how do we think about the road map here for commercialization?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Look, for some of the visibility [ph] in the market in 2020, I'll wait later on for that, Sam, right? Okay.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"All right. Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from the line of Dan Leonard of Deutsche Bank.\\nYour line is open.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Thank you.\\nSo just a quick follow-up on Lasergen there. Mike, is the $35 million in annual spend, is that all incremental or is some of that in the base?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"It's incremental.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"And then how does that impact how you're thinking about the margin expansion trajectory for corporate Agilent in fiscal 2019 and 2020? Because that's a material amount of spend versus what we would think of as a normal operating margin improvement cadence for the total company.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. We'll give you some more detailed information in the analyst meeting in June. But I think it has been that our core business will continue to follow the incremental growth in terms of margin expansion you've seen over the prior years.\\nSo this is a dilutive acquisition for us, but we think we can carry this forward. And we'll share all the details with you when we meet in June but -- and again, our core model of continuing to expand the operating margins with incrementals is intact.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"And then finally, just trying to think about how to size the China food safety exposure. Is it fair to think about your business in China being a mid-single digit grower until this normalizes? Or is it lower than that over the next, call it, six to nine month time frame?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"You mean the outlook? I just want to\\u2026\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Yes, for total China.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"We've provided the outlook. The guidance is for 7%. We used to have 10% in the previous quarter guidance.\\nSo we are now at 7%.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. I can do the math. Thank you.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"That's for total China, right?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Yes.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, absolutely.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from the line of Ross Muken of Evercore.\\nYour line is open.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Good afternoon, guys. I just want to be clear on sort of the sequential headwinds, Q1 to Q2, and then sort of the jump-off from there because I think you said a couple of different things.\\nSo we had, obviously, the New Year shift. We had the day shift in the quarter, and then it seems like there was also something you said on ICP-MS.\\nSo just help us. Versus the original plan, what were the actual components of the delta that affected this Q? And it seems like the only thing coming out of this Q that's updated new, other than maybe the developed markets are better, is sort of China net worse because of food. I just want to make sure I get the cadence and the components right.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Yes, let me take that one, Ross. It's -- you are absolutely correct. The Lunar New Year was -- impact was obviously already reflected in our guidance as well as the very tough compare. Remember that last year, we had 9% core revenue growth; and the year before, 8%; and also the fact that last year, we had $7 million of settlement with our -- within our DGG organization. What is new versus the previous guidance are the shipment delays on ICP-MS and the reorganization of the Chinese government ministries.\\nSo only those 2 factors, which take away about 1 percentage point of our growth, we have not included in our previous guidance.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Got it. And in terms of risk factors both positive or negative to the 2H guide, I mean, where do you think there's the biggest potential either for up or down side from a segment perspective or end markets?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Sure, I'll take that one.\\nSo I think the chemical and energy market continues to offer the biggest upside for the business.\\nSo we've already raised the outlook in pharma, and maybe we could do that again. But I think both the big end markets for the -- for Agilent are very solid with potential upside in chemical and energy. And that's why I mentioned the -- some of the noise.\\nSo as soon as we can get some clarity on trade policy, I think that will -- really will calm things down. And if that happens fairly soon, I think it would be really good news for us in this space.\\nSo I think the chemical and energy market offers the biggest upside for us. And then although we're trying to take a very objective outlook on China, maybe the -- it's always hard to predict how quickly these things happen. We painted what we think as sort of, if you will, a longer tail scenario, but we could actually find a move through the process much more quickly.\\nSo I think that might be an area where you could see some upside relative to our guide assumptions.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Yes. And just maybe, Mike, sorry, on that. The ICP-MS comment, is that decoupled from the China food comment in that...\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Well, no, it's actually part of the China story.\\nSo it's actually about -- what, about $10 million, I think, or so? About $10 million.\\nSo we...\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"$7 million, $8 million.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"$7 million, $8 million, close to $10 million.\\nSo I would like to round up a bit, as you can tell. But that was just a byproduct of the product is hot right now.\\nSo we're -- we just had a really, really high backlog. And as you may know -- I think you know this already, Ross. Particularly in China, you have to get an IVL license to get the products through the approval [Technical Difficulty] government.\\nSo that took a little bit longer. And I think, Didier, we've already shipped those this quarter.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Yes, absolutely.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"So it would have been nice -- I mean, for this, recall it would been nice we got them in last quarter but I think it is...\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"In bag for this quarter.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, it's in the bag for the quarter. It's already been shipped and booked. But again, it was this more of a backlog issue because we've been seeing such strong growth particularly in China for ICP-MS.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Got it. Thanks, Mike.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"You\\u2019re welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Steve Beuchaw from Morgan Stanley.\\nYour line is open.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Hi, good afternoon and thanks for the time here. My first question is actually on margins. I appreciate the commentary that you have a good degree of confidence that the underlying margin expansion trend is intact. But as I look at the last few quarters or the last three quarters at the incremental margins, they've been tracking below the 30% target level. I wonder if you might help us understand why the trend is evolving along those lines. Are there any operational items to call out? And when could we see - a return back to the 30% plus level?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Yes, I'll take that question.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Sure, Didier.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"And yes, it's interesting. The impact of mostly currency on both the top line and the gross margin is fairly significant.\\nSo you are absolutely right. When you look at our unadjusted operating margins, reported operating margins incremental in Q1 and Q2, they were, respectively, 32% and 20%.\\nIf you adjust for currency and a little bit -- but that's very minor for acquisition. But on a core basis, you get to 36% for Q1 and 34% for Q2, so very much in line with our model.\\nSo it is mostly the impact of currency. And what happens there is that with the weakening of the dollar, it increases the numerator -- the denominator, sorry, which is the revenue. And it has negative impact because of the hedging policy on the numerator, which is the margin.\\nSo all in all, if you adjust for that, you get back to our model regarding core operating margin incremental.\\nWe have some data in our annex, I think, we've published. Or anyway, if you want, I can take you through the details, but that's basically the impact.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Okay. And then two quick ones for the DGG line. One is, I wonder if you could give us an update on the time lines for the capacity ramp in Colorado. And then, two, could you speak to the trends that you're seeing on immunotherapy assays, PD-1, PD-L1 assays, given all the enthusiasm out there now for TMB testing as a diagnostic approach for IO? And I'll get back in queue.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks. I'm glad we had a chance to be able to point to other members of the team for a couple of questions. I'm actually going to pass this over to Jacob in your old role. And what I would just say, to start things off, is we just completed recently a review of the factory build-out in February. And I think we have the latest information.\\nSo Jacob, if you wouldn't mind taking those two questions.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely.\\nSo thanks for that. And again, a reminder that we see a very strong market in the NASD business, the nucleic acid solutions for API business.\\nAnd so we're very confident that we will have a -- continue to have strong growth. And as you also reminded ourselves about this, Steve, is that we are in a situation where we have more demand than we have capacity.\\nSo we are now building out and we've done that for a few quarters now but building, and it's very impressive to see the site coming along out in Frederick out -- close to the Boulder site. And we're still progressing according to our plan, and we'll expect to have products coming out here in basically a year from now.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And then how about the assays, the PD-L1?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"The PD-L1.\\nSo PD-L1 on the IHC platform and the question is how is that going to compete against the tumor mutation burden and other genomic assays. And what we see and what we believe is this will be complementary.\\nFirst of all, most IHC continues to have a growth trajectory. We had a very, very strong penetration over the last 18 months, and we continue to see the growth here. What we believe is that -- and what we can see in the market is that immuno-oncology is just much more complex than probably one marker is giving you information about.\\nSo what we believe is and what we can see out there, we can see our customers are using that, the ones that start with TMB, is that they are using both and they will continue to use both markers.\\nSo we don't see a business cannibalization. We actually think there's a lot of synergies between the markers.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Okay.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Brandon Couillard of Jefferies.\\nYour line is open.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks, good afternoon.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Hi, Brandon. How are you?\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Great. Mike, I'm curious if you could give us a sense of how chemical and energy orders progressed through the quarter? And as we look at this business today, is it any less cyclical today, especially given the new product cycle than perhaps it was 3 to 5 years ago?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Great question.\\nSo the first one, I think we saw nothing out of the ordinary in chemical and energy. The only thing I would contact, I mean, in terms -- I mean, comment on would be, again, chemical and energy grew in China but not as much as it normally would grow just given the shorter period of time. But chemical and energy looks fine to the whole quarter, nothing out of the ordinary. And I think there's probably a case in May that it's a little less cyclical just because of the fact that there's a lot more pent-up in aged equipment than it was when we started the cycle three or five years ago.\\nSo I think it is the more -- a more cyclical business for us, but I think to some degree, I can't handicap it. But directionally, I would say it is a little bit less cyclical than it has been in the past.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"And a couple for Didier. Number one, on the pharma outlook for the year, maybe I missed that, what the new outlook is for core growth from pharma. And then secondly, would you mind walking through the hedge and the translation impact? I see $6 million in the supplement -- in the back of the supplement packet, but curious if that includes both the hedge and the translation effect on OP.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Yes.\\nSo in terms of pharma, Mike mentioned that we are raising our full year pharma outlook and we are raising it from 5% to 6%, so slightly raising it. And in terms of the impact of currency, you're mentioning the $6 million and that's the impact for the full year. Precise number is $5.4 million. And it's a negative headwind that comes from mostly translation impact offset by some gains due to our hedging.\\nSo it's the net of the two and continues to basically offset whatever direct impact you have from the translation.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Doug Schenkel of Cowen.\\nYour line is open.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Hey. Good afternoon, guys.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Good afternoon, Doug.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Maybe just starting with another question on China, just a cleanup question.\\nYou mentioned that you believe the days effect related to Lunar New Year resulted in a $10 million headwind.\\nI think you said specifically within CrossLab's. Did Lunar New Year have a broader impact on the quarter? And if it did -- I may have missed it, if you quantify that.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"No, no, no. We were just trying to show kind of like a normalized growth rate, what it looked like, for the quarter. And you're exactly right, the $10 million, just because the customers weren't in the office or in the lab for that day. Clearly, the business will come back. And I think that makes the CrossLab number that we report even more impressive because we delivered double-digit growth with that effect.\\nSo in a normal quarter, we've had a much higher reported growth. And Doug, if you don't mind, while we're on China, there's -- I think there's a report -- I know we're going to spend -- there's a lot of focus, rightfully so, in the call about what's happened in the food segment and the market in China.\\nI think it's important though, the overall dynamics of the China market where we play, for example, pharma, academia and government, chemical and energy. I was just in China two weeks ago speaking firsthand to our customers at Sinopec.\\nSo those markets are still very robust, and we can expect a lot of growth from them in the coming years.\\nSo again, I think it's also important to kind of think about the overall context of the China market. We know there's been a lot of puts and takes this quarter with Lunar New Year and this reorganization of the ministries.\\nSo happy to answer any additional question you might have on China as well.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Yes -- no, that's really helpful, Mike. And I guess kind of what I was getting at is there's that $10 million impact on CrossLab and what was, even with that, a really strong quarter for that part of the business. There's presumably a broader days effect on the business, which may be harder to quantify but certainly have an impact on overall growth. Is that a fair statement?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I'm not sure I understand the question.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Lunar New Year -- the day\\u2019s effect of Lunar New Year, it's easier to quantify within CrossLab, but presumably, it has some impact on the broader business, which you didn't quantify.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, that's a little bit tougher for us.\\nSo that's why we were hesitant to put something out. We count the days...\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"By instrument, they would have bought instrument in - with one week less in a quarter but - whereas for service consumables, we are really - those are lost days.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, lost days.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Yes, okay.\\nSo then a broader guidance question.\\nYour reaffirmed guidance assumes you maintained a 4% to 4.5% year-over-year growth rate for the remainder of the year. If we look at 1-year comparisons in the two year stacks, it seems like you're assuming that growth moderates a bit relative to recent trend. In spite of actually sounding pretty good on most fronts, are you baking in a little more cushion than you have recently to account for unforeseen surprises just given all the incremental uncertainty in a couple of areas that you described in your prepared remarks?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"That's probably somewhat of a fair assumption.\\nI think that what Didier and I are trying to do is we try to guide in a way that will accommodate if we have a surprise or two. And look at what happened this quarter. We were able to beat our EPS guide and the consensus on the EPS side, but we hadn't seen the ICP-MS shipment delays or the reorganization of the Chinese food ministries.\\nSo we're able to accommodate those within the guide.\\nSo that's our philosophy. And I think we're hoping to be able to set up the second half so, if something else would happen to occur that we hadn't seen coming, that there's room in there for us to absorb it.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. That's great. And maybe one last one. There were a lot of timing dynamics in the quarter. Oil prices may be working in your favor. Trade policy uncertainty may be causing things to take a little longer than maybe before. With all that in mind, any chance you'd provide some directional commentary on order trends, book-to-bill, anything like that?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Beyond the fact that we can tell you that the pacing of the orders was nothing unusual beyond, I think, maybe discussing specific to chemical and energy, Doug, but I think your comment about some of the orders taking a little bit longer in the U.S. because, okay, let's see where this thing -- where lands.\\nSo I think that's -- I could comment on cycle time to order close in the U.S.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. But nothing out of the usual across the business? Okay.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"No, no, no. And the earlier question was, \\\"Hey, Mike, where do you think your upside could be to your plan?\\\" I think it is chemical and energy.\\nSo...\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. Got it. Thank you very much.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from the line of Dan Arias of Citigroup.\\nYour line is open.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Hi, good afternoon. Thanks. A question maybe for Jacob, hi Mike, a question for Jacob in his new role, if he's willing. A lot of discussion on the mass spec market...\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"He's ready. He's ready.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Okay, good. We'll put him to the test then. In -- just in the mass spec market, you guys have been pretty active on the development side.\\nI think you called that out as a strength this quarter. Can you just maybe talk about the growth that you're seeing? If you separate out the high-end research side from the more routine, applied market products, how does growth compare there?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"So I know Jacob would love to jump in on this question, but I think he just had about a few weeks to get close to the business.\\nSo I know you've been digging in a bit but why don't I take this one, which is -- the routine market is really where we've been focusing a lot of our new portfolio moves. The Ultivo LC/MS is doing very well relative to our targets, and that's really -- it's really focused in the places where you have the highest volume in the routine market.\\nSo that's where we've been doing really quite well with the most recent introduction. That being said, some of the enhancements we made to our portfolio, particularly on the bio LC/MS side, have really enhanced our position on research side.\\nSo we've seen growth, strong growth in both segments of the mass spec market. But I think just given the volume in our businesses in the routine segment, that's been the driver for the overall revenue for the -- for LSAG, but really quite pleased with both portfolio moves we made there. Jacob, anything you'd like to add to that?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"I'll just say thanks for helping out, Mike.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Yes, okay. Well, my second question is actually on DGG sort of a similar tack. I mean, you did specifically call out the way the demand was shaping up for tissue and staining products. Can you do the same on the genomics side? I mean, what are you seeing as far as the contribution from sample prep [and then arrays] especially given that there are some new products there as well?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"By the way, I'll pass that to you, Jacob, as well. But just a reminder or 2, when we look -- I think called out in my script, but when we look at the growth rates of our DGG business relative to the Q2 last year, it's probably about a 3-point effect given we had order cancellation that was booked all in -- around NASD business in Q2 and that -- on a normalized basis, DGG growth would have been 7% in Q2.\\nSo with that, Jacob, if you could just add some thoughts on the genomics side.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely. I'm certainly more comfortable in taking that question. But we've actually seen quite a good performance in genomics recently.\\nI think you have seen the overall market perform very well, and we have certainly benefited from that.\\nSo we have seen very strong growth in our SureSelect business, especially with the XT HS that came out.\\nI think it's six or nine months ago. And we see very high demand, adoption of that.\\nNow the V7, as Mike mentioned here, just came out some weeks ago. And the good news here is that it's -- we have seen very good feedback from our customers, but we won't -- we haven't really seen it in our numbers yet.\\nSo I think actually, that's a good opportunity in front of us with that product also.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Okay. Maybe just one follow-up. Is growth on the Target Enrichment side kind of in line with NGS growth overall?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Sam, I know you've been looking on that site. I'm dying to get you on the -- get your voice on the call as well.\\nSo why don't you take that one?\"}, {\"speaker\": \"Samraat Raha\", \"content\": \"Yes, happy to take that. And absolutely, what we're finding is good growth returning for our Target Enrichment portfolio consistent with what you'd expect in the NGS market if you look at the others that are participating there. We're seeing that both with our larger accounts or national accounts and global accounts, if you will, as well as the broader marketplace, so very happy with the growth that we've seen. And based on what we are seeing directionally, we expect that to continue in the coming quarters.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Sam.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from the line of Jack Meehan of Barclays.\\nYour line is open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you. And good afternoon.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Hey, Jack.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I wanted to follow up on Dan's first question related to mass spec. Have you seen any changes in the competitive environment recently? Can you provide an update just on how the Ultivo is resonating in the market versus your plan?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, Jacob, if you don't mind, I'll take this one as well.\\nSo actually, the market has been fairly stable.\\nWe haven't really seen any major moves of significance by any of the competitors. And then for us, this is such an important new offering for us because we're not yet the leader in this space.\\nSo it's not an installed base replacement marketplace. This is actually a market expansion play for us. And again, we're playing to -- one of our strength is really to provide tools to the routine market where they want robust, reliable instrumentation that gets the job done. And that's really what we're -- we do quite well in addition to providing leading-edge technologies for the research side of the business.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. Thanks, Mike. And you've -- on M&A, I just want to follow up on that.\\nYou've certainly been active in terms of a string of tuck-in deals now. Are there any additional pieces of the puzzle that you need to put together at the clinical NGS workflow? And can you talk about where the investment is going in terms of either content or informatics or the platform itself? Where are you investing there?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, some great questions. And again, some teasers for our June Analyst Day. We'll spend a little bit more time going through our thinking around M&A. But as you know, we like M&A in markets where we know the customers, where we know that we have a channel and really can leverage the scale of Agilent. And that's the kind of opportunities we've been pursuing. Relative to the NGS workflow, we're continuing to build that out. We've brought in the sequencing chemistry, as we just mentioned. And then we're in pretty good shape right now, but there's always things we can do perhaps on the informatics and content side. And Sam, anything else you'd add to that?\"}, {\"speaker\": \"Samraat Raha\", \"content\": \"I think, Mike, you're exactly right.\\nJust to further detail out, we feel very good about the fact that we have a number of gold standard elements of the NGS workflow, be it ours or the NGS workflow that's being used broadly. But there, definitely, is opportunity for partnership or adding content inorganically -- elements, sorry, such as content at some point.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question is from the line of Catherine Schulte of Baird.\\nYour line is open.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Hey, guys. Thanks for the question.\\nFirst, on Dako, can you give some commentary on how the Quest rule-out has gone and any opportunities for incremental wins in that space?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"So Jacob, you'd like to comment on the former Dako business, which we've been referring to as our pathology business. I know that amidst of the roll-out, that's been a point of major dialogue in the company to move us into -- Dako into Agilent.\\nSo how are things going with Quest?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Well, things are going very well. And it's been a while since we announced that deal, but usually, these things take actually some time to implement fully. But we have a very good traction and more of -- half of the instruments has been installed in the sites. And we also start to see the -- a good uptake in the revenue.\\nSo we're very pleased with where we are. We're very pleased with the partnership with Quest.\\nWe have also seen that business resonated in the market and there are other types -- similar types of accounts that is interested to look into the opportunity.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Right, great. And then can you just remind us what percent of your China revenue is food? Is it similar to the breakout of the total company or more heavily weighted in China?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Let's check that.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"I can give it to you. It's - I need the 12C.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Catherine, if you don't mind, hold on for a second. Didier is pulling out his calculator. My guess is -- I think it's probably a little bit heavier weighted relative to the global average in Asia.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"In Q2, it was 41%.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"21%.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"41%.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"41%\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Of the worldwide food market that is in China.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Paul Knight of Janney Montgomery.\\nYour line is open.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Hey Mike, could you talk a little more in granularity about where you're heading with this operating margin, like specific actions? I think your COGS program, you've been working on that, what, the last year or is it longer? What other initiatives do you -- are you working on? And then I guess layering on that, Didier, are you leveraging your manufacturing to stay at that 30% incremental operating margin as well?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Thanks for the question, Paul. And Didier and I are going to go through this in a fairly high-level detail when we see all of you, hopefully, in June. But conceptually, we'll be doing -- this has been a multiyear phase program with different areas of prioritization and focus. And the message that we're going to deliver in June and I'll share right now is there is still more programs behind the numbers.\\nSo when we talk about the margin expansion, it's not just a hope and a dream. There actually is something behind it. And the something behind it, to your question, Paul, would be really very heavy work in the -- or the fulfillment area, manufacturing, particularly focused on material costs, supply chain, value engineering will be big movers for us in terms of reducing our ongoing material costs.\\nWe also have initiatives around how we manage our pricing and discounting.\\nIf you -- we think we've got room there in terms of how we think about the pricing and discounting. And then we're also making some major investments in our R&D systems that we think will allow us to come to market more quickly. And then from a cost standpoint, take a lot of costs out of our platform cost because we're going to force the sharing of common components across all our divisions where historically, our divisions have operated fairly independently on an R&D side. Didier, anything else I missed there?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Lots of other things but you'll have to wait for specific...\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Okay, okay. It's our teaser for the June Analyst Day movie.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"And then last, Mike. On academia at plus 2%, where do you think it will shake out for the year? 2% seems kind of below market right now.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, for that quarter, I think that's fair.\\nI think when we look at our guide for the full year - where were we on that, Didier? I think we were at about 5%, right? About mid-single digits?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Yes.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"5%, 5-ish plus, so mid-singles.\\nSo - and we're actually quite bullish on academia and government, Paul. The Agilent team -- and we've gotten sort of our active owner, if you will, a couple of years ago really refocusing on how we sell into academia.\\nWe have a company-wide academia program. And like I said earlier, the funding conditions we see are more favorable than they were a year ago.\\nSo we think this combination of improved Agilent capabilities and funding environment bode well for continued strength throughout the year. And again, I wouldn't over-interpret the Q2 result.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Okay. Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from the line of Steve Willoughby of Cleveland Research.\\nYour line is open.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Hi. Thanks for taking my question, guys. I guess first, for Didier, I was noticing your expected interest expense for the year is now down, I think, maybe $12 million or so versus last quarter, just wondering if there are any initial comments on that. And then secondly just -- if there is any additional color on the Ultivo and the feedback you might be hearing from customers on why that's being adopted so well so far now that's been out there for 6 months.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Why don't you take...\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"So I'll take the first question, yes.\\nYou are absolutely correct, Steve. And part of that is the higher interest -- higher yields, higher interest income, more cash available. But I must say that part of it is also that our previous forecast was extremely conservative.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And then relative to, Steve, your question on the Ultivo.\\nSo if you remember, the initial value proposition, which was the [power of the tiger], this high-performance instrument in a very small footprint and easy-to-use instrumentation, rugged.\\nSo -- and it's stackable.\\nSo that value proposition, which we thought would resonate with customers but you're never 100% sure until you actually get product out in the market.\\nSo -- and as you can imagine, very much like we've seen with the Intuvo, which is -- it's so different that often, customers are saying this really works as advertised. And yes, it's working as advertised.\\nSo I think what's been happening here is the value proposition we thought around the new workflow for the customer, now we've been able to prove that it actually performs as intended. We've really been getting a nice uptake. And again, I think this goes to our ability to really understand what it is that customers want and really how to help them with their -- both their science but also the business operation side of their lab.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Okay. Then if you don't mind, if I could squeeze in one more follow-up. The Chinese ministry-related delays or, I guess, cutbacks, did that have any impact here in 2Q? Or is that -- the $20 million of push out is that just a second half phenomenon?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"No. We think about $5 million or so is what we estimated in Q2 and then the other $15 million in the second half.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Okay.\\nSo you've got $5 million from that and then another $7 million to $10 million of ICP-MS delays as well in China?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"That's the right number, yes.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Okay, perfect. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from the line of Puneet Souda of Leerink Partners.\\nYour line is open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yeah. Thanks, Mike. I had a question -- I was just trying to understand -- not sure if it was covered.\\nIn terms of weakness in pain management, my understanding was the reimbursement was already lowered here some time ago. Was there another downtrend? Or what's driving this weakness here? And could you size that business for us?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I think it's this working out the excess capacity that was in that space.\\nSo we saw one of the customers went [indiscernible] customer went bankrupt in the space last quarter, and it's primarily associated with our refurbished LC/MS business. It's probably the biggest piece, right?\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"A little bit of everything really. I mean, it's really when you sort out the part that comes from DGG, that's a positive and it's offset by about two points related to everything else, so the refurbished business but even a little bit of service and consumables, a little bit of instruments, a little bit of everything, [indiscernible] has any significance. But altogether, it took away two points of growth in clinical and diagnostics.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And we highlighted in the call just because there hasn't been any new market development.\\nI think what's been going on, though, is just the capacity is coming out of the system.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it.\\nSo two points on DGG was the impact, okay. And I just wanted to clarify just one last thing on China. I mean, last call, you highlighted a number of efforts targeted to enter into the entry level in China in terms of instrumentation, somewhat of a value line.\\nSo my assumption was those were targeted towards food given that these labs are more independent and food labs are somewhat cost-conscious to begin with.\\nSo after this regulation is set and done in six to nine months, what's your expectation? Do you think that line would be more in demand? Or would you think more premium offerings on the market are likely to fare better here? So I just wanted to understand that and maybe just around overall impact to the rest of the peer group as well.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Puneet, thanks for the great question. And I think what you may have been referring to was the value line of new consumables and chemistry products we introduced specifically for China. What I'm going to do is have Mark maybe make a few comments to that, and I'll double back and provide you some commentary on instrumentation as well.\"}, {\"speaker\": \"Mark Doak\", \"content\": \"Sure, and I'll just voice what you had said, Mike. It's a value line that we'd introduced well over a year ago in China, been very well accepted. That being said, it wasn't necessarily targeted. The food market targets anybody in the general space across broad sets of markets.\\nSo we intend to obviously continue to build out that value line as time goes on and we'll find market-specific offerings but that wasn't -- the intent is to go specifically after food. It just turned out, as you know, 40% of the business is derived from there.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"But to your question about the -- thanks, Mark. The question around the composition of instrumentation, I think you still expect to be very heavily focused on mass spec, which is the tool of choice in food safety analysis and also food authorization.\\nSo whether it be GC/MS, ICP-MS, LC/MS, there is a growing market for routine instrumentation, still high-quality instrumentation but less features. And that's what we've been doing with our -- primarily our chromatography portfolio on the GC and LC and molecular and spectroscopy [indiscernible] spectroscopy side to build out that for routine. But relative to food safety, we think there's going to be a very heavy demand for mass spec. But again, it has to be -- what we're seeing, as the business starts to migrate into the Tier 3, 2 -- Tier 2 and Tier 3 cities, you really need to make sure you have an instrument that's robust and easy to use, which has been our design back there. By the way, I think we -- I should have commented earlier, too, which was the dynamics of the food market are changing in China as well as who buys.\\nSo we've been focusing a lot on the government agencies, but we're also starting to see more and more testing push to third-party contract testing labs, where the Chinese government say, listen, we're not going to pay for everything ourselves and fund and build all the labs.\\nSo that also could be -- I talked earlier about the give and takes in the market and potential upside, which is dependent on how quickly these -- the volume shift from some of the centralized labs into the contract testing labs. That could bode well for us because we're a really strong player in these areas. Again, we want to see how things shape -- shake out here over the next few months before we actually call that's what's happening. But I think it's important to understand that dynamic as well because even though we've been through a major ministry reorganization like this a couple of years ago, the trend towards more testing done in third-party private labs is new.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Thanks, Mike. That\\u2019s very helpful.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"You\\u2019re welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from the line of Patrick Donnelly of Goldman Sachs.\\nYour line is open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great. Thanks. Maybe one for Mike.\\nJust on the capital deployment front. Can you talk through an update on the larger-sized deal pipeline? How large are you comfortable going with the improved balance sheet post repatriation? And then would you do a larger scale earnings diluted deal? Or should we think of that as not on the table?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"You mean earnings? If I think -- I'm going to go to the second question. If I understood correctly, if we were to do an acquisition larger than we've done so far, we would do an accretive deal.\\nSo we would not be doing large technology -- or acquisitions of companies that weren't profitable or marginally profitable.\\nSo my model works and I can bring in like a technology acquisition, and we'll go through some of the details with you in a few weeks. But the model works. I could bring in a technology acquisition on Lasergen, but don't assume that's sort of our norm. We actually -- we prefer to do bolt-on that have revenues and profit. And the -- we're going to -- we're open to larger bolt-ons. I would just leave it at this. We want to make sure that we want to -- we're still, I think, quite disciplined with our -- with the use of our cash, and we use the standard financial metrics on how we look at returns. But I think the biggest thing -- the biggest takeaway I'd like to share with you is that we really want to do deals that are in the areas that we know.\\nSo don't look for us to do what I would consider transformational deals where we're often in a space where we don't know the customer base, we don't know the markets and we don't -- really don't know the business as well as we should.\\nSo we want to stay in a place in the markets where we know quite well.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. That's helpful. And then I know exploration is only 10% of the chemical and energy segment. But given the move higher in oil, can you just talk to how sensitive that business is to higher oil prices and if you're baking any improvement related to improved conditions there?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Usually, it's a -- great question. Usually, it's fairly sensitive to movements in prices, and we've seen in the past where we're completely shut off. I'd say that that's why -- that's sort of behind my earlier question.\\nYou may have teased it out of my response, which was -- you would have expected this exploration piece to pop even faster in the U.S. than it has been. It's not down like it was before but -- and that's why we're saying, okay, there's some noise for some of our customers. Matter of fact, I was just reading an article today in a journal about some of the -- some of our customers in the -- in this area, they're trying to figure out what is all this hire. I get my stuff. My aluminum pipe comes in from a country in Europe, and I've got to fill all these forms with the U.S. government. I'm not really sure what's going on.\\nSo that's what -- that's the kind of stuff that I was talking about earlier.\\nSo long story short, he should -- they should respond pretty quickly to changes in oil prices when the changes are dramatic.\\nWe haven't seen it as robustly as we would have thought in the United States given the movements in oil prices, and we're trading to the best of our ability to what's the noise in the market right now around trade.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"That\\u2019s helpful. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. And at this time, I'm showing no further questions. I'd like to turn the conference back over to Alicia Rodriguez for the closing remarks.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, Amanda, and to everybody on behalf of the management team for joining us today.\\nIf you have any questions, please give us a call in IR. And I'd like to wish you a good day. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program.\\nYou may now disconnect. Everyone, have a great day.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2018-08-15
year: 2018
quarter: Q3
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good day, ladies and gentlemen, and welcome to the Q3 2018, Agilent Technologies Inc Earnings Conference Call. At this time, all participants are in a listen-only mode.\\nFollowing management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over Ms. Alicia Rodriguez, Vice President Investor Relations. Ma\\u2019am, you may begin.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, Brian, and welcome, everyone, to Agilent\\u2019s third quarter conference call for fiscal year 2018. With me are Mike McMullen, Agilent\\u2019s President and CEO; and Didier Hirsch, Agilent\\u2019s Senior Vice President and CFO.\\nJoining in the Q&A after Didier\\u2019s comments will be Jacob Thaysen, President of Agilent\\u2019s Life Sciences and Applied Markets Group; Sam Raha, President of Agilent\\u2019s Diagnostics and Genomics Group; and Mark Doak, President of the Agilent CrossLab Group. I\\u2019m also please to announce that Bob MacMahon is joining us on the call today as well.\\nAs you know, he will be taking on the role as Agilent\\u2019s CFO in September due to Dider\\u2019s retirement at the end of October.\\nYou can find the press release and information to supplement today\\u2019s discussion on our website at www.investor.agilent.com.\\nWhile there, please click on the link for financial results under the Financial Information tab.\\nYou will find an investor presentation along with revenue breakouts and currency impacts, business segment results and historical financials for Agilent\\u2019s operations.\\nWe will also post a copy of the prepared remarks following this call. Today\\u2019s comments by Mike and Didier 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 acquisitions and divestitures 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\\u2019s recent SEC filings for a more complete picture of our risks and other factors. And now, I\\u2019d like to turn the call over to Mike.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Alicia. Hello, everyone. Thanks for joining us on today's call.\\nBefore I discuss the Q3 financial highlights and our updated outlook I'm pleased to have Bob McMahon join the call. Bob is an excellent choice for Agilent\\u2019s next CFO and a very capable successor to Didier. Bob brings a strong track record of leadership to our team. Many of you already know Bob from his previous role as CFO of Hologic. He officially assumes the CFO role beginning September 1.\\nAs Didier hands of the baton, he will serve in an advisory capacity until his retirement at the end of October. Bob and Didier are working together to ensure a smooth transition. I first met Bob over a coffee in Palo Alto where we shared our perspectives on business and company culture. We had an important conversation about values and their importance in business. I knew immediately that Bob would be a great fit for the Agilent culture and of course his management style and business acumen are a perfect match for our approach to creating shareholder value. Bob has joined Agilent at an exciting time. I'm confident he'll help us lead the next phase of Agilent growth.\\nWhile I'm very excited to have Bob join the Agilent team I will greatly miss Didier's partnership and counsel. He has played a key role in the transformation of the company and our excellent business results. It's important for the CEO to have a very capable CFO. I couldn't have asked for a better partner.\\nSo thank you Didier.\\nYou will be missed by me and our Agilent team.\\nNow, let me turn to our Q3 financial performance. The Agilent team delivered another strong quarter with both growth and earnings exceeding our expectations.\\nOur core revenue grew 6% and is above the high-end of our guidance.\\nOur adjusted EPS of $0.67 is $0.04 above the high-end of our guidance despite currency headwinds since our last guide. This is a 14% increase from a year-ago. We delivered an adjusted operating margin of 22.6%, which is an increase of 110 basis points from a year-ago. This marks our 14th consecutive quarter of improving our core operating margins.\\nLet's take a closer look at our results by our end-markets.\\nWe continue our strong Pharma performance with 8% core growth. This is against a tough compare as we grew 10% in Q3 '17. We see strength across all our business groups with particularly strong performance in mass spectrometry, Cell Analysis, CrossLabs consumables and services and genomics. Growth remains robust in both the biopharma and small molecule market segments.\\nOur Chemical Energy market revenue grew 12%.\\nWe are quite pleased with this strong growth, again against a difficult prior-year compare of 10%. Ongoing market investment remains positive. This is in spite of tariff rhetoric and retaliatory policies you'll be hearing in the news. From a product perspective, strength in spectroscopy, GC, CrossLabs consumables and services is driving this result. Geographically strong gains in China and Europe are leading the overall global growth. Revenue grew 3% in academia and government in line with expectations, strong performance from Cell Analysis, molecular spectroscopy, ICP/MS and CrossLabs services and consumables are driving the results. China and the rest of Asia are delivering double-digit growth in this end-market. Diagnostics and clinical revenue grew 5% led by strength in genomics and our reagent partnership business. This offset continued challenges in the U.S. Pain Management market. Food revenue declined 1%, strength in the Americas is being offset by declines in Europe versus a tough compare of 35% growth rate last year, and as expected, China instrument sales were also down this quarter. Environmental forensics is flat this quarter.\\nForensics growth was offset by the expected temporary slowing of instrument sales in China environmental. Geographically, let me first start with an overview of China.\\nOur overall China business remains strong, growing 10% this quarter. Strength in China is being driven by double-digit growth in our two largest end-markets, Pharma and Chemical and Energy.\\nOur CrossLab and DGG businesses also grew by double-digits.\\nWe continue to expect healthy overall market conditions. This is more than offsetting any temporary slowing of instrument sales in the food and environmental markets. The business is also strong in the Americas and the rest of Asia outside of China, with these two regions delivering healthy, high-single-digit growth. Europe was flat on a tough compare of 12%. In summary, we delivered a strong quarter with broad-based strength and stand out performances in the Pharma, Chemical & Energy, and China markets.\\nNow, let's discuss results from our three business groups. The Life Sciences and Applied Markets Group delivered core revenue growth of 5%. This result is being driven by robust growth in the Pharma and Chemical Energy markets. From a product perspective, LC/MS, Cell Analysis and ICP/MS are leading the results. Ultivo our game-changing LC/MS triple quad continues to be well received. Geographically demand in America and China are leading the results.\\nLet me share a few examples of how we\\u2019re executing our strategy to increase the depth and breadth of LSAG solutions portfolio.\\nOn the M&A front, we closed on the acquisition of Genohm in early May. Genohm complements Agilent informatics capabilities by adding laboratory management services. By integrating Genohm's LIMS platform into our OpenLAB portfolio, we can provide complete and integrated informatics solutions to our customers. Customers are very focused on informatics as a way to create insight and drive lab efficiencies.\\nWe are determined to lead in lab informatics.\\nFor example, last week Agilent released the first software supporting the new standardized data format called the Allotrope Data Format or ADF for short. This format was created by a consortium of pharmaceutical companies for the pharmaceutical industry. By standardizing the collection, exchange, and storage of analytical data captured in laboratory workflows, labs will be able to transfer and share data across platforms.\\nWe are proud to be the first company to develop and launch a commercial product to support this standard. We believe the adoption of standards like ADF will both shape the future of Lab Informatics and drive the adoption of our solutions.\\nIn addition, our internal LSAG innovation engine continues to deliver. We just released the Agilent Seahorse XF Real-Time ATP Rate Assay kit. This new and unmatched product will enable biologists to enhance their understanding of how live cells functions in real time.\\nWe are a leader in live cell analysis and continue to expand our offerings in this fast growing market. The Agilent CrossLab group continues outstanding performance with 8% core revenue growth. Gains across our major end markets led by double digit growth in chemical energy and strong results in pharma and Food. Performance was balanced across consumables and services. China led growth in all regions with mid teens growth. CrossLab is a key growth driver of the new Agilent.\\nWe are delivering on a mission to improve both the science and the academics of our customers labs.\\nAs we expand the strength in the CrossLab platform, we are creating more value for our customers and Agilent.\\nFor example, during the quarter, we announced two acquisitions to further expand our consumables portfolio. We acquired the business assets of Ultra Scientific, a provider of chemical standards and certified reference materials. On August 1, we also acquired ProZyme a provider of biopharma consumables for glycan analysis.\\nAs you know, glycan analysis is essential to development of biotherapeutic drugs and we will now directly participate in this fast growing biopharma market segment.\\nWe continue to invest and build on our leadership position in China. We recently opened a new logistic hub in Shanghai. This hub will enable faster delivery of parts supplies and consumables to laboratories. This is the first of five forward stocking locations we are establishing. This allows us to improve our service and the speed at which we support our customers.\\nOur focus on digital investment is also delivering results in gaining traction.\\nOur digital channel is growing at a record pace.\\nFor the first time ever over 50% of our consumables orders are now digital. China is leading the charge on this front.\\nWe are improving the customer buying experience, expand our customer reach and driving growth. The diagnostic and genomics group delivered core revenue growth of 5%.\\nExcluding our NASD business, which declined as expected in the quarter the DGG group delivered core revenue growth of 7% against a tough compare.\\nLet me further explain.\\nAs we've mentioned previously NASD revenues are batch based, which can make the revenue vary from quarter-to-quarter depending on timing of customer acceptance.\\nAs expected, the business declined in the quarter as is going up against a 45% growth rate in Q3 of last year.\\nWe expect the business to return to growth in Q4.\\nAs I mentioned, without this variability of reported revenue effect, this quarter, our core DGG business grew 7%. A few additional comments on our NASD business, I just returned from a visit with our team in Colorado. The capacity expansion underway will allow us to meet the growing demands for GMP grade oligonucleotide and CRISPR offerings. I'm pleased with our progress on our new facility and the strong market environment.\\nFor example, just last week, one of our customers, Alnylam Pharmaceuticals received FDA approval for Onpattro, a first-of-its-kind targeted RNA-based therapy to treat a rare disease. This is wonderful news for Alnylam and most importantly their patients. NASD remains a long-term growth play for Agilent and I'm excited about the future. Back to the overall DDG results. Strong results are driven by double-digit growth in genomics and strength in our reagent partnership business. Geographically outstanding growth in China and Japan drove the results.\\nWe continue to strengthen our ability to support the fight against cancer and other diseases. Burning Rock Dx received China FDA approval for their human lung cancer NGS detection kit. Agilent SureSelect reagents are used as part of this panel and our own PD-L1 companion diagnostics product received expanded USDA approval in cervical cancer.\\nDuring the quarter, we completed the acquisition of AATI, Advanced Analytical Technologies Incorporated. AATI provides capillary electrophoresis base solutions for fully automated analysis of a range of molecules. This acquisition builds on Agilent's existing expertise for providing customers with a more comprehensive set of solutions, for NGS workflows and other applications. NGS's driving and will continue to drive strong growth of this new business to Agilent.\\nWith the addition of the AATI team, we create a new biomolecular analysis division with DGG. This new division now also includes our complementary microfluidics business, previously part of LSAG group. Didier's team has reflected this change in our current financials along with the company financial restatements.\\nNow, let me provide a few remarks on where we are in the Agilent journey and our near-term outlook before turning the call over to Didier.\\nLet me start with a few comments on tariffs.\\nOn the customer side, we are not seeing changes in customer buying behavior.\\nOn the duty front, we have planned for and have taken actions to partly offset the impact of expected increases in tariff-related duties. This proactive approach resulted in a small 500k impact on our Q3 results. In Q4, we expect an impact of approximately 3.5 million of incremental duty costs or approximately $0.01 of EPS which has been incorporated into our latest guidance.\\nLooking into 2019, if the tariffs remain in place, we plan to aggressively reduce the remaining effect via potential changes in our prices and further adjustments to our Supply Chain.\\nFor some time, we've been on a path to increase shareholder value. We've been focused on delivering strong growth, while expanding core operating margins and putting our strong cash flow and balance sheet to work in a more impactful manner. Q3 results demonstrated our continued commitment to creating value for our shareholders and customers. We delivered another quarter of strong operating results while deploying our capital as committed. We returned $291 million in capital to shareholders through repurchasing $243 million of our own shares and paying out $48 million in dividends. We're also investing in the business. We closed four acquisitions, paying out $430 million in the quarter and announced two more acquisitions. This is a record number for Agilent and will further strengthen our company's foundation for growth.\\nAs we continue to aggressively strengthen our portfolio via the Agilent innovation engine and M&A, we are also continuing to execute on our agile Agilent customer experience and efficiency improvement initiatives. The twin drivers of our success continue to be a strong portfolio and a customer focused way of doing business.\\nNow a few words about our outlook going forward. The Agilent team continues to capitalize on healthy end markets. We remain confident in our outlook.\\nWe are increasing our full year core growth and earnings guidance. Didier will walk you through the details, but we're raising our guidance for core revenue growth, operating margin and EPS. The Agilent team remains committed, confident and energized about our future. In our Agilent DNA is our team's ability to drive customer focus innovation coupled with operational excellence. It is this powerful combination that would continue to fuel our future growth and earnings expansion. Thank you for being on the call and I look forward to answering your questions. I will now hand off the call to Didier who will share more insights on our Q3 financials and guidance. Didier? <> Thank you, Mike, and hello, everyone.\\nFirst, let me express my appreciation for Agilent employees' passion and professionalism in accomplishing the mission, creating shareholder value and finally for their support for all the years. With Mike's continuing leadership and Bob's contribution I'm convinced that the best is yet to come for Agilent.\\nAs mentioned by Mike, we delivered strong top and bottom line results, both on a year-over-year basis and versus our guidance.\\nOn the revenue front, we did our midpoint guidance by $40 million, after excluding currency headwinds of $11 million and contributions from our two recent acquisitions ATI and ULTRA Scientific of $5 million.\\nOur core revenue growth of 5.9% was well over the midpoint guidance of 4.25%.\\nOur adjusted operating margin of 22.6% was 110 basis points over last year's and 120 basis points over guidance and we delivered a core operating margin incremental of 55%. EPS were $0.05 about the midpoint of our guidance.\\nDuring the quarter we bought back 3.76 million shares for a total of $243 million and paid $48 million in dividends.\\nFinally, we repatriated $1.5 billion of our offshore cash. I'll now turn to the guidance for fourth quarter.\\nWe expect Q4 revenues of $1.24 billion to $1.26 billion and EPS of $0.72 to $0.74. At midpoint, revenue is expected to grow 4.7% on a core basis. Versus previous guidance, FX is projected to have a negative impact of $21 million on revenue and $2 million on the operating profit.\\nOur 23.6% adjusted operating margin at midpoint will be up 100 basis points sequentially and up 30 basis points on a year-over-year basis even after funding the Lasergen R&D. The increase in tariffs effective early July is expected to have a negative impact of $3.5 million, as we have initiated actions to our supply chain. And those actions are complete mid-2019, we expect the net annualized impact to be approximately $9 million excluding potential pricing actions.\\nNow to the guidance of fiscal year 2018. The Q4 guidance is expected to result in the following fiscal year guidance.\\nFirst, at midpoint, revenue is projected to grow 6.1% on a core basis or 60 basis points over the previous guidance. The revenue guidance of $4.87 billion is $10 million over previous guidance including $22 million due to the acquisition of AATI, Ultra Scientific, and ProZyme, with currency having a negative impact of $32 million.\\nSecond, our EPS guidance of $2.70 at midpoint is up $0.05 on previous guidance and corresponds to a 14% year-on-year increase.\\nThird, adjusted operating margin for the year is expected to be 22.6% or 60 basis points higher than in fiscal year '17. And fourth, our core operating margin incremental is expected to be 39% for the fiscal year, at the high-end of our operating model. With that, I'll turn it over to Alicia for the Q&A. Thank you, Didier. Brian will you please give the instructions for the Q&A? Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"My pleasure, ma'am, thank you. [Operator Instructions] And our first question will come from the line of Steve Beuchaw with Morgan Stanley.\\nYour line is now open.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Hi guys. Thanks for all the help here and thanks for the time. I'd say first it's hard not to echo some of Mike's comments. Didier, really appreciate everything you've done being such a great partner for us, so I hate to see you go and Bob, welcome aboard.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Thank you very much, Steve much appreciated.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"There's a big smile in the room Steve thanks for those comments.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Bob, I have to say Didier is a pretty unique guy, as someone who shared some of his lineage, it's going to be hard for you to match that. The questions I'd like to focus on I'd say first are very high-level for Mike. When you made the decision to raise the guidance at core, it would be really helpful for you to just kind of talk us through; here is what after a good quarter, maybe confident in saying look we're going to beat the expectations that we had set earlier in the year. What really jumped out to you in terms of things going better?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Great question Steve, appreciate the opportunity to share that with you.\\nSo, obviously we have a good view of our order funnel so that gives me one level of confidence which is the strength of the orders, but what really gives me a lot of confidence moving forward is two dimensions of the story here. One will be the end-market strength, both Chemical and Energy and Pharma continue to be very strong. And as you know, coming into this year, we had positioned Chemical and Energy as sort of the upside of the plan that was sort of the wildcard to our business, and there were some concerns that perhaps all the rhetoric around tariffs and other things a few months ago might actually be quite detrimental to this marketplace which in fact has not at all occurred, so I think that it's the continued strength in both of those two end-markets, and I think geographically Asia led by China, we posted a really strong China number and then the Americas was also quite strong for us.\\nI think the fact that our two largest geographies in terms of countries in China and the United States are really doing quite well, gives us a lot of confidence about the outlook from a market perspective. And I think we're really positioned well to win.\\nOur portfolio continues to become much more competitive and as you know we have unique value proposition with this CrossLab platform which really allows us to capture a lot of the growth that's out there as well.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"And then just a couple of quick follow-ups before I jump back in the queue. One is Mike, you made a comment about customer behavior on tariffs and I appreciate the follow-up there. But it will be really helpful if you could spend another minute on it. It sounds like your perspective is that the tariff headlines aren't changing the way people really think about doing what they do. I wonder if you could give us even just some anecdotes on what you've done on that point? And then Didier it was a really good quarter in terms of core margin expansion, the incremental is really good. Any color on what it is that you've seen that made the quarter so strong on that front? And how should we think about seasonality there would be great. Really appreciate it.\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"Let me take on the first question.\\nSo, when I have been out talking to the customer base, we talk to people in the pharmaceutical industry, we talk to people in the research space, whether it be in academia and in the private sector, they plan on -- they're taking a long term view of investments on purchasing our equipment, purchasing our solutions are absolutely critical for their enabling their growth plans if you will and research plans.\\nSo they're not at all distracted by the tariff discussion.\\nAs I mentioned on my last call, we have seen some cautiousness in certain aspects of the chemical energy market where they were a little bit slower to approve the deals, but still getting the deals approved. It's the same kind of situation we had last quarter, so no new changes in customer buying behavior.\\nSo this is coming directly from conversations I had with customers.\\nSo again, that gives us a lot of confidence about our outlook because despite all the noise and rhetoric out there, it really hasn't yet affected any of the actual buying behavior of customers. Obviously it's creating some work for us relative to adjusting our supply chain and production locations to mitigate the duty impact side of things, but in terms of customer buying behavior have not seen any real changes.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"And then Steve, on your question on the core operating margin incremental you're right. It's been impressive at 57%. The reasons are multiple, we started off with last year's compare that was a little bit of a soft compare. We had the operating margin down a little bit sequentially from Q2. Then there was good operating leverage, good mix certainly the impact of all the Agile Agilent programs and we certainly don't expect to maintain such a high level of operating margin.\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"Part of your parting gift --.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Well, I certainly appreciate the send off gift from the Agilent team that's for sure.\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"But in all seriousness, I think going back to few some of the things that Didier outlined at the AID meeting in New York, where he said listen, our pipeline and our programs are as robust as ever in terms of really allowing us to work on the operating margin incrementals.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Thanks so much, guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. And our next question will come from the line of Tycho Peterson with JPMorgan.\\nYour line is now open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hey. Thanks. Mike I want to follow-up in some of the strength in China. Can you maybe talk about some of the puts and takes there? I think you called out environmental weakness in the slide, so maybe if you could talk maybe where there some softness. And then on the supply chain dynamics, can you maybe flush that out a little bit? I think you do some of the TC production there as well as in Delaware.\\nSo can you may be just talk about how you are thinking about potentially moving Supply Chain if you need to?\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"Sure so happy to do so Tycho.\\nSo let's start with China. Again very important market for us and we were just delighted by the strength in the business, so if you look at the six end-markets we had strong growth in all but two and then we actually had foreshadowed this coming in our last call saying, hey we know there's some things happening relative to some realization -- ministries in the country nothing happened to us relative to the competitive side of the business.\\nSo we saw really strong, continued strong demand in Pharma, in Chemical and Energy, investments in Academia and Government hints back to some of the comments I made around tariffs. And as you may recall in our AID presentation, we talked about the opportunities we had with our CrossLab business and our DGG business, and you saw us starting to deliver on those promises with really strong double-digit growth in both of those businesses, and then relative to food and environmental we think it's a temporary situation as related to the instrument purchases.\\nYou have to keep in mind though that they will continue to buy consumables and services from us and we're just waiting to have the reorganization complete, the budgets finalized and then we know-how to follow the money where it's going to go because two things are really happening here.\\nYou've got the consolidation going on where new budgets are created, being created in a new consolidated set of ministries and then part of that money is also getting deployed to what they call tier 3 and 4 cities so we're following the money and we'll be ready to capture once it's there.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And then on the Supply Chain?\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"Oh, yeah I forgot about that so relative to the Supply Chain, as I mentioned in my script, we took some actions actually in advance of the formal announcement of the tariffs, so we've already relocated our production for China-made products into our site in Wilmington Delaware and now we're in the process of moving aspects of the Supply Chain which is also subject to the tariffs, but we've already moved the production in some of the Supply Chain.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. And then two quick follow-ups, for NASD you highlighted kind of just the inherent lumpiness in that business and the fact it'll return to growth in the fourth quarter. Can you maybe just talk about how we should think of the ramp there next year ahead of the capacity coming online?\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"So we'll be able to, we're going to try to get as much growth out of our current facility as possible and then the growth, the expansion will start to come on line in the second-half of next year. The current plan is the second-half of '19, you start to see some initial revenue is starting to ramp through the quarters, and Didier I think we put out a number of\\u2026\"}, {\"speaker\": \"Alicia Rodrigue\", \"content\": \"Next year, like about $20 million is what we said at AID.\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"So it really gets started next year and then when you get into 20s when you get the real full year ramp and Bob and I and Didier were just in Colorado as I mentioned and had a chance to also review the progress of the facility construction and capability expansion, but also what's going on relative to perspective demand from customers, so the pipeline looks really encouraging.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Last one, can you just comment on how much Ultivo is contributing to C&E growth at this point?\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"I think its part of the mix, growing with the average.\\nI think that's it. I wouldn't say it's an outside contribution, but solidly delivering.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay, thank you.\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"Welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. And our next question will come from Doug Schenkel with Cowen.\\nYour line is now open.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Hi, good afternoon. And before I get to the questions another Harvey thanks to Didier you've been a great leader at Agilent and I know I can't speak for many of us and saying we really appreciate your help over the years and I look forward to grabbing another glass of wine at some point soon as always it will be your choice.\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"Okay. Thanks, Doug.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"And Bob while Agilent has big shoes to fill, it's great to know they made such great choice, so congrats through and the company.\\nSo now for the questions. On Q4 guidance, can you talk a bit more about the rational behind 4.7% core growth. This would be a deceleration versus what we saw this quarter and that's in spite of comparisons that don't appear much different. I didn't hear anything in your prepared remarks regarding timing dynamics or changes in momentum relative to what you generated year-to-date. Is it fair to assume you're baking in some conservatism here? I've admittedly having a hard time figuring out why growth wouldn't continue at around 6%, the underlying rate for most of this year.\\nSo am I missing something on end markets or timing dynamics or something else?\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"I think we decided to stay true to the guide for last year we had and even though as Didier retire.\\nSo as Didier has mentioned in prior calls, we don't assume everything's going to be perfect in the quarter. And again, the one that could go one way or another always has been chemical energy.\\nSo if that business holds up and it has been holding up, we should be in a good position to beat that number.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \">: Great. And then sort of related from a buyback standpoint, the stock was in the low-60s for much of the quarter.\\nI think you still have about $240 million in the buyback authorized and if I'm not doing that math right there's certainly enough dry powder there to put in place another authorization. I'm just wondering why you weren't a little bit more active in buying shares during the quarter ?\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \": Yes. Thanks for that Doug.\\nI think we've -- I think the numbers are right about 240, 270 from a...\"}, {\"speaker\": \"Didier Hirsch\", \"content\": \"ye\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"So you're in the right range. And we actually -- Bob we're fairly aggressive because we went outright after what we saw was a dislocation in the stock price after the Q2 announcement and bought the $200 million right away and then continued anti dilutive. We obviously continue to look at that during the upcoming quarter.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. And one last one.\\nYou guided us to expect China food revenue growth would start to rebound in early fiscal 2019. Based on what you've seen over the past few months, anything that would tell us or tell you that this is aggressive or maybe things start to thaw a little more quickly than anticipated?\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"I think I want to stay with those initial estimates.\\nSo we signaled that in the last call and released our experience. It takes a good six months or so to kind of work for these things. And I think I want to hear from my team, it's tracking along the same lines.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. All right. Thanks again. Thank you. And our next question will come from the line of Patrick Donnelly with Goldman Sachs.\\nYour line is now open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great. Thanks.\\nJust expanding on Tycho's question on supply chain given the tariffs and focused, could you just walk us through the import export dynamic in China, just looking explicitly kind of how much of the China revenues is being imported from the U.S. and may be where the majority of those revenues is being manufactured? And then kind of the same thing on U.S. revenues anything being imported from China there.\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"Patrick after you're looking at both the incoming to China and from China to the U.S.?\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Yeah, exactly.\"}, {\"speaker\": \"Michael Mcmullen\", \"content\": \"So from China to the U.S., it's a relatively small amount of Agilent's business. It's primarily the gas chromatography product line and related support parts.\\nSo it's about $100 million and that's why the 25% gives us about $25 million gross impact. And then as we mentioned, we're going to reduce that amount over time to even before pricing adjustments $9 million on an annualized basis. And then going the other direction, basically, China, we import from the U.S. the GCMS and many reagents in the chemistry that is made in the U.S. but there's no tariff at this stage. There might be in the future and we'll update you on the potential impact that it's not significant really at the end of the day.\\nSo it's about $100 million and that's why the 25% gives us about $25 million gross impact. And then as we mentioned, we're going to reduce that amount over time to even before pricing adjustments $9 million on an annualized basis. And then going the other direction, basically, China, we import from the U.S. the GCMS and many reagents in the chemistry that is made in the U.S. but there's no tariff at this stage. There might be in the future and we'll update you on the potential impact that it's not significant really at the end of the day. But that's not subject to retaliation.\\nSo basically we have a lot of our business outside of this tariff discussion.\"}, {\"speaker\": \"Patrick Donnell\", \"content\": \"That's helpful. And then just staying in China, given the soft July data points out this morning including China industrial production coming in light of expectations, can you just kind of talk through the cadence of results in China this quarter? How are trends in July in particular given that data and then also the tariff rhetoric was kind of increasing during the month so just curious as you went through the quarter how you guys were feeling.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Great question, I saw that same article as well, and I have based on what we saw it was having no impact so we saw no hesitancy in customers or any signals from our field that things were different.\"}, {\"speaker\": \"Patrick Donnell\", \"content\": \"Great. Thank you. Operator: Thank you. And our next question will come from the line of Brandon Couillard with Jefferies.\\nYour line is now open. : Thanks. good afternoon.: Mike, just in looking at Europe, it was flat in the quarter. Realized you lapped a tough comp there, but you did so too in the second quarter as well, just curious if you're seeing changes in any of the end-markets if you could just give us a little more color on what you saw in that region? I think we did obviously have a tough compare and I do think that it's probably fair to say that the region is a little bit slower than it was last year, but it's dramatically, not dramatically different. I wouldn't over-interpret the Q3 results. I even mentioned to Didier, should we mention the World Cup, but and the reason why I say this is to not get overly worried about the third quarter result is spent some time with our field teams and the European funnels look pretty good. The only thing that we're kind of keeping an eye on is whether this situation in Turkey could actually spread more broadly across Europe, but again, I think that no significant changes in the overall market environment in the third quarter and I wouldn't over-interpret the one quarter's results. : Thanks. And I guess secondly, with the Alnylama approval now on the tape, I'd be curious as to how you're thinking about the next leg of capacity expansion at the NASD facility? When you might be in a position to perhaps pursue I guess the next capacity build-out and what the indicators might be that might lead you to do that? Yes, sure. Thanks for that question. We've already made a decision to make the investments and that decision was made probably about two years ago. This is a very unique capability right into the company and I really think it speaks to the high barriers to entry and probably ultimately the margins we expected to derive in this business.\\nSo we made the decision based on our forecast of likely demand and I think the most recent announcement about success is one more proof point that the market's going to be there for the products. And Didier, you want to add something? : As a compliment as you know we're only firing up Train A in the facility and as for Train B which we doubled capacity, we are certainly not ready yet to push on the button the around is still an orphan drug. It's not high volume we are waiting their confirmation that our customers will move into a commercial space and then we'll fire up Train B.\\nSo it's there. It's obviously at a much cheaper cost than the whole facility built up and we're certainly ready when we see that's this confirmation that a lot of our customers are bringing commercial products onto the market. Thanks for the additional insight Didier. We're bringing on this one train just to be clear.\\nNext year, it's second half of 2019 roughly $100 million ish kind of additional revenue then we could bring on another $100 million or so with Train B. Yeah. That's what I was referring to the train line. : Yeah. Didier picked up on that I missed it, sorry. : Very good. Thank you. Operator: Thank you.\\nOur next question we come from the line of Dan Leonard with Deutsche Bank.\\nYour line is now open. : Thank you. May be a couple more on China.\\nFirst off, you heard all your peers' report now and it does seem that the environmental and food headwinds are something that Agilent is uniquely calling out.\\nSo do you have any opinion on why? Is there a reflection of the product dynamic that these customers are buying? Or maybe just some share in a micro basket of customers? : Yeah happy to share my thoughts here.\\nSo there is something going on here. It's unique to Agilent because we are uniquely the leader in the ministries where the consolidation is occurring.\\nSo that's why you're seeing Agilent calling us out, where others didn't have probably any business there.\\nSo we're the ones getting impacted the most and I think that's why you're hearing us call out and other people kind of rightfully not seeing it as a major issue. There's nothing happening competitively in terms of sharing new offerings. It really is a macro effect where we're really strong and we think this is going to be a temporary situation as things move out. And again, I just to remind you overall China business grew double digit for Agilent in the third quarter. It was the fastest growing region we had in the company. : That's helpful color. And then just a tariff related follow-up.\\nSo you mentioned a couple of times that your remediation effort assumptions don't get include pricing actions.\\nSo could you comment on your ability to get price in some of the affected product lines? Do you think you have pricing power? Would you expect that is a lever you could pull or not? : Yeah.\\nAs I indicated in my call price is one area that you can use to offset the tariff impact.\\nYou would have this on the more broad based as opposed to a 25% increase or whatever it may be on a core product platform.\\nSo it will be broad based and we think we have the ability to do that. Again, it comes back down to the differentiation of portfolio.\\nIf you have something truly a value with differentiated from your competition, you're in a position to be able to do that.\\nSo we're not overly concerned about our ability to mitigate the impact on the P&L, on tariffs as they stand right now. : Thanks for the color. : 0.2% increase on $5 million of revenue to offset the $9 million in net tariffs impact. : I'm glad you could do the math on that for me Didier thanks. : Appreciate that. Thank you. : You're welcome. Operator: Thank you. And our next question will come from the line of Ross Muken with Evercore ISI.\\nYour line is now open. : Hey guys. I echo the view. Obviously Didier it\\u2019s been a great time working with you and we've seen the business through quite a transformation and Bob I know VJ is very jealous but we'll look forward to spending more time with you as you get ramped.\\nSo may be just -- can we take out Pharma for a little bit? It seems like performance in the segment has been better than maybe what you would have foreshadowed some time ago and it feels like maybe there's a bit of share you've taken and obviously you've called out some of the emerging markets strength, but maybe on a product or any other way you want to cut it, give us a little bit of a feel for how you feel like you're performing there maybe versus the peer group? : Yeah, Ross thanks for the opportunity to comment on this as Pharma being our largest market. This is really important for us. And we often focus on this one product platform in this area, but the strength of Agilent we have is broad-based portfolio, and what we can see is particularly in the area of mass spectrometry gaining a lot of share both on the LC/MS side as well as there's a number of new regulations that are driving growth of ICP/MS into the space, so we have the breadth of the portfolio to go after those. And again I'll ask Mark to make a few comments here, but I truly believe that this CrossLab platform that we've developed really has allowed us to take really outsized growth in this space and you can start to see the numbers have starting to be quite significant and important to Agilent and Mark if you could just maybe add a few comments about what you think maybe happened to your business in Pharma. : Thanks, Mike and maybe at top level, the picture that we're seeing really strong response in all aspects of our Pharma business.\\nI think we've mentioned certainly at AID that we invested a lot in our chemistries business particularly to address the biopharma area. That part of the business is going very well, a lot of complementary pieces coming together in our chemistries business around the Pharma space at large. And then enterprise services, we continue to see strength in that area, in Pharma too and as we've mentioned many times, when they're looking for better productivity or improving some of the better management of the overall assets, we're seeing that and moving into the smaller mid-sized Pharmas and the biopharma companies in general.\\nSo long story short is it\\u2019s been very sustainable.\\nI think we've continued to see high-single-digit growth over the past few years in this space, and our product portfolio will lend it that way. Certainly we're planning on keeping that momentum going in the future. : And Ross I'd just close off on this.\\nI think Mark has been able to develop a scalable platform, right.\\nSo discussion before used to be only focused on large Pharma with the game being over and I think the platform is very scalable to small and medium-sized Pharma as well. : That's helpful, Mike.\\nAnd so maybe one for Sam, you've done some acquisitions.\\nYou closed out the Lasergen interest. It feels like you've got pretty good momentum at least in terms of tuck-in M&A in that division and your division. How are you feeling about sort of pipeline on things you have in front of you because it's probably the area where you have made the broadest set of things to bring in? And then from a product standpoint particularly on the companion side, it seems like there's a couple of things that could potentially go your way. How are you thinking about that business? : Go ahead, Sam. I've been doing a lot of talking today. : Yes, thanks for the question, Ross. Maybe I'll go -- I'll start in reverse with your questions.\\nFor our Companion Diagnostics business, we remain very excited about that.\\nWe are continuing to do work with the partners that are publicly known in terms of Merck and BMS. But beyond that we've had a very active effort to increase what we're doing and develop new Companion Diagnostics with new pharma partners as well as to expand the number of biomarkers. PD-L1 is very important and it's an area that we are continuing to focus on. : I think you gave me some stats the other day of how many countries that was registered in some of these indications. : Yes, absolutely.\\nYou're talking about PD-L1 in particular for the 22C3 variants of that which is for KEYTRUDA and Merck. We're now registered in over 83 countries for more than five indications, so that's good progress and more to come on that. But in response to your question, it's beyond that, we are working on a number of new biomarkers with a number of new partners.\\nSo I think that there is goodness to come that we are driving for the coming quarters and coming years. : You told me that because we're going to have to flip that expense for doing in the site. : That\\u2019s right. Thank you, Mike, for that.\\nWe are expanding our footprint because the work is very real. It's more than pipeline and things that we're signing. And then Ross with respect to your question on general pipeline, I think I had alluded to you and actually mentioned at Analyst and Investor Day even within our next generation sequencing series of products that we have something called MAGNIS, which we\\u2019ll be introducing in early 2019, which is a platform which will automate, starting with DNA going to prepared libraries. We're excited about that and that's just an example but we continue to have new products and you'll see it coming out of both from what\\u2019s been our traditional part of our Diagnostics and Genomics Mixed Group but also now out of AATI.\\nSo the pipeline will complement the market opportunities and we have a number of things that we'll be able to share in the coming months and quarters. : That\\u2019s all. Thank you. : Quite welcome, Ross. Operator: Thank you. And our next question will come from Steve Willoughby with Cleveland Research.\\nYour line is now open. : Hi. Good evening. Thanks for taking my questions. A couple for you.\\nFirst, you made a comment regarding seeing good demand for both small molecules as well as biopharma customers.\\nJust was wondering, as it relates to the small molecule side, is that a change in the trend that you're seeing, and kind of where you're seeing that amongst your small molecule customers. It sounds to be pretty good demand. And then secondly, Mark, or Didier, you outperformed your guidance in the quarter by a pretty decent amount. And assuming you've had some insight on your orders, is it fair to assume that you had stronger pacing at the latter part of the quarter in the month of July here? : Yes, how about I take the first one, right? Steve you're a great reader of the results and listener because when I saw that I said, we've been expecting that the growth rates will start to separate between biopharma and the small molecule segments of our overall pharma business and we saw strong performance to small molecule. We often tie that to liquid chromatography, but what's going on here is two things. One is the overall demand for the ACG services which is and consumables which Mark commented on earlier so that really is our small molecule customers may not be buying new LCs at the same rate they were, but we seen a real expansion of our growth in the services and consumables around our platforms as well as our competitors platforms. And then we also show in these numbers the demand that's coming with ICP/MS related to some of the USP Regs so that\\u2019s also driving some of the growth. But I think the real story here is the ACG platform. And I think the comment was around the order pacing? : We always expect the third month of the quarter to be stronger than the other month, but in the last two-years we've been a lot more linear than we used to be, so there's nothing remarkable about this last month of the quarter, this month of July. : Probably relative to the orders, I just have a thing Didier. Henrik\\u2019s team did a fantastic job on the order to revenue conversion.\\nI think we're getting a lot better at making that happen pretty quickly. : Okay. Thanks very much. : You're quite welcome. Operator: Thank you.\\nOur next question will come from the line of Puneet Souda with Leerink Partners.\\nYour line is now open. : Yeah, hi Mike. Thanks for taking the question. Congrats on the quarter and Didier, I will absolutely miss you and welcome, Bob. I wanted to touch on just briefly quickly on ICP/MS. Could you elaborate how much of and I don't know if you've touched on this from the last quarter, there were shipment delays that were recognized in this quarter. What was the outside growth excluding those ICP/MS orders catch up and just wanted to confirm if you saw any other similar revenue recognition in this quarter as well that could change expectations for the next quarter? : I'd have to do the math, Didier, but I think it's relatively immaterial to the overall because growth rate it's about 3 million bucks I think.\\nSo I think it's relatively immaterial to the overall growth for LSAG in the quarter. What was the second? No, no, we would have called those out if we had any of those. I would say the demand for that product continues to be quite strong, so and I think you can expect to hear us talking about ICP/MS in our fourth quarter call as well. : In both Pharma and semiconductor and environmental. : It's a hot product in some really hot markets right now. : Okay, great. And my another question is on Pharma. I know that's been discussed a bit here, but just looking at your acquisitions, ProZyme, Ultra Scientific, and now what you're doing here with Allotrope, but OpenLab, just help us understand high-level, how are you thinking about the overall long-term Pharma growth in LSAG and overall about the LC/MS business and your expectations there to deliver in this market, just help us understand how you see this evolving in a few years from now? : Happy to do so and then I may invite Jacob in this conversation here about specifically on LC/MS, but we see Pharma as we highlighted in our AID meeting. That's our largest market with the expected some of the highest expected growth rates outside of clinical diagnostics for the company.\\nSo this is an area of major focus for the company, and we've talked about our solutions focus as a company and one of the reasons why we've been able to get strong growth in biopharma is not just because of the great new LC/MS partner but we've been able to broaden our solutions offering. This is where Mark's play of the consumables come in to give us need of chemistry is around our platforms. And on the informatics front, we think so much of the value of customers experience with the company is going to be in informatics and we're a big believer in the importance of opening standards. And that's why we highlighted that Agilent being first to market commercially because this is something our customers are moving us here and some of our competitors prefer closed environments. We\\u2019ve always embraced universal connectivity, universal architecture.\\nSo philosophically this lines up with our customer focused strategy and we're delighted to be the first one in there.\\nSo Jacob maybe you have a few comments about the ultra play, but also about our aspirations in LC/MS? : Yes. Thanks, Mike. And let me just start over and echo what you are saying Mike that we believe that\\u2019s a future for Agilent in the pharma opportunity. LC has always been a big part but LC/MS has certainly been an even bigger opportunity going forward. Also we see especially in the biopharma where customers is looking for high performance but also for ease of use and our Advanced Q-TOF, Bio Q-TOF has certainly shown that and we have great success with that. But we also see that from an informatics perspective that our customers are looking for something that is faster acquisition of information ease of use again but also getting a full comprehensive overview of all the data in the lab and that's where, let\\u2019s hope, is very important to get data standard across all the different modalities and further than that what we have been strong with our OpenLAB looking at scientific information and controlling your -- the hardware itself now with the Genohm acquisition we also have full insight on the sample itself.\\nSo all these investments goes into that. We see a great opportunity in pharma and the LC/MS is just getting started there. : Okay, great. Thank you. : You are quite welcome. Operator: Thank you. And our next question will come from the line of Jack Meehan of Barclays.\\nYour line is now open. : Hi, Jack. : Hey, Mike and welcome, Bob and Didier, we'll miss you down in Miami. : Thanks, Jack. I will be running some time there in the future. : Invitation to your conference Jack. : If you'd like to swing in, you're welcome to. I want to focus on some of the recent acquisitions and just if you can elaborate a little bit on your plan to scale some of the platforms. If I look at the fourth quarter, you're calling for a bit of a step-up in the contribution. Is there a level you think that these could contribute at just the deals you've closed in 2019 at this point? : Yes.\\nSo we believe that these acquisitions we made are in fast growing spaces and that was one of the primary rationales of why we went down the acquisition.\\nSo, for example, you look at the AATI, NGS driving that growth. And I think Didier, when we were at New York we talked about this thing going probably 20% on their own and I think we're going to stick with those numbers. We just reviewed our acquisition portfolio with our Board at the last Board meeting and all of the deals we've done are growing in excess of 20%.\\nSo, again, still the core organic growth is driving the company but we're adding on these faster growing pieces and I think over time even more material to the company's overall growth prospects.\\nI think we're pretty excited about AATI and a couple of other things we've done, so I think let's just leave it there. : Yes that's sounds good. And Mike Chemical & Energy is always the wildcard in the outlook, but could you walk us through each of the businesses, how they performed in the quarter and just how you think the funnel is coming together there? : Specific to the three business groups or specific to chemical energy? I just want to make sure I got the question correct. : I guess the end markets within the Chemical & Energy, if we think about chemicals E&P and\\u2026 : Okay, good. Thank you. Thanks for the clarification.\\nSo just a reminder, we think about this segment across three areas refining, exploration which is roughly 40% of the total. Then the other 60% is chemicals which also includes materials testing as well as our semiconductor base business and all three of those segments are growing. I would say the chemicals sector is growing faster really driven by the investments we're seeing in the semiconductor material space. But the good news here is all three segments are growing which is not a situation we've had say one year ago where some segments really were quite constrained. We see growth across all three of the subsegments with higher rates in the chemical/semicon piece. : Great. Thanks Mike. Operator: Thank you. And our next question will come from the line of Derik De Bruin with Bank of America.\\nYour line is now open. : Hi, Derik. Operator: Derik, please check your mute button. : Hi. Can you hear me? : We sure can. There you are. : Sorry about that mute.\\nSo jus to follow-up on the M&A question.\\nSo I know you said $22 million is the contribution in Q4. I guess in total what is the total amount of revenues that you've required this year? : That's a great question. It's so far we are probably -- so let me just -- hold on a second. : I try remember that number because\\u2026. : I want to be sure. I don't try -- I have the number off the top of my head, but I think it's better if I read. : Go to question number two while Didier, dig through his files here. : You're still on mute? : Yes, I'm still here. I'll follow-up another one which is it's also an acquisition question. I know it's a little bit early to start talking about 2019, but I'm going to.\\nYou've got deals\\u2026 : \\u2026.let you the second question I feel bad now. : No, no. I mean you've got deals, you've got currencies, you've got Lasergen, you got tariffs, you've got a lot of stuff moving around. How do we think about margin expansion in 2019? : I'll refer you back to our commitments made at the AIG. We think we have no reason to move away from those commitments to be able to do this core margin expansion. That's how we're setting the plan inside the company and putting all the right -- we have a number of things in slide already to ensure we can get there. : So the answer to your question is with the acquisitions we've made this year LSAG, Genohm, AATI, Ultra Scientific and ProZyme those five acquisitions we are about $25 million for the fiscal year, fiscal year 2018 and then for fiscal year, we'll end up Q4 alone will be around $17 million, so you multiply by four to have the 2019 annualized number. : Right, I think we're just starting that probably in early phase of ramping these things, we\\u2019re just getting a few months of revenue. : Absolutely! : That's helpful. Thank you. : You're welcome. Operator: Thank you. And our next question will come from the line of Dan Arias of Citigroup.\\nYour line is now open. : Good afternoon guys. Thanks for getting me in here. Mike on the U.S. Chemical & Energy business last quarter you were kind of unsure about whether that might have been impacted by trade policies or whether that wasn't really seeing an impact. I guess looking back, do you feel like tariff considerations were at all a factor in 2Q as the discussions started to heat up? And then maybe just on the overall seeing the outlook, is it fair to say that double-digits for the year is in the view? I mean I know the comp is tough in 4Q, but I think you could also not grow at all and still be at seven, eight, just based on what you've done so far. : Two comments on the first question, what I pointed out in the Q2 call was somewhat of a longer deal cycle that closed in the U.S. and I can't scientifically approve it, but we thought that there was a level of cautiousness tied to just the overall rhetoric that was in the environment. That's still there but it hasn't changed and that was my concern as you know in the last call that actually it would go much more constrained. That has not changed.\\nSo the behavior we saw three or four months ago so it's basically what I'm trying to communicate today is business-as-usual as relative to the environment that we had last quarter which did change as a result of a lot of this discussion in the macro environment. And while I'm not going to guide specifically, the C&E market for the fourth quarter, that would be our upside and it's within reason that we could hit those kind of numbers. : Okay thanks. And then maybe just one more on the academic markets as you finish your year in that segment, are you kind of assuming that you stay low single-digit range for 2Q, 3Q, or do you think you see some NAH funds flowing and taking you a little higher. I know you just said you're not guiding those segments, but maybe I'll take a shot there. : I can just give you directionally.\\nI think we'd expect to see some improvement over the Q3 number. Keep in mind, I think we're about a 6% through the first three quarters of this year and typically, Q4 I mentioned earlier the strength in China relative to government and Academia and Government and then assuming that the rationality stays in place in Washington, we know that we'll get usually a nice push in September with Federal Government, so the fundamentals look pretty solid there. : Okay. Thanks much. : No problem. Operator: Thank you. And I'm showing no further questions in the queue at this time.\\nSo now, it is my pleasure to hand the conference back over to Ms. Alicia Rodriguez, Vice President of Investor Relations for closing comments and remarks. <> Thank you, Brian and to everybody on the line on behalf of the management team, thank you for joining us today. If have you any questions feel free to give us a call in Investor Relations. Have a good day. Bye-bye. Operator: Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody have a wonderful day.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2018-11-19
year: 2018
quarter: Q4
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good day, ladies and gentlemen, and welcome to Agilent Technologies Fourth Quarter 2018 Earnings Conference Call. At this time all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be provided at that time. [Operator Instructions] And as a reminder, today's program is being recorded for replay purposes. I would now like to hand the conference over to Alicia Rodriguez, Vice President of Investor Relations. Please go ahead.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, James, and welcome, everyone, to Agilent's fourth quarter conference call for fiscal year 2018. With me are Mike McMullen, Agilent's 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's Life Science and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Mark Doak, President of the Agilent CrossLab Group.\\nYou can find the press release and information to supplement today's discussion on our website at www.investor.agilent.com.\\nWhile there, please click on the link for Financial Results under the Financial Information tab.\\nYou will find an investor presentation along with revenue breakouts and currency impacts, business segment results and historical financials for Agilent's operations.\\nWe will also post a copy of the prepared remarks following this call. 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 acquisitions and divestitures 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's recent SEC filings for a more complete picture of our risks and other factors.\\nBefore turning the call over to Mike, I would also like to share my plans to retire at the end of January making this my last conference call as Agilent\\u2019s Vice President of Investor Relations. I have enjoyed working with many of you over the years, but as Mike says, the best is yet to come and so it is also true for IR. And now I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Well, thanks, Alicia. Hello, everyone. Thank you for joining us today.\\nBefore I cover our financial results, I want to thank Alicia for her years of service, and wish her the best in her retirement. Alicia superbly led Agilent\\u2019s IR team for the past eight years. She has set a high standard for her professionalism, integrity, and transparency in her engagement with the investment community. Thank you, Alicia.\\nYou are the best and you will be missed by me.\\nYou can see this has been an emotional day for all of us and our Agilent team, and I am sure by the audience on today\\u2019s call.\\nThis quarter we are reporting our strongest quarterly results since the 2015 launch of the new Agilent.\\nWe are ending the year with a terrific quarter.\\nOur revenues, profitability, and earnings per share are significantly ahead of expectations.\\nNow, some of the specifics. Q4 revenues grew 9% on a core basis to $1.29 billion. This exceeded the high end of our guidance by more than $30 million. Double-digit, end-market growth in Pharma, environmental forensics, along with the continued strength in our chemical energy business are driving the results. Geographically, our China business is up sharply with 16% growth for the quarter.\\nFor the year, the Agilent China team delivered double-digit growth and achieved a major milestone crossing over $1 billion in business for the first time. Q4 adjusted operating margin is 25.2%, up 190 basis points from last year. This is our 15th consecutive quarter of the Agilent team improving year-over-year operating margins. Q4 adjusted EPS of $0.81 is $0.07 above the high end of our guidance. Compared to last year, this is an increase of 21%.\\nIn addition, we took advantage of marketing conditions to purchase $86 million in stock during the quarter.\\nFor the full year, stock repurchases stand at $422 million underscoring the confidence we have in our future performance. I am also pleased to report that the Agilent Board has just approved a new $1.75 billion share repurchase plan.\\nThis quarter, performance caps off an excellent 2018.\\nOur strongest quarterly performance translates into full year core growth of 7.1%, our highest annual growth rate since the launch of the new Agilent. Total reported revenues grew to $4.9 billion.\\nWe continue to deliver improved profitability while investing for growth.\\nFor the year, adjusted operating margin is 23.1%, up 110 basis points over last year.\\nOur earnings per share are up 18% for the year to $2.79. The numbers tell the story, a strong team delivering yet another stellar annual performance.\\nLet\\u2019s now look at the quarter by business groups. Core revenue grew a healthy 9% for LSAG, our Life Science Applied Markets Group. Product strength is broad based, driven by mass spec, chromatography, and cell analysis.\\nWe continue to introduce innovative new products.\\nWe are strengthening the molecular spectroscopy portfolio with the launch of the Agilent 8700 Laser Direct Infrared Chemical Imaging System. This is a breakthrough in both chemical imaging and spectral analysis.\\nWe also introduced the Cary 3500 UV-Vis system, the first significant advancement in UV-Vis architecture in decades.\\nWe continued to build out our cell analysis business. We just closed the acquisition of ACEA Biosciences. ACEA is a provider of cutting-edge cell analysis instruments and will expand our cell analysis portfolio. The Agilent CrossLab Group delivered strong 9% core revenue growth. Demand was excellent across both services and consumables.\\nWe continue to invest in our portfolio and extending our customer reach. We completed the acquisition of ProZyme, expanding our offering in the biopharma marketplace.\\nWe also acquired our South Korean distributor. This acquisition expands our direct customer engagement and it further builds out ACG\\u2019s service business in the market. The Diagnostics and Genomics Group grew 5% on a core basis. Strength in our NASD and Genomics businesses drove the quarterly results. In a significant win, Agilent has been selected by Unilabs to be a Preferred Partner for their pathology business. Unilabs is one of the largest European diagnostic testing lab providers. This announcement is another strong testament to the advantages of Agilent\\u2019s expanding workflow solutions.\\nBefore I leave DGG, I want to provide an update on the construction of our new NASD API production facility. We remain on track for the initial production of GMP-grade APIs by the end of fiscal year 2019 with material revenue contributions in FY 2020. Overall, it was a great quarter capping off an excellent year delivered by the Agilent team. A few final comments before I turn the call over to Bob. Agilent\\u2019s shareholder value creation model is fully activated.\\nFirst, we are executing on an innovation-driven growth strategy that is delivering.\\nSecond, we continue to focus on improving profitability with our \\u201cAgile Agilent\\u201d Initiatives.\\nFinally, we are actively leveraging our balance sheet to drive acquisitions of fast-growing innovative companies while also returning cash directly to shareholders.\\nWe have transformed Agilent into a growth company and are focused on delivering superior earnings growth. We just delivered our highest growth and profitability since the launch of the new Agilent. Since then, our adjusted CAGR EPS is up 17%.\\nOur business is also less cyclical today with non-instrument sales making up over 56% of our total company revenue. If economical challenges would arise, our business is now less dependent on capital equipment purchases.\\nLooking ahead to 2019, while acknowledging current trade discussions, we are expecting market conditions to remain solid. The Agilent team is laser-focused on sustaining our strong growth into 2019 and beyond.\\nWe have momentum. I keep telling the Agilent team the best is yet to come. Thanks for being on the call, and I look forward to answering your questions. I will now hand off the call to Bob. Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thank you, Mike, and good afternoon everyone. I am very pleased to be talking with you today on my first earnings call as Agilent\\u2019s CFO.\\nBefore I get started, I want to echo the comments Mike made and say thank you to Alicia. In my time here, she has been a great partner to me, and I truly wish her the best in retirement. She will be missed.\\nNow moving on to the financials. In my remarks, I am going to provide some additional detail on revenue, walk through the fourth quarter income statement, touch on a few other key financial metrics, and then I\\u2019ll finish with our financial guidance for 2019. Unless otherwise noted, my remarks will focus on non-GAAP results and percentage changes will be on a year-over-year basis.\\nAs Mike mentioned, we delivered a very strong fourth quarter to finish an excellent fiscal year. Revenue for the quarter was $1.29 billion with core revenue growth of 9% exceeding both our guidance and expectations.\\nFor the full fiscal year, our core revenue growth was 7.1%, a very strong performance.\\nAs Mike spoke to the Group\\u2019s performance for the quarter, I will provide some additional details around our end-market and regional performance. Overall, the market environment is positive and based on our channel reach and product offerings, we saw broad strength across most end-markets. Pharma, our largest end-market was up 14% with double-digit contribution from all business groups. Both the small molecule and biopharma segments performed well. Traditional areas of strength, as well as newer areas of strategic focus such as cell analysis and a strong performance at NASD contributed to the results. Chemical and energy grew an impressive 7% against a very strong comparison of 15% core growth last year.\\nWe continue to see positive ongoing market investment in this area. Balanced gains in both LSAG and ACG were driven by strength in spectroscopy, LC-MS, supplies and services. Demand for our materials characterization applications continue to drive robust ICP-MS growth. Environmental and forensics grew 17% ahead of expectations with good demand across major regions. Growth was balanced across both end-markets.\\nForensic saw notable demand for Cobalt Raman spectroscopy and environmental for LC-MS and ICP-MS. Academia and Government reported 10% growth as funding environment stabilized, while diagnostics and clinical grew 1% and food was flat as expected against a tough 10% comparison. Geographically, we also saw broad based strength. China grew by 16% accelerating from the 10% core growth we saw in Q3 and as Mike mentioned, passed the $1 billion mark in sales for the year in the fourth quarter. Other Asia and Japan grew by 12% and Europe and the Americas had solid mid-single-digit growth.\\nIn addition, we continue to be pleased with the revenue contribution as non-instrument revenue contributed 56% of the total in Q4.\\nLooking forward, we see non-instrument revenue growth outpacing instrumentation driving an increasingly recurring revenue stream.\\nNow turning to the rest of the P&L. Q4 gross margin of 57.8% increased 170 basis points compared to the prior year. This was due to product mix and volume, as well as our order fulfillment and supply chain organization continuing to do an outstanding job driving cost savings using our \\u201cAgile Agilent\\u201d approach. Operating margin including adjusting for the Keysight billings was 25.2%, up 190 basis points due to higher gross margins and top-line leverage on operating expenses even as we invested more in R&D. This led to non-GAAP earnings per share of $0.81 in the fourth quarter, an increase of 21% compared to the prior year and more than double the rate of revenue growth.\\nNow before moving to FY 2019 guidance, I want to touch on a few additional financial metrics.\\nWe continue to generate very strong cash flows.\\nThis quarter, free cash flow was $336 million and for the year, we generated over $900 million in free cash exceeding our commitment. In Q4, we returned $133 million to shareholders buying back 1.3 million shares for $86 million and paying out $47 million in dividends.\\nWe also completed the ProZyme and Young In acquisitions. With Young In, we expanded our direct sales and service capabilities in South Korea.\\nFor the fiscal year, we\\u2019ve returned $613 million to shareholders, buying back 6.4 million shares for $422 million and paying out $191 million in dividends.\\nAs Mike mentioned, we closed a record number of acquisitions in 2018 deploying $516 million. We ended the year with $2.2 billion in cash, and $1.8 billion in debt and we just closed on ACEA Biosciences last week.\\nSo we are starting 2019 where we left off in 2018. All in all, we entered 2019 with health end-markets, good momentum in the business, and a very strong balance sheet.\\nNow let\\u2019s turn to our non-GAAP financial results guidance for the full year and first quarter of 2019 beginning with our full year guidance.\\nWe expect 2019 to be a strong year overall, but before I get into the actual numbers, let me mention a few important points.\\nFirst, we anticipate currency will be a headwind in 2019. Based on exchange rates as of the end of October, we expect currency will reduce reported sales growth in 2019 by roughly 220 basis points translating into roughly $110 million negative impact for the full year.\\nFor comparison, our 2018 reported sales growth benefited by 210 basis points from currencies.\\nNow partially offsetting the currency impact will be a larger contribution from recent M&A including the recently closed ACEA Biosciences acquisition. And in addition, starting in fiscal 2019, we adopt a new accounting standard which changes how we present pension expenses and benefits on the income statement, in effect, reclassifying certain amounts to other income and expense.\\nWhile this has no impact to net income, we do expect this will reduce forecasted operating margins in FY 2019 by roughly 40 basis points.\\nAs we move through the year, we will provide a restated 2018 to provide an apples-to-apples comparison. And lastly, we are taking a different approach in setting guidance ranges that include both upsides and downsides.\\nSo I would encourage you to model to the midpoint of guidance at this stage.\\nNow for the full year, we are expecting revenue to range from $5.13 billion to $5.17 billion in fiscal 2019 representing core growth of 5% to 5.5% and associated reported growth of 4.4% to 5.2%. Currency is estimated to negatively impact growth by 2.2 percentage points with M&A contributing roughly 1.6 percentage points to 1.9 percentage points of growth for the full year.\\nNow on to our EPS guidance.\\nFor the full year, we are forecasting a range of $3 to $3.5 per share adjusting for the negative currency, this translates to 9% to 11% growth in EPS and a 7.5% to 9.3% on a reported basis. Included in this guidance is roughly $4 million per quarter in tariffs. This is slightly higher than the estimate we provided last quarter and is related to List 3. A few other metrics as you build your models. Embedded in our forecast is modest operating leverage after accounting for the pension adjustment.\\nWe are also expecting the total of interest income, interest expense, and OI&E to be $10 million to $15 million in net expense inclusive of pension and Keysight billings. Guidance is based on a full year tax rate of 17%, down a point from 2018 and diluted shares outstanding of approximately $322 million, flat to Q4 of this year.\\nWe expect operating cash flow of between $1.1 billion to $1.15 billion and capital expenditures of roughly $175 million.\\nAs previously mentioned, the Agilent Board has authorized a $1.75 billion repurchase program and we plan at a minimum to offset dilution throughout the year.\\nWe also continue to look for M&A like ACEA and other recent tuck-ins and have the financial flexibility to be opportunistic in share buybacks as well. And finally, we have announced raising our dividend by 10% continuing a streak of double-digit increases providing another source of value to our shareholders.\\nNow turning to Q1 guidance.\\nFor Q1, we are expecting revenue to range from $1.265 billion to $1.28 billion representing reported growth of 4.4% to 5.7% and core growth of 4.5% to 5.5%. Please remember that we are going up against a very tough Q1 comp last year where we grew 10% core.\\nFirst quarter 2019 non-GAAP earnings are expected to be in the range of $0.71 to $0.73 per share which is roughly 9% to 12% ex currency and 7.6% to 10.6% reported growth.\\nNow before opening the call for questions, let me conclude by saying, we are very pleased with the financial results and the continued hard work and focus of the Agilent team laying the ground work for future growth and as we enter 2019 with strong momentum. With that, I will turn it back to Alicia for Q&A.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, Bob. James, will you now open the phone lines for the Q&A and provide the instructions?\"}, {\"speaker\": \"Operator\", \"content\": \"Of course. [Operator Instructions] Our first question comes from Tycho Peterson with JP Morgan.\\nYour line is now open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hey, thanks. I\\u2019ll be the first to congratulate Alicia. It\\u2019s been great working with you. I guess for, either Mike or Bob, I am wondering if you can maybe help us put some parameters around the guidance for next year either by end market or segment. Can you maybe just talk to whether, like, for example, food can get back to growth post the China restructuring? And how should we think about C&E, it moderated a bit against tougher comps, how do you set up for that next year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Tycho. I am in the room. This is Mike and Alicia really appreciates your remarks. And Bob, I think maybe you can provide a little color on Tycho\\u2019s questions.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I think, - thanks, Tycho, and I am pleasured to speak with you.\\nIn terms of the end markets, I think we still see nice end-market growth across all the markets. When we think about the various markets, pharma, we would expect leads the way, probably faster than the overall company growth, but we are expecting growth throughout all of the end-markets.\\nSo, we expect a return to growth in food for sure, but also continued performance across all of the businesses or all the end markets. And really, we expect kind of broad based growth across the end-markets as well as our divisions.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And is there any implications on your lab deal on DGG for next year? How does that flow through?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Tycho, I think there\\u2019s this one more proof point that we think we can continue to grow the business both in terms of winning some big deals but also as the PD-L1 expands in terms of various cancer types being able to be treated by the Keytrudas and Opdivos of the world.\\nSo, it was just more of a proof point, say, this is why we have confidence. We can continue that growth trajectory.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. And then just lastly, can you comment on the cell analysis portfolio today with ACEA and Seahorse. I am just wondering whether there are revenue synergy opportunities here or how do we think about the portfolio and the ability to kind of penetrate the single cell market a little bit further?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Tycho, I am going to make a few opening comments here and then pass it over to Jacob. But, as you know, we made our first foray into cell analysis with the Seahorse acquisition and we really were attracted by the growth in this space as well as what Agilent can bring to really accelerate the growth of acquired assets in this space, and we are super pleased to have ACEA and the ACEA team as part of Agilent, but I am going to turn it over to Jacob and you can share your perspective as well.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely, Mike, and I am as excited as you are, perhaps even more even since it\\u2019s hitting my business.\\nAnd so, I should say, we started into the cell analysis business with the Seahorse acquisition followed by Luxcel and now here recently with ACEA. And all acquisitions gives us a very differentiated position in the cell analysis business where Seahorse is really a technology that allows for measuring the up and down regulation of metabolism based on oxygen consumption. We now have ACEA Flow, the flow cytometry which is a great way and a very easy way of doing cell characterization, identification based on the genotype and what \\u2013 where this would position a market is that it is very ease of use and re-allow many different labs that today feel it\\u2019s very difficult to work with flow spectrometry to really start to get their hands around that. And finally, the ACEA has the xCELLigence platform, which is a great way of measuring cell survival viability through impedance measurement, so those three different modalities really gives us a strong position, especially in the immuno-oncology and CAR-T where they basically bring the ability to measure live cells and how they operate under different conditions is going to be key for the entailing in [indiscernible] and immuno-oncology.\\nSo, you will see us continue to invest into this business, but I am very pleased where we are today.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Tycho, you can see the excitement we have on this product expanding on the cell analysis business and I think this is a perfect example of how a company coming into Agilent with this great innovative new product and really benefit by the scale of Agilent.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Ross Muken with Evercore.\\nYour line is now open.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Ross.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Good afternoon and congrats guys. And Alicia, it\\u2019s always been a pleasure. Maybe let\\u2019s talk China.\\nSo, if I look at some of the color you gave on a segment basis, it seems like, not only did the segment outperformed, but it was pretty broad based. And when you called that, I think in the presentation, Academic as well, and some P&B, more traditional pieces of what we think your China business being.\\nSo, maybe just give us a feel for the cadence in that business for next year and sort of the underlying assumptions and how you are thinking through some of the macro noise in whether or not tariff or anything else will impact the sort of demand curve on maybe the non-life science business next year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, happy to do so, Ross.\\nSo, I think you anticipated some of my response which really was broad based. I mean, we were delighted with the numbers, 16% double-digit for the entire year, but we saw a strong growth in Pharma, Academia, which really the China government is really focused on doubling the number of their \\u2013 what they call the first-class university, and so very robust funding environment.\\nYou saw the overall numbers for Environmental and Forensics and lot of that was being driven by investments in the Environmental space by the Chinese government.\\nWe are seeing a strong growth in the aftermarket, continued strength in chemical energy and returned to growth in the food segment.\\nSo, the overall view of China was very positive for the quarter. And as we look at next year, I think, Bob and I were talking about this earlier, we are guiding - embedded in our guidance assumptions is high-single-digit growth in China for next year and despite all the noise that\\u2019s out there, what\\u2019s really happened on the ground is a lot different. Chinese customers want to buy the most innovative tools for their work. They want to support the government-led initiatives and areas such as investments relative to healthcare for the citizen are getting funding and we are one of the preferred choices for those customers.\\nSo, despite the noise in the environment, the environment remains very solid.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"And maybe on the margin side, obviously, all of the volume absorption in the quarter just giving how much you need the revenue piece by obviously whole, but it feels like still underlying a lot of what you\\u2019ve been doing across the business is flowing through on both the gross margin and OpEx line.\\nAnd so, maybe give us a feel for how much you think of sort of the margin outperformance kind of came from, maybe just the underlying revenue stream, versus maybe some of the other actions you are doing that in the context of some of the investments obviously you are going to making next year into Lasergen?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Ross, as you know, it\\u2019s more than just volume that drove the margin expenses as you noted. And I just lean it over to Bob, my guess is, probably two-thirds volume, one-thirds OpEx and specific gross margin initiatives.\\nSo, as I noted in my cost script, we have a \\u2013 whole series, we call \\u201cAgile Agilent\\u201d initiatives which continue to drive efficiency and much more effectives inside the company. A lot has been focused on the gross margins of late, but also we are going to play a lot of this and we\\u2019ve been aligned this to our OpEx as well. And again, I would underlie the importance of our digital transformation are under really is going to continue to allow us to drive improvements here.\\nSo, when I came to the role a couple of years ago, I wanted my margin expansion not to come just from volume and that\\u2019s been our mantra and our formula since we started the new Agilent four years ago and it will continue to be our approach as we move forward. Bob anything else you\\u2019d add? Maybe what to hit your mic here?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I was going to say, I think the other thing is, if you look at the various group, each one of the group has actually improved their profitability in the quarter which is nice broad based performance and so, it\\u2019s not just one business or one product that\\u2019s driving the profitability. It really is across Agilent.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"That\\u2019s a great build, Bob and one of the things that we noted to our Board last week when the Board Meeting was, what we\\u2019ve been doing on the gross margins of our service business as well, which is you often think about the margins are being relatively stable and flat there, since in such a high labor content in terms of delivery. But Mark and his team are really been driving efficiency with new tools and approaches.\\nSo, it really is broad based improvement across all three groups.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Awesome. Thanks guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Jack Meehan with Barclays.\\nYour line is now open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thanks. Good afternoon and I would reiterate as well, good luck Alicia. I enjoyed working together.\\nJust as my first question, I want to dig in a little bit more on the LSAG performance. I know on the product that was flagged out was LC-MS. I was curious if you could give us an update on the Ultivo launch there and just where you think you are seeing that resonate in the market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Jack, I think I\\u2019ll let you answer this question since for one of those good news answers, so let me pass it over to you Jacob.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely, thanks for that question and I mean, it\\u2019s kind of an very straight-forward story that Ultivo continues to outperform our expectations. We see our customers, especially where we started Ultivo by building applications in the Food and Environmental. And they have been very happy with what they see. In the end, you can actually, with the size of it and the performance, you can actually place three in the \\u2013 three Ultivos in the same place as you previously could do with one mass spec which gives a lot of opportunities in many of the labs that actually are lacking space. On top of that, we have done a lot to simplify and improve this software and also the usability as such. We start to see now also the some accounts are really interested in taking on Ultivo. But the mass spec story and the performance is beyond Ultivo and we see a lot also in our 6545XT bioconfirm where we now see on the biopharma side that we start to see a very strong uptake on that.\\nSo, it\\u2019s really broad based that we see that our robust reliable instrumentation is picking up in the market. Very excited about the mass spec. But there is a lot of other elements into the overall LSAG business. The ICP-MS is also doing strong. LC continues to come back with great momentum.\\nSo, overall, we are really right now firing on all cylinders.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. Appreciate all that feedback.\\nJust as a follow-up, I want to get a status update on the Colorado facility.\\nJust help if you could parse out some of the language from the prepared remarks a little bit more. Are you assuming the revenue that starts more in fiscal 2020 at this point? And then, just on the CapEx side, how much is within the $175 million guide is being attributed to the facility there? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Jack, having the answered the question, I\\u2019ll take the first one and then perhaps the second one to Bob.\\nSo, the language in the script was just to reaffirm to the audience that we are on track as planned. And the construction is actually complete.\\nWe are now in the process of validation. We just had a review late last week on the status and we will get revenue in 2019, but what we were just showing was the big pop up when you get the full year is going to be 2020.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, hey, Jack. Good afternoon. This is Bob on the capital side and to just build on what Mike was saying. Yes, that\\u2019s \\u2013 we do expect some revenue contribution here. But as we\\u2019ve said consistently the big revenue uptick is in 2020. And in terms of the capital, of the 175, most of the capital has been spent at the Fredrick site already. There is some additional, but most of that has come down and the 175 is the majority of that is still actually the base business.\\nNow recall, that higher than perhaps it would have been earlier because of the acquisitions that we\\u2019ve acquired.\\nSo, we\\u2019ve acquired some capital associated and planned, expansion plans there.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"By the way, Bob, probably also as I mentioned specific to our second site or our original site which is Boulder, we actually have found some ways to work the efficiency of efforts here and we are actually planning to get more volume out of there in 2019 than 2018.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That\\u2019s right.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So, our growth in NASD is not only \\u2013 does not only solely dependent on the Fredrick site.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That\\u2019s right.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. Thanks for all the color guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Steve Willoughby with Cleveland Research.\\nYour line is now open.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Hi, good afternoon. Thanks for taking my question. I guess a couple of things.\\nFirst, just on tariffs, Mike.\\nYou made a comment about the $4 million a quarter, just being up slightly, just wondering is that including any impacts from pricing or supply chain as you doing as a potential offset? And then I have one follow-up.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Oh, yes. Thanks, Steve, thanks for the clarifying question and Bob I am going to go ahead and take a shot on this and if you need of course correct me and please go ahead. But what we are planning to quantify was the actual impact of incremental duties thereafter all the mitigation efforts. That does not include anything else. We may be doing relative to pricing.\\nSo, that\\u2019s not a complete drag on the P&L. It\\u2019s all baked into the guide for next year, but we\\u2019ve also instituted some other broad based actions to mitigate that as well. But that was just trying to isolate the specific amount of the net incremental duties to the company.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"You got it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Right Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"You got it right.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sorry.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Sure. And then, just, Bob, just a quick follow-up question. I guess, I just had a clarification. I guess, two things really.\\nWithin the 5% to 5.5% core growth guidance you are providing, what is your assumption for the incremental revenue from the NASD business in Colorado? And then, just making sure I heard you correctly in terms of operating margins including the pension accounting change, what is your assumption for operating margin expansion next year, ex this 40 basis point headwind?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, so, on the NASD, what I would look at \\u2013 what I would think about that is, looking at NASD in total and the total growth rate is still there.\\nSo, rather than looking at as a sweep, because we\\u2019ve actually found incremental volume out of the existing plan.\\nSo we are expecting growth in NASD next year consistent with what we shared back in the summer. And in terms of margins, what I would say, that\\u2019s also I think very customer-driven, because customers have one batch at the one site would for us to kind of finish the work there as opposed to going mid-term into the other sites.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"That\\u2019s right.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And in terms of the operating margin expansion, what I would say is, after adjusting for the 40 basis point reduction, we are still expecting some modest improvement in operating margins.\\nSo, what that would tell you is it\\u2019s greater than 40 basis points.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Sure, thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question is from Paul Knight with Janney.\\nYour line is now open.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Paul.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Hi, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, how are you?\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Good. Could you talk about - as we \\u2013 would you think about that January Lunar New Year and the \\u2013 with the effects you expect out of the way holidays are rolling out, how we should think about the first quarter specifically? I know there is usually been a little bit of noise around how calendars lay out.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Paul, thanks for the question.\\nSo, it\\u2019s my hope, one year as CEO of not to be talking about the Chinese Lunar New Year. And 2019 may actually be that year.\\nSo, as you know in 2018, it caused a lot of seasonality swings between the quarters and also prior year compares. The way it\\u2019s playing out this year it\\u2019s happened in the same period of time as it happened in 2018.\\nSo, Bob, I think we are not really expecting anything unusual this year from the time of the Chinese Lunar New Year.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That is correct.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"And then, lastly, I don\\u2019t know of this question was put in, but how should we think about tax this year and also going forward even beyond FY 2019?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think, Bob has got a really good story here.\\nSo, why don't you talk to him about what's going to happen in 2019, already we know.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Thanks, Paul.\\nAnd so, this year in FY 2018, we ended the year at roughly at 18% effective tax rate.\\nWe are guiding to 17% in FY 2019 and we are working on plans to continue to improve that going forward.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Patrick Donelly with Goldman Sachs.\\nYour line is now open.\"}, {\"speaker\": \"Patrick Donelly\", \"content\": \"Great, thanks. Mike, maybe one for you.\\nWe are seeing continued news flow in some of the bigger build outs chemical companies in China. Can you just talk through the market demand there? I know chemical and energy are the areas you\\u2019ve been pretty bullish on historically in that region.\\nSo, where are we in the process of some of those bigger projects building out capacity in GC, some of the other areas you act as a supplier in?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Patrick. I am happy to share my insights here.\\nSo, I have been bullish on the growth prospects of China as it relates to the chemical energy markets for I think a good reason, because we have some pretty good insight in terms of the projects that are underway. And as I mentioned, I think in a prior call, a lot of this not only to support their economic growth, but also is, what they view as a element of national security as we continue to invest in the colder chemical plants to really reduce their dependency on natural \\u2013 import of natural gas for example.\\nSo we\\u2019ve seen the projects they have a multi-year program.\\nI think we are probably in the third or fourth inning of what those could be a multi-year build out of plant capacity. And this is really important for our GC business as you mentioned, Patrick that that\\u2019s actually is the tool of choice. And Jacob, I know you just got back from a trip to China and are you hearing the same things from the teams?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, certainly, Mike. It\\u2019s really just a repeat that there are plenty of opportunity in China right now with the larger SPI installations coming in here also in 2019 and 2020.\\nSo I think, there are great opportunities in front of us also in that space.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So, I guess, the message here, Patrick, it\\u2019s not over yet.\\nSo, we think we got to go few more years of really solid growth in this segment of the market in China.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And I think \\u2013 hey Patrick, this is Bob, maybe just to build on that, obviously, as Jacob and team lay that ground work for putting in the instrumentation, I think, Mark and his team around the chemistries and supplies business also continue to drive very strong growth in China.\\nSo I think it\\u2019s a multi-phased opportunity for us as we go forward.\\nAnd so we are really excited about that.\"}, {\"speaker\": \"Patrick Donelly\", \"content\": \"Great, thanks. And then, Bob, maybe, I know that you\\u2019ve been on the seat for a few months. Can you just talk through kind of initial impressions, maybe a particular focus on the margin side, obviously came into nice clean balance sheet. We\\u2019ve seen some activity there between the dividend increase and the bigger share repo is a historical trend. But maybe just on the margin side, given some cost saving initiatives that\\u2019s been in place for a few years, what opportunities have you seen confidence level and continued expansion opportunities going years out?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, thanks, Patrick.\\nI think one of the things that I\\u2019ve been very pleasantly surprised with this is the amount of rigor and discipline the organization actually comes through. We probably undermarket the Agilent approach externally. But I think the teams are very operationally focused, not just on cost savings at the gross margin line, but really through increasing productivity and efficiency across the organization. What I would say is that there are still several big opportunities as we go forward. Obviously, still focused on gross margin, but Mike mentioned the digital aspect to this and this has a multi-faceted approach. Not only does it enable us to actually do business easier with our customers and actually drive some stickiness, it also is going to be driving efficiencies in our customer service \\u2013 cost per order dollar activities and so forth.\\nAnd so, as we think about that driving, I would see multiple layers \\u2013 levers there.\\nI think there is opportunity continue to do that, as well as continue to reinvest some of those proceeds in R&D.\\nSo, very excited about the things going forward.\"}, {\"speaker\": \"Patrick Donelly\", \"content\": \"Great, thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Dan Arias with Citigroup.\\nYour line is now open.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Afternoon guys. Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Dan.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Mike, just wanted to \\u2013 hey, Mike. I wanted to follow-up on the expectations for growth in food this year. How far along are you at this point in working through the government reorganization headwind in China? Have you fully come through on the other side there? Or are you still working through some things?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think you are talking specifically to China, yes.\\nSo, by the way one of the things also when you look at our food numbers, Europe was relatively flat against the double-digit compare.\\nSo, I know we are going to \\u2013 I know your question was focused on China. But that\\u2019s \\u2013 we also saw some other geographic dynamics in the fourth quarter. Albeit said, we think the business will be growing again in 2019. We think, you may recall, I think it was the second quarter I talked about two sets of reorganizations. One, we thought what happened faster which was the environmental one, which was done and you can see that the pop in some of the growth rates we had. And relative to the food ministries, we expect that that to take longer to get that side of the reorganization done.\\nI think that\\u2019s still holding through the form, which is we are anticipating that kind of taken through the rest of this calendar year. That being said, we also know some of the money is got to move to the tier-3 and tier-4 cities and we\\u2019ve been actively building up our channel there over the last several quarters to ensure we can capture the growth.\\nSo I guess, the message here is, still developing as we thought a few quarters ago. Not done yet.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I would agree with that, Mike and what I would also point to is, if you look at the performance of our China business it\\u2019s accelerated quarter-on-quarter, so. And I don\\u2019t want that to be lost after just posting a 60% year-on-year growth rate for the total company.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks for the reminder, Bob.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Yes, that\\u2019s helpful.\\nOkay. And then, if I could, just go back to the guidance range just to make sure that I had it correct. It looks like, you have tightened things up relative to where you were at the Analyst Day.\\nSo I am curious if you can just sort of hone in, where you feel like you are, maybe 50 BPS better at the low-end and then it seems like things are going pretty well.\\nSo I guess, and you called 6% prudent at the Analyst Day.\\nSo, why trim that 50 BPS at the top of the range?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So, just as a reminder, at the Analyst Day, we actually didn\\u2019t guide for 2019.\\nWe are really just trying to illustrate, that\\u2019s really about what our margin expansion might look like at different revenue levels. But I think, relative to our guide, Bob, I think we are actually feeling very, very positive about it.\\nI think, we came out stronger this year than we did last year.\\nSo, Bob, anything else you'd add to that?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"No, I think that\\u2019s right.\\nI think when we think about core growth of 5% to 5.5%, that\\u2019s faster than what we are expecting the overall market growth to be.\\nSo we are feeling bullish about our ability to continue to gain share not only through launch of the new products that we talked a little bit about. But also continued market execution across our businesses and as we mentioned, it will probably led by the pharma in China areas. But we are expecting solid growth across all of our end-markets as well as geographies.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Okay, thanks a bunch.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Were those helpful?\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Sure it was.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Dan Leonard with Deutsche Bank.\\nYour line is now open.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Dan.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Hello.\\nSo, first question. Can you elaborate more on timeline for the share repurchase? And any target capital structure you have in mind?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, hey, Dan. This is Bob. I\\u2019ll take that.\\nWe are thinking about it in two ways. One is, obviously, as I mentioned doing something throughout the course of the year to maintain our share count at roughly 322 million shares and then we will be opportunistic similar to what we had done in the fourth quarter. Still little early for me to actually come out and give a target in terms of capital structure. But what I can tell you is, I\\u2019d expect us to continue to be very active in the M&A market and I think we have an opportunity to optimize the strong balance sheet more effectively going forward.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. And then, just a follow-up on your forward-looking commentary on end-markets.\\nSo, how should we think about \\u2013 in regards to pharma, where you expect strength in 2019, how should we think about the sensitivity of capital markets were to climb up here? If at all, would Agilent be sensitive to that or just walk us through your thinking on that front?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, great question. My view is that, what\\u2019s powering the investments in pharma, it\\u2019s really about investments improve the human condition. It\\u2019s all about investing in new classes of drugs, new therapies. Whether it be the biopharma, whether it be cell therapies, various gene approaches that are going on there. We see a new class of drugs such as the RNA-based therapeutics.\\nSo, we think they are fairly resilient if you will to those kind of headwinds, economic headwinds into the fact they would occur. And then also just to remind you particularly in our pharma space, how much of our business is non-instrument related.\\nSo, we had a very large recurring revenue business really centered around our ACG business.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Happy.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Derik De Bruin with Bank of America.\\nYour line is now open.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Hi, good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Derik.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Alicia is one of the only other New Mexican on Wall Street that I know, going to miss you.\\nSo, a couple of questions.\\nSo, when you look at your segments for 2019, the implied sort of organic core growth rates looking forward is something around 3% to 4% for, I would say, mid-single-digits for diagnostic and then, 7% to 8% for ACG, is that a good way to sort of look at it?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, what I would say is, you are in the ballpark.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Got it. And one of the key questions we are getting from investors is, obviously is the macro has been choppy. There is a lot of angst about how business has performed during the \\u2013 during a downturn. I mean, obviously, you are a heck of a lot less cyclical than you once were. But I guess, could you sort of think about that how different the portfolio performed during a steeper recession. Do you sort of like lab test it what you got now and sort of think about where we have grown in a tougher time?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure, Derik.\\nI think, you point out, one very good point which is the portfolio of business is a lot different than it was few years ago and in fact I would sort of anticipate I might get this question. That\\u2019s why I saw a comment I made in my script if economic headwinds would occur. It\\u2019s a different company. By the way we are not at all predicating that, in fact going to be the case. And, I would say that it would probably follow a fairly similar pattern you saw a few years ago mainly reflecting \\u2013 impacting the replacement cycle in certain industries, most likely the chemical market. But while the areas where the money being spent on research, I am would think it\\u2019s going to be fairly resilient. I don\\u2019t remember the exact numbers, but that would kind of like top of mind thinking on that.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, maybe to build on that point, Mike.\\nAs I look at the business and the characterization obviously the product portfolio that we have today is very different than what we had before and I think it\\u2019s actually more focused on what customers need in terms of solving their problems.\\nAnd so, whether that be open lab, where we are actually helping productivity and so forth for the cross labs group just in general. I actually, you could envision where you may have some impact on the instrumentation. But that potentially could be offset, because you would actually have more consumable usage going through as they are looking to keep their instruments longer and so forth or want them serviced.\\nAnd so, I think we are in better position now than we\\u2019ve ever been and as we think about where our growth is coming from, it\\u2019s coming from the fastest part of our business \\u2013 I should say, is growing, is in fast-growing markets like cell analysis that we talked about before which is going to be less impacted, I think and that\\u2019s just because of research and in the pace of innovation.\\nOur ACG business and then obviously our diagnostics and genomics group as well.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Rob, I mean, just sort of I have been sort of- what I\\u2019ve been talking about the segment growth, I'm just noticing that. Back in 2015 and 2016 when oil was softer, you basically were growing LSAG in the 3% to 4% range.\\nSo I am just assuming that, you are already building some sort of \\u2013 some conservatism in the numbers, just given historically how that\\u2019s what the condition of the business at that time and the business growing was growing at the time. Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Don\\u2019t you think Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Great. Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks Derik.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Steve Beuchaw with Morgan Stanley.\\nYour line is now open.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Hi, thanks for taking the questions.\\nJust a couple trying to have a leap around a point that have been raised.\\nI think, first, maybe on margins. Bob, there have been some questions asked about some of the specific points on the margin progression from 2018 to 2019. But to take a step there are actually a lot of moving parts, when I think about Lasergen spending, the impact of M&A, spending on NASD, the accounting change you\\u2019ve flagged in FX, I mean, any chance you have a view on what core operating margin expansion is next year to give you \\u2013 what a jumping off point might be for fiscal 2020, because I\\u2019d say, it\\u2019s never too soon to start thinking about 202, right?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, gee, we haven\\u2019t even finished a call for the initial FY 2019. But I will give it a shot. What I would say is, there are a number of moving pieces. Obviously, we\\u2019ve got a full year of Lasergen built into the plan. That being said, we are still guiding full year operating margins to grow despite that important investment. And then, we\\u2019ve got NASD as well and some of the headwinds around the FX. But when I look at operating margin incremental, so this is not necessarily core, but this would be just looking at the incremental. In FY 2019, they are very consistent with kind of how we exited FY 2018 and what I would say is, we are focused on continuing to drive operating margins, but also most importantly earnings growth.\"}, {\"speaker\": \"Steve Beuchaw\", \"content\": \"Okay. And then, the second thing I wanted to see if I could get both of you, Mike and Bob to talk a little bit about was guidance policy, guidance practice.\\nYou alluded in the prepared remarks to \\u2013 I hope that people would model at the middle of the guidance range. And I got a sense from the prepared remarks that you thought that there might have been a change or at least the need for there to be a perception of change the way you guys went about constructing the guidance for the year would be really helpful to hear you talk about how you went through that? And why you think the middle of the range is the right thing? And then, before I lose the podium here, I will echo the thanks for Alicia, thanks for being so helpful for us as we ramped up on the story over the last few years.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Steve. And I know Alicia has been enjoying all the great feedbacks from you and others today.\\nSo, as you heard in my opening comments, it\\u2019s a bit of mixed feelings about her moving on to her new role in terms of seeing her retired and so next again used to work on Wall Street.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I still have to answer the question. That\\u2019s right.\\nSo, think about, as you can see in our script, we were leaving the witness a little bit.\\nI think you picked up on it.\\nSo I am going to make some initial comments and turn it over to Bob.\\nSo I think it's important to go back in time when we started the new Agilent and I would dare to say, we only lacked credibility in terms of a company that consistently delivered results relative to expectations.\\nSo, Didier and I really set forth a philosophy that really ensured that we are being reasonable in terms of our outlook, but also that you could count on us to deliver it. And we now have a track record of almost four years of doing that. And I would \\u2013 but if we do think it\\u2019s time for evolution of approach, because and I think that\\u2019s what Bob has brought to Agilent and perhaps wanted to share your thinking there, Bob.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, thanks, Mike. And I would agree. I mean, I think one of the things that we want to do is obviously continue to be and feel comfortable about our forecast, but also recognize some of the potential upsides that we have, as well as acknowledging potential downsides and try to shrink the gap. And that\\u2019s what we\\u2019ve attempted to do here is to actually provide a little more color in terms of where we think the business is going in terms of our performance, particularly when we just come off of some very strong business and we are forecasting strong end-markets.\\nAnd so, as Mike said, it\\u2019s not a revolution, it\\u2019s more of a evolution of the guidance to help \\u2013 and we\\u2019ve got a track record that gives us more confidence in our ability.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Catherine Schulte with Baird.\\nYour line is now open.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Hey guys. Thanks for the questions and congratulations and thank you to Alicia.\\nYou will certainly be missed.\\nFirst for Mike and maybe Jacob can comment on this as well.\\nAs you think about your innovation pipeline for fiscal 2019, what gets you most excited? Should we be expecting to see the technology used in Ultivo prior to some of your other platforms as well?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think we are \\u2013 just like any parent would be, we are excited by all the members of our family.\\nSo we\\u2019ve got a lot of great new things coming on. I made a few announcements already on things that are happening in the molecular side. But I think we got more coming, right without sharing the specifics.\\nSo, what would you say there, Jacob?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, I think I will not go out and destroy Christmas by go out and tell all the presents we have for you over the next year here.\\nSo I am not going to speak directly to what is coming out. But what I can say is that, I am very proud and I am very excited about the 2019 on the NPIs that will come out there.\\nI think, we\\u2019re already started strong with three NPIs that came out the first few weeks in the year here between the LDIR and the Cary 3500 and also the ICP-MS Water Analysis System and the ESI.\\nSo that was actually four. And there is much more to come.\\nSo I am pretty pleased, but I won't speak to the specifics yet as you'll be positively surprised when you see it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I would add Kevin to your comment about the technology leverage across the platforms.\\nIn fact, that is the intent both for the Intuvo and the Ultivo.\\nIn fact, we haven't really had an Intuvo question today, but I would just mention that I think we've posted 14% unit growth in the Intuvo this past year as well.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Very helpful. And then, Bob you mentioned remaining active on the M&A front.\\nSo, can you and Mike just comment on your appetite for potentially a larger acquisition? And then, what your key areas of focus would be?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah, Catherine happy to do so. I don't think there's really a new story here, because what we've been saying for probably the better part of last year or so is that, we've developed our own internal capabilities and then, I think we have just augmented our capability here with the addition of Eric Gerber coming over to us from the from Danaher. We believe that we have ability to really deliver for our shareholders\\u2019 value on the M&A we do.\\nAnd so I'm much more confident in our ability to tackle M&A and really make it part of the Agilent growth story.\\nSo we would be willing to take on larger acquisitions.\\nAs Bob mentioned in his early comments, there is plenty of room on the balance sheet.\\nI think it really is more about having the right opportunities and we will continue to be - remain very disciplined in terms of what we look at. But I think it's really limited \\u2013 our actions will be limited by availability of active targets as opposed to our willingness to engage.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yeah and Catherine what I would add to what Mike is saying is, when we think about M&A, I think we're focused mostly on the three groups in the channels and the strength that we have to be able to leverage as opposed to creating a new level.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. That's correct.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Brandon Couillard with Jefferies.\\nYour line is now open.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Alicia, I'd echo that sort of you will be missed. Quick one for Samraat, if you can give us an update as to whether you've finished with the Dako rollout at Quest yet. Whether those instruments have been fully transitioned and started scaling? And then secondly, if there is a plan to port the PD-L1 assays over to the Omnis platform anytime soon?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I am going to pass.\\nSo why don't you Sam?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, thank you very much for the question.\\nWe are, as you know, very pleased to have earned the business of Quest and we are continuing to ramp.\\nWe have a significant percentage of that business where we've made conversions. But there is still work in progress which is actually good news, that means increased opportunity for us. And in terms of your second question, absolutely we are. It is in our roadmap to continue expanding the menu on Omnis and having PD-L1 available on this is absolutely something that is within our plans. It's something that will happen in 2019.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Super. And then, two quick ones for Bob. The operating cash flow growth implies only about 3% growth in fiscal 2019, any one-timers to point out there? And then, secondly, I think there was an asset impairment in the fourth quarter. Could you elaborate on where that was? Thank you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Thank you. Thanks Brandon.\\nIn terms of cash flow, yes, I mean I think it's a prudent forecast right now at the beginning of the year. There were no one-timers really in the - in FY2018 or the fourth quarter other than the tremendous performance that we had not only on the revenue coming in early and early part of the quarter and then also \\u2013 which enabled us to generate tremendous cash flows with our accounts receivable teams and so forth.\\nSo I think it will evolve as we go forward.\\nIn terms of the asset impairment that's a small business within our DGG business and we are still expecting it to grow, but not at the level that we had forecasted.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Again, thank you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Doug Schenkel with Cowen.\\nYour line is now open.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"All right. Good afternoon and first off, I know it's been said a bunch of times already but thanks again to Alicia, we'll miss you. I want to start with a follow up on an earlier chemical and energy question. Broadly, not just in China, what are you seeing among chemical and energy customers given the recent decline in oil prices. And a bit more of an uncertain macroeconomic backdrop and relatedly, what are you assuming for growth within fiscal 2019 guidance across the chemical and energy sub-segments, meaning breaking it down by chemical refining and E&P?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey Doug, thanks. Happy to provide a perspective on that. And, as we\\u2019ve mentioned earlier, the oil price gets a lot of attention, but it really is the view of global growth that often drives a lot of this market. But we are seeing a couple of things going on here. Well, first of all, we're not seeing any change in customer buying behavior.\\nIn fact, we continue to see a lot of demand for replacement products.\\nSo, the new generation of equipment tied to our Open Lab informatics portfolio really drives productivity.\\nSo the customers are seeing an economic benefit of the investments.\\nSo even in situations where perhaps the \\u2013 there is s some uncertainty about oil prices and economic growth, they won't invest, because it helps the P&L by taking cost out of the structure.\\nSo, we've seen no changes in the buying behavior and really the growth in chemical energy has been really broad based. We talked a bit about China already, but we saw and again, I am talking about the CapEx side of things. It's been really broad based across all regions. And then again I would just say that the \\u2013 our ACG business continues to do quite well here as well. And Bob, anything else you would add there, I think?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, the only thing I would add, Doug is, in terms of your question around FY2019, I can't give that level of specificity into the sub-markets within the chemical and energy market. But what I would tell you is, if we look at chemical and energy, we are expecting that that business to grow slightly lower than what our core guidance.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Okay. That's great. And Bob may be, if I can just as a follow-up sneak in a couple guidance clarification questions.\\nFirst on the buybacks which have come up a couple times.\\nYour stock seems pretty depressed relative to your strong operational performance relative to peers on a valuation basis and your balance sheet is very pristine.\\nYour guidance assumes a flat share count in spite of the fact that you have plenty of cash on the balance sheet to get more aggressive with buybacks and still have room to do more and bigger M&A. I guess, it's still unclear to me why you're not getting more aggressive with the pace and size of buybacks? Is this really a function of it just being pretty early in your tenure? And then, I guess the second guidance clarification question would be just regarding the tax rate, your cash tax rate is still a lot lower than 17%. I am just wondering if there's any opportunity or chance that ultimately the tax rate goes a lot lower than what your guidance incorporates. Thank you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, thanks. Thanks Doug.\\nYou hit the nail on the head. I mean, it's still relatively early in my tenure as I am trying to figure out all the other various pieces. But what I would tell you is, I think there is opportunity now.\\nOur primary use of cash is actually to do M&A after investing in the business and growth. And I think we've seen that starting with the work that we did in FY2018 and then just starting here in FY 2019, with closing ACEA and so forth. But I do think we were opportunistic in Q4 and I think that there will be opportunities that we will \\u2013 if there are opportunities, I should say we will capitalize on them in FY2019. And then, in regards to - what was the second one\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"The second point is cash rate. I love this one which is yes, Doug there sure is a difference between our cash tax rate and our non-GAAP tax rate and I think Bob and the team have brought down a point so far. But I think you're still looking at some things.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, stay tuned.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"We're not ready to commit.\\nSo we are\\u2026\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"I would tell you stay tuned on this.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"We have not done our work yet.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Puneet Souda with Leerink Partners.\\nYour line is now open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes. Hi, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Puneet.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Thanks for taking the question. Obviously, Alicia, thanks for all of the help and really great working with you.\\nSo, if I could touch first on, just wanted to clarify how much of a contribution was USP regulation and LSAG if you could quantify that? It seemed like in past quarters, we had seen some significant contribution from ICP-MS. I just want to make sure we have that number for this quarter too?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I don't think we have that level of granularity in terms of specific numbers. What I can tell you is that it's been part of the story of a former growth and I think that's a trough. Actually a massive double-digit dollar growth.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, it was well in excess of \\u2013 it was greater than 20%.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, we got a lot of tailwind from that regulation.\\nSo, yes, that was good.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"And then what's your expectation there of how long of a tail that could be for USP, longer term? Could you give us a sense of how many quarters or may be years that this could last?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. This would be just my guess. But I think it\\u2019s probably, we're not done yet.\\nI think we expect that to continue into 2019.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes.\\nI think we saw a lot of great performance based on that regulation in 2018 and we would also see it sail into 2019. But we have a lot of other things going on in ICP-MS and we really see that technology being applied in more spaces now with the water regulations coming up where we have really made a nice workflow.\\nI think that we can see a lot of opportunities there. But generally speaking, ICP-MS is just being a tool that will be picked up from many other opportunities.\\nSo, I don't think that we are dependent on one part and one workflow. But we will see these great opportunities in 2019.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. And then, Mike on Intuvo, you pointed out the 14% growth \\u2013 unit growth here.\\nJust wanted to get a sense of \\u2013 do you want to address broader applications here? My question is, would Intuvo evolve into another set of product? Or should we expect, may be potentially a next-gen 7890 here along the lines of what you have produced in past to address then the full market, compared to the GCs that you have had in the past? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Puneet. Thanks, thanks for the question.\\nSo, I was trying to preempt the audience about it. But we are really quite pleased with the pick up or really that the double-digit growth if you will of the Intuvo product, because as we said for \\u2013 since the launch, we knew it would be a measured adoption by customers, because they really want to put the equipment through the paces and really be convinced that it actually does work as advertised and guess what it does. And now we are starting to see some really nice multiple unit orders coming in particularly as it relates to Mass Spec and at the risk of being Santa Claus or destroying Christmas or ever held, Jacob said earlier, what I can tell you is that our plan is to leverage a lot of the core technologies that were developed in the Intuvo product for potential new versions of gas chromatographs and we work really hard to keep the overall complete portfolio as competitive as possible and as you know the Intuvo covers only about 60% of the application space.\\nSo there is work to do on the rest of the portfolio as well.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. Got it. Thanks so much.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. I show no further questions in queue.\\nSo I'd like to turn the conference back over to Ms. Rodriguez for closing remarks.\"}, {\"speaker\": \"Alicia Rodriguez\", \"content\": \"Thank you, James. And on behalf of myself and the management team, I'd like to thank everybody for joining us today.\\nIf you have any questions, feel free to give us a call in IR. Thanks a lot. Bye-bye.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation.\\nYou may all disconnect. Have a wonderful day.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2019-02-20
year: 2019
quarter: Q1
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good day, ladies and gentlemen, and welcome to Agilent Technologies First Quarter 2019 Earnings Conference Call. At this time all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be provided at that time. [Operator Instructions] And as a reminder, today's conference is being recorded. And now I'll hand the conference over to Ankur Dhingra, Vice President of Investor Relations. Please go ahead.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, and welcome, everyone to Agilent's first quarter conference call for fiscal year 2019. With me are Mike McMullen, Agilent's 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's Life Science and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Mark Doak, President of the Agilent CrossLab Group.\\nYou can find the press release, investor presentation and information to supplement today's discussion on our website at www.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-on-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 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. And now I would like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks Ankur and thanks for joining us on our call today. I'd like to start by welcoming Ankur to his first earnings call as our Vice President of Investor Relations.\\nWhile Ankur is new to this role, he is not new to Agilent. Excelling in senior leader level finance roles for over 16 years, I believe many of you on this call have already met Ankur, but in case you have not, I want to reiterate key theme he is sharing, we remain committed to sustaining excellence in our IR team and maintaining a strong relation with you the investment community. We miss Alicia, but are very pleased to have such a capable successor in Ankur.\\nNow, on to the Q1 results, 2019 is off to a strong start. The Agilent team continues to deliver excellent results with both revenues and earnings exceeding our guidance. Q1 revenues totaled $1.28 billion. This represents 6.1% core growth against a tough Q1 2018 compare.\\nOur performance is highlighted by double-digit growth in both our Agilent CrossLab and Diagnostics and Genomics Group. From an end market perspective, our results led by double-digit growth in the Pharma, clinical and diagnostics, and the environmental forensics markets.\\nOur Q1 operating margin is 23.1% an increase of 120 basis points from last year.\\nOur agile Agilent programs are driving process and productivity improvements while we also continue to invest for the future. This is our 16th consecutive quarter of the Agilent team improving year-over-year operating margins.\\nOur Q1 adjusted EPS of $0.76 is up 15%. This is $0.03 above the high end of our guidance. The combination of strong topline growth and increased margins is driving continued double-digit growth in our EPS.\\nNow looking at results across our businesses, our Life Sciences & Applied Markets Group grew 1% on a core basis against a very touch compare of 11% growth last year. Demand remained strong in the pharma and environmental forensics markets.\\nWe continue bringing to the market innovative new offerings to fuel future growth. Earlier this month in Japan we strengthened our leadership position in gas chromatography with the global launch of two innovative new instruments, our new 8890 GC replacing our flagship 7890 GC offering and an all-new midrange 8860 GC.\\nIn addition to leading analytic performance, reliability and robustness, these two smart connected instruments offer several compelling new digital capabilities, including remote connectivity. Customers can now remotely control the instrument, monitor status and perform diagnostic tests, provide a new level of convenience for busy lab managers and chemists. With our intelligent predictive technology, we can also provide our customers with system health alerts or autonomous monitoring of instrument performance, allowing them to avoid unscheduled downtime and maximize laboratory productivity. These are just great examples of our digital lab strategy in action. Complimenting the introduction of Intovo GC in 2016, we now have the most complete and compelling gas chromatography portfolio in the industry.\\nWhile early in the global launch of these two new offerings, customer response is very positive.\\nWe continue to strengthen our fast growing cell analysis business. Building from our beachhead [ph] acquisition of Seahorse Bioscience in 2015 we acquired Luxcel Biosciences last year adding new cell assay capability.\\nWe continue to invest in the fast growing cell analysis market space. Earlier this quarter, we opened a state-of-the-art cell assay development facility in Cork, Ireland.\\nWe also acquired ACEA Biosciences in Q1 adding highly complementary new products to our cell analysis portfolio. The acquisition of ACEA Biosciences increases the relevance and impact we could have with our customers in this quickly evolving space. LSAG's innovation leadership again received external recognition as we drive for increased market share in molecular spectroscopy. The Analytical Scientist ranked the Agilent 8700 LDIR system as a 2018 top innovation. This groundbreaking imaging spectroscopy system takes a new approach of chemical imaging to our customers in the pharmaceutical, biomedical, food and material science markets. The system delivers greater speed and clarity enabling faster, more informed decisions for customers. These new products from our LSAG team further strengthened an already impressive line of instrumentation software.\\nWe are very well positioned for continued market share gains.\\nOur Agilent CrossLab Group delivered excellent results growing 10% on a core base of the Q1. Demand was broad based across all end markets and regions which speaks to the strength of our customer value proposition.\\nOur ACG team continues to expand our digital capabilities for lab and improve the customer experience. We introduced e-subscriptions and a lot of customers set up recurring to consumable orders online. This provides customer the ease and convenience of not having to place repeated orders.\\nWe also launched a smart alert subscription service for the GC installed base to provide lab managers with alerts on instrument maintenance needs based on actual applications and sample volume.\\nOver the past several years ACG has worked diligently on the expanse of our portfolio of building outcome oriented solutions and enabling our online business.\\nOur Q1 results are reflective of all the ACG team work today to bring these capabilities to market and set us up well for continued growth in the future. The Diagnostics and Genomics Group delivered exceptionally strong results this quarter with 12% core revenue growth. Demand was strong across all businesses and regions.\\nOur pathology related businesses which comprise roughly half the Diagnostics and Genomics business [excuse us for one second] grew low double-digits in the quarter.\\nImportantly, we continue to partner with our customers in efforts to fight cancer.\\nThis quarter we expanded our portfolio in high-volume cancer diagnostic testing. In Europe, we launched the first PD-L1 pharmDx kit on the Dako OMNIS automated platform.\\nWe are also working on bringing this PD-L1 assay and OMNIS to the U.S. and other markets.\\nOur NGS related business again grew double-digits this quarter. The NASD business is also very strong.\\nOur plan is to bring the second facility online to expand production remain on track. We anticipate the initial production of GMP grade APIs by the end of fiscal 2019 with material revenue contributions in FY 2020.\\nLooking at Agilent's performance on a geographic basis the Americas led with high single-digit growth and with low single-digit growth in Europe and China.\\nAs we expected, China's Q1 growth rate is lower than our expectations for full year growth. This is owing to an extremely tough compare versus a 19% core growth last year.\\nAs you know, there has been a lot of conversation about the China market.\\nWhile there are some puts and takes within the markets we serve, our view is that the overall market demand remains solid.\\nNow turning to the company outlook, the total company outlook, our Q1 results coupled with our current view of market conditions and Agilent's strong execution capabilities set us up to deliver a strong 2019.\\nAs a result, we have increased our full year guidance. Bob will share the specifics, but before I hand over the call to Bob, let me close with a few summary comments.\\nLooking ahead, I remain cautiously optimistic, cautious as we observe the overall macro conversations about the ongoing U.S.-China trade discussion and questions about the health of the China and European economies and optimistic as we continue to see solid demand in both end markets and geographies as we continue to successfully build a high growth, high margin recurring revenue business across our ACG and DGG Groups, and as we continue to strengthen and expand our LSAG instrument and software portfolio. The Agilent team is delivering on its commitments to drive superior revenue and earnings growth.\\nOur company has never been stronger. The guidance increase reflects our confidence in the strength of the Agilent business our One Agilent team. Thank you for being on the call today. Thank you for the indulgence of our transmission difficulties and I look forward to addressing your questions later in the call. I will now hand off the call to Bob. Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thank you, Mike and good afternoon everyone. In my remarks today I will provide some revenue detail, walk through the first quarter income statement and some other key financial metrics and then I'll finish up with our updated guidance for Q2 and the full year. Unless otherwise noted, my remarks will focus on non-GAAP results and percentage changes will be on a year-over-year basis.\\nAs Mike mentioned, we delivered a strong Q1, so a good start to the fiscal year. Revenue for the quarter was $1.28 billion with core revenue growth of 6.1% exceeding our guidance. Reported growth was also 6% as currently negatively impacted growth by 220 basis points and was offset by M&A contributing 210 basis points of growth. Mike spoke to the business group's performance for the quarter, so I will provide some additional details around our end markets and regional performance. Pharma, our largest end market delivered 10% core growth. Growth was broad based across all business groups.\\nWe are seeing traditional strength in biopharma but also in newer strategic focus areas such as cell analysis.\\nWe are excited about the addition of ACEA Biosciences, which expands our portfolio in this fast growing segment of the market.\\nIn addition, a strong performance at NASD contributed to the results. Chemical and energy core growth was 2% against a very strong comparison of 13% last year and was in line with expectations. Instrument sales were effectively flat versus mid-teen gains last year while services and consumables delivered solid mid-single-digit growth. Environmental and forensics was up 10% even as we faced a top low teens compare last year. Double-digit growth in ACG and high single-digit growth LSAG were driven by strength in GCMS, GC, atomic spectroscopy, consumables and services. And wrapping up our end markets, diagnostics and clinical core revenue grew 11% while both academia and government and food were effectively flat. Geographically as Mike mentioned, we saw growth in all markets. The Americas region delivered high single-digit core growth as our commercial team continues to execute at a high level while Asia outside of China grew low double digits. Both Europe and China grew low single-digits against difficult comparison of 9% and 19% respectively.\\nNow before I leave revenue, I want to mention we continue to be pleased with our evolving revenue mix as non-instrument revenue contributed 57% of total sales in the quarter. This revenue has been higher growth and historically less cyclical revenue. Its contribution this quarter is more than 1 percentage point higher than Q1 of last year.\\nWe expect this trend to continue as we leverage our large and growing installed base and provide value-added services and solutions for our customers.\\nNow let's turn to the rest of the P&L. Q1 gross margin was 56.9% and increased 10 basis points compared to the prior year.\\nOur teams have been able to offset the higher cost of tariffs with productivity improvements. Operating margin was 23.1% up 120 basis points mainly due to topline leverage on operating expenses even as we invested more in R&D.\\nNow before I leave operating margins, I want to remind you this fiscal year we adopted the new pension accounting standard and have restated prior years for comparison purposes.\\nAs a reminder, there is no net impact to our non-GAAP earnings per share. Consistent with our guidance, our Q1 tax rate was 17%, down a point versus a year ago and average diluted shares were 322 million.\\nAll of this led to non-GAAP earnings per share of $0.76 in the first quarter, an increase of 15% compared to the prior year.\\nNow before moving on to FY '19 guidance, I want to touch on a few additional metrics on cash flow and the balance sheet.\\nOur free cash flow for the quarter was $174 million up 12% from $155 million last year. We deployed $375 million in capital with $248 million in M&A associated with ACEA we returned $52 million to shareholders in dividends and purchased 1.1 million shares for $75 million.\\nLastly, we ended the quarter with $2.1 billion in cash and $1.8 billion in debt.\\nNow let's turn to our non-GAAP financial guidance for the second quarter of 2019.\\nFor Q2 we are expecting revenue to range from $1.255 billion to $1.27 billion representing reported growth of 4.1% to 5.3% and core growth of 5% to 6%. Currency is estimated to be a headwind of 290 basis points partially offset by M&A contributing roughly 200 to 220 basis points of growth.\\nSecond quarter 2019 non-GAAP earnings are expected to be in the range of $0.70 to $.72 per share which is 7.7% to 10.8% reported growth. And based on a strong quarter and updated exchange rates we are also updating our full-year guidance in both revenue and EPS.\\nWe are updating our full-year revenue guidance to a range of $5.15 billion to $5.19 billion up $20 million on both low-end and high-end of the range and representing 4.8% to 5.6% reported growth. This reflects our Q1 performance as well as the benefit from our prior guidance associated with currency although it is still roughly 180 basis point headwind for the year.\\nAs a result, we're still expecting core revenue growth in line with 5% to 5.5%.\\nIn addition, we are raising our full-year earnings per share guidance to a range of $3.03 to $3.07 representing growth excluding currency of roughly 10% to 11% and reported growth of 8.6% to 10% up a full point from previous guidance. Consistent with Q1 this is based on a 17% tax rate for the full year and full year average diluted shares of $322 million.\\nAs we mentioned at the beginning of the year, this guidance includes both upsides and downsides, so I would encourage you to model at the midpoint of the guidance at this stage.\\nBefore opening the call for questions, let me conclude by saying, we are very pleased with our Q1 results.\\nOur start to the year and our continued hard work and focus of the Agilent team puts us in a strong position to achieve our goals for the year. With that, I will turn it back to Ankur for the Q&A.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Bob. James, will you now open the lines for Q&A and provide the instructions please?\"}, {\"speaker\": \"Operator\", \"content\": \"Of course. [Operator Instructions] Our first question comes from the line of Patrick Donnelly with Goldman Sachs.\\nYour line is now open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great, thanks guys. Maybe just to start on the LSAG growth, it came in a little below where we were expecting, I certainly understand the tough comp from last year. Can you just talk to how that tracked relative to your internal expectations and also the go forward, clearly the comp in 2Q quite a bit easier in that segment, so maybe just help us think about the quarter and then the go forward there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes Patrick, a great question and before I go to the answer I just want to extend my apologies to all on the phone and I understand we had some transmission difficulties earlier on the call, so hopefully it is now coming through loud and clear, but we will make sure that we address all your questions in case we weren\\u2019t clear throughout the call. Yes, relative to the LSAG growth, I think you hit on one of themes right off the bat which is the top compare.\\nSo we were expecting growth to moderate to low single digits versus this touch compare and I would point out that we had good pockets of strength in Pharma and environmental forensics. I would say there was some noise in the quarter particularly in January with the U.S. shutdown and some China trade rhetoric. There was probably some transitory impact really hard to tell exactly how much. But I think the look forward is probably is perhaps the most interesting thing which is we see good underlying business demand. The hope that came through in the scratching this up my narrative, we're expecting our growth rates to rebound in Q2 not only because of the comps get easier but you've got this underlying strong business demand and we have a number of very new exciting launches underway and these launches will be delivering the revenue in the second quarter.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay, that's helpful. And then maybe just staying on the 2Q guide, maybe one for Bob, just given that the comp eases by I think 500 bps quarter-over-quarter relative to 1Q, the guidance calling for only 5% to 6% growth, can you maybe just talk through some of the moving pieces there and why we shouldn\\u2019t see an uptick in growth, just some conservatism baked in on your part?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, hey Patrick, thanks for the question.\\nI think you hit the nail on the head in terms of as Mike mentioned we're kind of cautiously optimistic. We do have an easier comp in Q2 and we've also reflected a higher guide at the midpoint for Q2 relative to what we had guided to in Q1.\\nAs we think about it, we are still expecting performance in ACG and DGG. LSAG we do expect to improve in Q2, but we're being cautious a bit on some of the forecast and when we think about things like chemical and energy those are areas that we potentially have upside going into not only Q2 but Q3 and Q4 as well.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Bob I think this is probably the highest quarterly Q2 growth that we've ever given in our history, so while it may be an element of conservatism relative to historical guide this is the highest we've ever guided.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"That's helpful, thanks guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from the line of Ross Muken with Evercore.\\nYour line is now open.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Hey Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey Ross.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"Thanks for the color, good to hear your voice not in sort of funny tone, so maybe just ticking off your comment on China, obviously there is a lot of things at stake in sort of getting this trade deal done and it seems like it is heading in the right directions, but maybe it is a bit later than what they had foreshadowed. I guess how are you thinking in general about what parts of the business could see maybe on the cap equipment side is the negativity and help explain maybe a little bit more tease out what you saw in January? So it is tough with you guys because it is sort of a non-traditional quarter end sort of extrapolate. But help us understand sort of what you are expecting over the next quarter and then against that sort of the underlying strength that still seems to sort of exist in most parts of the business in that region given sort of the commitments they have made on the environmental side, et cetera? And then lastly, remind us of where we are in sort of recovery in the food business?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, absolutely Ross a great question and I'm glad to hear we're coming through much more clearer and do appreciate the recognition of the kind of unusual timing of when we report relative to others in the industry. But specific to China and then maybe I'll just give you kind of an overall narrative on China and get to your specific question.\\nSo when we were guiding for this quarter we expect our growth moderate to low digits really given the tough compares and a 19% growth last year and we continue to see really strong demand in Pharma and environmental.\\nI think that environment demand really speaks to your commentary about the continued funding that exist in China relative to their priorities and this as mentioned here I will cover in a minute C&E, but last year our C&E business grew I think 34% just I think one. Relative to food, I would say, you know puts and takes of thinking in my narrative, but we are seeing a slower rebound than anticipated in the food market, but we do expect our food business to return to growth later this year and we can dig around in some more detail later if you like on that one. But I think really kind of the outlook is really the most important point here again which is, we're expecting a stronger Q2 growth rate which are some small all long in terms of our guide because the good underlying demand is there. And as the comps easily move into Q2 you may recall Q2 results last year and then and that\\u2019s the narrative around was a fundamental change in our business in China which turned out not to be the case within over a double-digit growth last year. But I think if you look in Q2 you got the comp easing.\\nYou've got this continued strong underlying demand and we have new product launches that might turn into revenue in Q2. I do think that the continued to drag out if you will of the China tariff discussions between the U.S. and China, put the level of uncertainty in the marketplace and may be perhaps those customers who have more export driven activity which is relatively the only part of business might be holding back a bit.\\nI think that \\u2013 eliminating that cloud of uncertainty would certainly help but despite that, we still see really good demand in China.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"I think on that and Ross, just to add, I think both on the ACG side as well as the DGG side, those businesses continue to remain robust really leveraging that installed based and so I think when we think about China we think that long term the growth is certainly there. We're continuing to invest in China and expect growth in excess of the total company average over the course of the year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, hey Bob, thanks for jumping on the answer as well, because you may recall in some of our earlier discussions we've statistically highlighted the underrepresentation we have in our ACG and DGG businesses in China and the view that they were really poised to have a lot of long flung, just sort of long runway with all terms of exceptional growth and we've seen that through this year so far.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"That's helpful. And maybe just tease out for us kind of how to think about DGG over the course of the year obviously LSAG very late in the year did ramp, but it feels like underlying given some of the acquisitions you've done there, given some share that feels like is going in new direction, that business could remain elevated, maybe not at this exact level every quarter, but certainly for a lot of the year, just help us sort of understand kind of your expectations for how that business will trend and how it did versus your internal plan, because this feels like a very good trend for the DGG folks?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, and Ross you are spot on.\\nYour characterization of what's going on is I'd have to wholeheartedly agreed to that we've got good momentum in our core pathology business and we could see some of the momentum building in the latter part of 2018 across the three dimensions of Sam's business and we see the good momentum and our pathology piece, we've been highlighting to the audience our continued strength in our NGS business which and then consistently have been bringing in the pieces to complement that through acquisition plus also to continue organic investments we have in our genomic business and then I think the legitimate business. And then I think the NASD story is fairly well known already, but you can see why we were so anxious to continue in our [indiscernible] business and we're seeing growth now and we're feeling pretty good about where this business is going.\\nSo anything perhaps I missed?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"No Mike, I think you hit the nail on the head.\\nWe have a positive momentum going and the inorganic parts are well known, but I think I also would share that last year's Analyst Investor Day and excited that upcoming next week at the AGBT conference we'll be formally unveiling the Magnus NGS Library Prep, sample prep system so there's a number of good things happening in DGG.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So we are talking about that.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, well we are taking about that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay, Ross did that get to your question?\"}, {\"speaker\": \"Ross Muken\", \"content\": \"That was also got, thank you so much.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"All right, thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Tycho Peterson with JP Morgan.\\nYour line is now open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hey, thanks. Maybe just a followup on a couple of those on China, you know the C&E strength you've talked about for a while there, how much of the strength in China for C&E do you think kind of offset broader C&E softness? And then can you kind of quantify that the food ministry catch up you are expecting this year from the issues last year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Tycho it is good to hear from you and happy to address the question.\\nSo just to clarify, the C&E business for Q1, actually China was not a very strong contributor to the growth in Q1 that we saw in C&E. What we're referring to was a strong growth rate last year of 34%. That being said as you know we remain very bullish on the prospects of the chemical and energy business in China and I would just say they are just all about the comps. And perhaps waiting for this new product to hit the market, so as you know the 8890 GC and perhaps we will have you share a few comments about that in a minute Jacob, but the 8890 GC is primarily targeted at the chemical and energy space.\\nSo we expect in the latter part of this year the China chemical and energy business we think is really a [indiscernible] going on here to be fundamentally strong.\\nSo I would not have reacted during the first quarter actually a story of tough comps. And the story in the food market, as you may recall last year we had talked about, hey we think this reorganization is going to take probably nine months or so to kind of go through the system, I think we got that part of it right which was they were going through process of consolidating into one set of industry, from multiple agencies into one single agency.\\nSo that has happened pretty much that's essentially complete with most but not all the leaders in place. What I think is taking a little bit longer is the internal review of elimination of redundancies across our modern labs, so that's really leading to slower to new instrument purchases in the \\u2013 if you will the central government segment of that market.\\nSo this is really affecting the China central lab purchases while the private sector piece of it, the contract testing lab throughout the market continues to grow and we do expect the entire food business inclusive of the central agencies to be back growing again lateral this year. And Jacob maybe just a little bit color on the 8890 since I mentioned it or just GC launch?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, certainly, and back on to the chemical and energy you are absolutely right Mike that we continue to see lot of programs in place and projects in place for \\u2013 in China.\\nSo we expect a lot of opportunities in that space also going forward as I also mentioned last time. But we are of course very excited about the new 88 series, not only is it what we call the smart connect and really we've put a new class in of smart connected instrument and which is a key component in our digital lab strategy. But what also gives us now is a great opportunity for the huge installed base we have out there with the 7080s we have a very strong start throughout and refresh the installed base.\\nNow everybody would like to upgrade to an even better solution. It is well known technology, so you can very easily transfer your methods from the 7080 over to the 8080, but there is a lot of new features we have added into this. All the technology we have invested in Intuvo is now coming to full effects here and all the units smart connect what we talked about, first of all you can have the remote monitoring, but yes, really we have built in a dual core processor and what it does really is that it allows you to continuously having one processor continues to monitor the health of the instrument which allows you to really understand what is going on, get the smart alerts so you can really upfront understand what's happening.\\nYou can reduce your unscheduled downtime and this is a huge opportunity for the labs out there.\\nSo we are really excited and I can tell you our customer is at least as excited as we are right now, we see a lot of demand for it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, and Tycho the discussion we're having inside the company is this has been a decade in the making.\\nYours truly actually was the GM when we came out with the 7890 product which hit the market in 2007.\\nSo you can see the amount of advancement made since that time and how we're leveraging the initial investments we made in Intuvo GC platform.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay and then if we think about the current quarter, I appreciate the color you've provided on guidance, any impact from Chinese Lunar New Year? And then you mentioned the government shutdown, we've heard one of our peers talk about ICP-MS impact there, any impact on your business there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, happy to talk about also, for the first time in a number of years we're not talking about Chinese New Year in our earnings call so nothing unusual happened this year relative to the dates moved around between quarters and obviously it moves the numbers around for compare, so nothing unusual happened relative to the business flow if you will as a result of the Chinese New Year. And I mentioned some of the noise around the U.S. Government shutdown. I'd mention two things.\\nFirst of all just a reminder, when you look collectively at the entirety of all the U.S. Government agencies, U.S. Government is our largest customer and they were basically out of pocket for months. And I think what you may be pointing to Tycho, with some of the products require an export license from the U.S. Government, so obviously that didn't happen.\\nAnd some of that product didn't find its way into China into Q1 because we didn't have the export license. That's just a transitory thing. We'll see that flow through and overall it is really, really immaterial to the company's quarterly results.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay, I appreciate it. Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Dan Leonard with Deutsche Bank.\\nYour line is now open.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Thank you.\\nAnother question on geography, can you comment on how the results in Europe arrived versus your internal expectations?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Dan. It was good to hear from you, right where we thought it would be as we came in to this year we were expecting low single digit growth in Europe and I think it's really been on that pace as well.\\nSo I don't think really anything unusual there. Obviously, we'd love to see some resolution on some of the political uncertainty, but I think the numbers basically came in as planned. Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Well that's right. That's right. It was low single digit stand and that's kind of what we were expecting.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. And then for my followup, I appreciate all the color on the new gas chromatography launches, can you help us understand the anticipated adoption curve there? Is this something similar to the Intuvo where it's very slow and steady at the outset bell curve shaped or is this something where we could see a more immediate impact within the scope of 2019? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Dan, I'm so glad you asked that question.\\nSo this is actually a much different scenario. We can expect a quicker ramp of orders here and in fact but Jacob I think we're actually starting to ship right?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, we did sponsorship this week here, so this is happening. We, as I mentioned before it's based on our proven technology and so it's very easy to transfer methods. Actually you don't have to do anything, so you would actually expect most customers, that was looking for 70, 80 probably pretty quickly move over to 88. We do see some customers that are conservative that is a production that want to wait maybe a few months, but this\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes and we still have a lot of conviction on the game changer Intuvo GC, but we do see the adoption rate to be here much more quickly than the Intuvo ramp because there's really a direct replacement with new capabilities for our 1790 and 7820 offerings.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"I appreciate the color.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Brandon Couillard with Jefferies.\\nYour line is now open.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks. Good afternoon. Mike, can you speak to the services growth in the first quarter and perhaps some of the tractions you might be seeing with the multi vendor services in China?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, so I'm going to make a few comments here, then I'm going to invite Mark to join in on the call to sort of take a bow in front of the investment community.\\nSo we're seeing great traction in the overall ICG business and services and in China in particular.\\nSo I think it is all regions and across the entire portfolio.\\nSo this has been the results of a lot of work over the last several years really to provide to the marketplace a set of offerings that really helps them with running their operations of the lab and also with the great science they're doing, so we think we've got momentum. We think this wasn't just a one quarter phenomena and our outlook is pretty positive here.\\nSo Mark, anything else you'd add to that?\"}, {\"speaker\": \"Mark Doak\", \"content\": \"Thanks Mike and I'll add a couple of things.\\nAs you suggested we've seen strong growth not just in what we've talked about in our enterprise or multi vendor arena, but in our instrument services business. Both of them were double-digit growers in this particular quarter and maybe a bit nuanced about the portfolio expansion.\\nSo as Mike talked the value-added services that now are more formulated around specific end markets and in Jacobs business in particular and the extension of a lot of the capabilities we actually talked to an aide in terms of how we're going to introduce an expanding portfolio around our CrossLab Connect and asset monitoring utilization services.\\nAs far as China is concerned, I'm extremely bullish about China still.\\nI think we're - I know you'd like to talk about which innings we're in, I still think we're in the early innings in China in the enterprise space. And it's really ripe in the sense that they're looking for many of the same things we've seen across our global accounts and they have the size and scale of the assets in the lab now to do things with it.\\nSo very encouraging in China and I think we'll see in the foreseeable future will be strong growth there.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks Mark.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"And then a quick follow up for Bob, can you just help us bridge the core incremental operating margin year-over-year in the first quarter in terms of the impact of FX, M&A, tariffs on the incremental year-over-year? Thank you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo yes let me give you a couple of data points there.\\nSo the majority of the operating margin expansion was through our operating expense. The tariffs were about roughly $4 million in the quarter which was in line with what we had expected.\\nSo year-over -year that's a $4 million kind of headwind. M&A, if you include the Lasergen was also about $3 million or $4 million all in a reduction year-over-year as well. And then the tariffs were offset by productivity enhancements and gross margin and you saw that. And then the R&D we actually spent more in R&D, but we're able to offset that through productivity savings and our SG&A through our Agilent programs.\\nAnd so, that hopefully gives you kind of a sense for the 120 basis points improvement. It was really on top - on the strength of the top line driving leverage in our core operating expenses as well as being able to offset that tariffs and the investments that we're making in R&D and the new businesses really driving more efficiencies in the G&A areas.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Super, thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Derik de Bruin with Bank of America.\\nYour line is now open.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hey, good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Derik.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hey Bob, you did a little bit of share buyback activity in the quarter.\\nJust sort of some commentary on maybe being a little bit more aggressive on that given your strong cash position and just sort of some general thoughts on capital deployment at this moment in time?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, so I've been with the company now for about six months and you know as I think about that we were active in the quarter. I can see us between M&A which is our primary focus of utilization of capital in the back half of the year between M&A and/or share repurchase I would expect us to be probably a little more active. That's not built into the guide Derik. We prefer to use that cash and the strong balance sheet that we have on growth assets as we did over the course of the last 18 months, but we do not see ourselves continuing to hold a significant cash balance.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"And I guess along those lines, I mean you've done a number of deals in the genomic space recently in the cell biology space. I guess when you look at the portfolio are there any other target areas, things or I mean I've asked this question in the past and I'll ask another version of it, but it's like you are relatively underweight versus some of your peers in the academic and government market and just wondering if that's a primary focus of your M&A activity?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Derik, I'll jump in on this one.\\nSo actually some of the deals we've done have been really targeted academic, whether it be Seahorse Biosciences, the iLab.\\nSo we like that space, but I'd say it's more from a collective end market, market view.\\nAnd so, I think you hit on a couple of areas that we're interested in, the genomics and the cell analysis. Cell engineering is an area of interest for us.\\nWe also think there is things we can do on the ACG consumables portfolio and also remain very interested in informatics as well.\\nSo we think there's a lot to be, luster out there that kind of fits our model of companies that are primarily in the private space that really would welcome being part of the Agilent culture.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Let me just add something real quick there.\\nI think the beauty of it is, I think as we look at our portfolio of funnel of opportunities it's really across all three of our business groups, not just focused either on the genomic side or other places. And I think you've seen that through what we've been able to do really leveraging the strength of Agilent as you said and I guess your next question is around Lasergen.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Yes, I got to say with AGBT coming up and just while thinking about the sequencing space can you give us an update on what's going on at Lasergen and when can we expect to see some first data?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes sure. I mean just I'll start with a reminder Lasergen is important to us but it's one of many R&D programs both within Agilent even within DGG.\\nWe are on track. We're meeting our internal expectations. We're really pleased with the progress that the team is making.\\nYou won't hear anything specific that we'll talk about at AGBT. We're tracking along and more to come in the course of the coming years.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Thank you very much.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks Derik.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Jack Meehan with Barclays.\\nYour line is now open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Hi. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Jack.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I want to keep it going on DGG the growth there in the quarter which is great.\\nThe first factor you laid out was that NASD was the largest year-over-year contributor.\\nSo I'm curious where you're finding incremental capacity at the old site and just update us on the timing related to the new capacity of the new site?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, so I might just go ahead and handle this one, you can jump in on it, but we brought in a new general manager probably about 24 months ago and really came in and looked at our existing facility and saw opportunities from we call our agile Agilent program, but from our process improvement we said, hey there is more that we can garner in terms of growth out of the existing facility by really changing some of the aspects of how we conducted the manufacture.\\nI think we've been able to actually if you will squeeze more out of the existing sites than we had thought. And then relative to the status which is the same I think we're still on track for bringing this on online by the end of this fiscal year in terms of producing GMP grade material. The site construction is essentially finished. We're now in the midst of validation which is really quite a task given the scale of what we've constructed here, but still doing good.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, and Mike you said it all. We, operational excellence was in I think full order in Q1 and we're making really good progress for opening of our second facility.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. And just to followup I guess on the second factor which was the pathology business the double digit growth seems like a nice acceleration there. Can you talk about, what you're seeing on the competitive environment and utilization of the instruments that are around in the field and maybe just finally, where do you think you stand with the question all out to that help in the quarter?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I'm going to pass, this is directed to you, Sam.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"You got it Mike. Overall the combination of our pathology related businesses, our core business that we have which is our systems are consumables to go along with it, including companion diagnostics, including we call reagent partnership, altogether a very, very strong quarter that we had. To answer some more of your specifics, we're seeing you know really good performance related to our advanced staining portfolio. And as you indicated a lot of that we are seeing increased pull through and our core systems are on this platform is doing well. And you alluded to that we have seen the adoption and growing utilization at Quest, but there's also a similar effect that we're seeing at other major centers and we continue to see goodness from PD-L 1 and 2 in partnership that we have with a number the pharma partners that you're aware of including Merck and BMS.\\nSo it's not just one thing but there's general strength across our pathology business that we're pleased with.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Jack, I think that was the thing that was probably one of the most gratifying, it was really across all of the business lines within DGG. It wasn't being driven by one or just a handful, it was really across, it was a nice performance.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you, Bob.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Catherine Schulte with Baird.\\nYour line is now open.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Hey guys. Thanks for the questions.\\nJust curious what did China grow excluding the food headwinds and then what are you expecting for China growth for the rest of the year?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"So I think the growth for - outlook for total China is the same as it was at the beginning the year which was above the overall corporate average I think high single digits is what we've been probably looking at.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes and I would say you will get the exact number but it would have been mid single digits ex food.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Okay and then as we approach the Brexit deadline and given you uniquely have a month of that impact in your second quarter if the timeline holds. Can you just remind us of your exposure to the UK and any areas of your business that could be impacted by the exit?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think Bob, I recall it is about 4% of our total businesses in the UK from I discussed in the last year and the main flow through would be getting product into my main major impact I'll be getting product into the UK for - to our UK based customers and we actually have a series of contingency plans, we're actually already executing on which assumes a hard Brexit.\\nSo we're planning for worst case scenario which means making sure we have in country stocks and other things to help our customers with potential challenges getting in product through customs. We do have a relatively small factory in the UK for our Raman spectroscopy business, but we're in the midst of transforming that product into Malaysia.\\nSo I think from the outbound export side of things probably would be not a good start right Jacob?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, you are right, yes.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So I think the bottom line there is, I think we've got good plans in place. We're not expecting that to have a material impact in the quarter.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Okay. Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Steve Willoughby with Cleveland Research.\\nYour line is now open.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Hi, good afternoon. Two questions for you.\\nFirst I guess just as it relates to tariffs, I heard you say you saw a $4 million impact in the quarter. I was just wondering if you were assuming the tariff to step up to 25% in your initial guidance there or what are you thinking about tariffs as of right now over the remainder of the year? And then I have a followup question related to some products.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes Steven I'll pass it up to you, Bob.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, great, thanks Steve. Yes, so we are assuming that it will ramp back up to 25% at the end of March and then for the rest of the year.\\nAnd so, we built that into to our guidance.\\nSo if something happens there this - such a trade either gets delayed, that would be potential upside for us.\\nI think more importantly just removing the uncertainty of what that looks like I think we'll free the market just in general and it's probably less about the dollars associated with the tariffs and more associated with just kind of clarity about what path we're going to be going forward.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Sure. That's helpful. And then secondly just on products, could you provide a little bit more color on kind of your GC portfolio now and with these new 88 systems kind of where the Intuvo offsets versus these newer systems. And then also just with this new Magnus system maybe how that fits into your existing genomic portfolio and what you're expecting out of that product over the rest of the year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Steve, happy to do so. Jacob, why don\\u2019t you take the GC question and Sam, Magnus?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, that's a good question and now we have - we really have three main solutions in the GC space.\\nWe have the Intuvo which really goes after the ultimate ease of use with hyperactivity especially combined with mass spec, so that's that great area for the routine use with Intuvo. Then we have the 8860 which is focusing more on a routine application which are more of the standard ones, but also demands some type of ease of use and allow us also to play in the midrange space. And then the 8890 which is the high - where we have customers requiring high flexibility and performance that needs very high requirements and performance in the space which is really HPI space and other elements that's where its more complex.\\nSo these are really the three areas we play it's all now based on the same core technology with smart connectivity and remote access and all those built-in health monitoring capabilities, so it fits very well together. And the same ease of use platform.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sam?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, with respect to the Magnus, thank you for the question. Well, first of all what we're going to be providing the system is something that we don't have and actually there's very few solutions like it on the market specifically the customer is going to be able to start with a shared DNA and that's what they put into our automated prep system and what they get on the other end is a fully prepared library that's ready to go that they can load.\\nAnd so, what that means specifically is we're doing both the library preparation and the target enrichment fully in an automated fashion in our Magnus system. Like I mentioned before, we're going to formally launch this next week at the AGBT conference and then we'll start taking orders immediately thereafter. But our shipments will be in a deliberate fashion starting in the June, July timeframe, making sure for our first set of customers we really get a lot of care to ensure the success that they would expect that we'd expect.\\nSo it is targeted to clinical labs and other NDS testing labs and I think we'll definitely see some impact of installs by the end of this year, but really a bigger impact in 2020.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Okay, thanks very much.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No problem, Steve.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Puneet Souda with SVB Leerink.\\nYour line is now open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes, hi Mike. Thanks for squeezing me in and so\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure Puneet, no problem.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"The question I have is, I get the strong compare on chemical energy, but I just wanted to get a sense, I'm wondering if you saw any impact from customers waiting and knowing about 8890 and 8860 and holding back those purchases and having any impact in the quarter? And then also I have a followup for Bob on margins, thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So Puneet, I think you must have been listening very carefully to my comments, the slight, the scratching is coming through.\\nSo I kind of alluded to that which is and it's hard to put a quantitative number on it, but we clear things that happened which is, this product has been 10 years in the making, a decade in making I'd like to say and of course our customers knew it was coming and I think some may choose, as Jacob mentioned, to go with the 7890 right now because they are there they still want to see the new product, but we think that there was a quick uptake in 8090.\\nSo that may, I think that is part of the story, can't quantitate [ph] it, but also again one of the reasons why we were optimistic about our ability to get some good growth and back to growth in the chemical energy beyond what we saw in Q1.\\nSo I think there's more to the story than the tough compares.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And just for respect for our R&D team it didn't take 10 years to build it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Thanks, so we should expect this to come, I mean come in into the next quarter now that you're shipping this out?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, yes, yes, that in fact Jacob just dropped me a note the other day and we started shipping this week.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay great. And then Bob, just some I wanted to get a sense from you on, you commented about 57% being consumables recurring moving up by a point and sort of gross margin contribution there. I wanted to understand, now that you have had some time to look at the overall portfolio and the new products and Intuvos and 8890s and what's your sort of gross margin expectations sort of longer term, obviously these are, they have improving margin profiles, so I'm just trying to get a sort of a high level corporate view that you're seeing in gross margin improvement longer term? Thank you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I mean I think if you look over the course of the last couple of years we've had significant gross margin improvement really through the great work that the operations team has been able to drive. And then also the pricing discipline that the commercial teams have been able to do as well as positive mix.\\nThis quarter you saw that moderate really because of the tariffs and if it weren't for tariffs we would've had I think some very good gross margin improvement.\\nI think once we anniversary gross margin, the tariffs this year which would be in Q4 you'll start to see gross margins go back up for the things that you talked about as well as just the ongoing operational improvements that we have. We had guided to call it modest, call it 50 to 70 bps on a restated basis operating margin improvement, a combination of both gross margin and an operating expense improvement for the full year. In Q1, we were ahead of the game which is good news and a lot of that came through the operating expenses, but I would expect us to probably be about this range and probably be a little stronger in the back half of the year as we anniversary the tariffs on gross margin. But going forward, I would see us really focus on growth driving margin expansion in that 50 to 70 basis points being kind of evenly split between the gross margins and operating expense line.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. Thanks so much, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Doug Schenkel with Cowen.\\nYour line is now open.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Hi, this is Ryan out for Doug. Thanks for taking my questions.\\nAnother great Pharma quarter. Can you remind us what proportion of your Pharma revenues are now to large molecule customers? And contrary to recent quarters you didn't call out small molecule growth within Pharma. Can you talk about what you're seeing from those customers and is healthy growth within the small molecule segment finally slowing down a bit or is that a little premature?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Ryan so great observation.\\nSo the ratios have changed somewhat over last three years.\\nI think it speaks to the strength of not only the biopharma space, but how we've been picking up share. But to answer your question, it's 80/20 mix about 80% small molecule 20% is the biopharma space and the slowdown in LC that's already happened, we saw that in 2018 and as you know, we've been talking about the breadth of our portfolio and how a lot of our analysis has moved. It's not the driven demand for LCs but it's not the double digit growth we thought for a while with strong demand on the mass spec side.\\nYou may recall that was one of the reasons why we had such a blow after Q1 last year when we had a strong finish the prior year in LC/MS.\\nSo I think the breadth of the interim portfolio what's going on in the in the ACG business in terms of our enterprise business as well as this is where a lot of our NASD growth shows up. And by the way I think you also have some new solutions coming out in this space as well Jacob right?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, what came out here recently was more for the small molecule, Mike and Q-TOF.\\nSo what we came out a year ago was the Q-TOF for the last molecule, we had advanced bio and we've had a lot of success with that coming out with a full solution. We're now taking that technology and have focused that into to also address small molecules, within specifically within the food environmental market but also in the academia research.\\nSo the success we had where we started out in the biopharma and one of the first early movers into the biopharma space, particularly focused on discovery and R&D. We now, we of course will continue to invest into the biopharma space also going forward.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Right. And that was perhaps more of an oversight in terms of calling out the [indiscernible] narrative with a 10% overall growth in pharma, small molecule also was healthy.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Yes, very helpful. Thank you. And Bob you noted earlier in the call that you don't expect to maintain a significant cash balance over time. Can you give us a sense for what significant means, how do you think about the minimum cash balance for the business and when should we expect to hear more on your plans to deploy your current excess cash? Thank you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I would say later on this year as I get through kind of the rhythms of the business in terms of as we get a better feel for that. What I would say right now is we're in a net cash position. We actually used more cash than we generated in Q1. I would expect that to continue over time. I don't see us using it all in one quarter, but we will continue to deploy our capital in a growth oriented way.\\nWe continue to drive dividend growth, but I think just as importantly and probably more importantly investments in faster growing areas to augment our strong portfolio already and then couple that with share buybacks.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur next question comes from Paul Knight with Janney.\\nYour line is now open.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Hey, Mike how are you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"All right Paul, how are yourself?\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Good, you seem to be doing more M&A. Is that a change in philosophy? Is it a change in markets that you are perceiving? What's behind this activity?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Thanks for the question.\\nSo this is a conscious decision I made and we started sort of laying the foundation with Sam coming into that role and continuing now with a new hire in Eric Gerber. And what my view was when I first came into this role I really had to get the foundation this company established and I think we've got our core operations under control, we've got our pipelines, our R&D roadmaps redone. We've got a whole new way of operating the company or running this company. And you've seen it in the early years in terms of the results we delivered, but we also have this opportunity to use this great balance sheet we have to, as Bob described it to acquire growth assets.\\nSo I think the company from a foundational standpoint is in the position to be more acquisitive. I also believe that we have been building the muscles in terms of actually making the acquisitions work for the company. And we continue to work to get better at this and are very active in the market.\\nI think we did a record number of acquisitions last year and you can start to see that it's paying off in terms of material impact to our growth rate. Again our model doesn't require M&A, but is a nice adder. And as Bob mentioned, I'll just re-emphasize this, we're looking to go into markets and acquire businesses where they can leverage the One Agilent model of innovation and where the acquired companies have something of a difference in nature, have a differential team and are in the segments of the market that are growing faster than the overall company. We passed on opportunities where assets were available and we didn't really see a path to grow.\\nWe are a growth company and that's the type of assets that we want to acquire.\\nSo it was a conscious decision and I think we plan on continuing to be active in the market.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"And lastly, could you give us a refresh on Lasergen. Is that going after the diagnostics market, what will be their position? Thanks so much for the questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I think I know this one sort of go ahead and handle this one, but our strategy here is that right now we're a component supplier into the NGS workflows of some of our major competitors and have built a business in excess of $250 million.\\nOur view is that ultimately we see a view where you need routine market that you are going to need to have a turnkey easy to use workflow solution.\\nWe have a lot of the components of that already and you may recall that from Sam's overview at our Analyst Day back last year. The missing piece was to actually have a sequencer.\\nSo our thoughts are not to compete box-to-box in the sequencer business, but really try to build the best workflow for that cancer diagnostics marketplace.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Thank you very much.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You\\u2019re quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nOur last question comes from Dan Arias with Citigroup.\\nYour line is now open.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Good afternoon guys, thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Dan.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Hey Mike. On chemical and energy, just honing in on your comments on instrumentation, I'm curious where you would put penetration or replacement for the Intuvo at this point and if you'd be willing, what do you think could be the contribution either at the segment level or for the overall business?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, so I think when you think about the chemical and energy market I think we want to primarily think around the 8890 and 8860 portfolio, because that really is the target market for this product and that's why I went to great length in my narrative which probably nobody was able to hear because of our transmission difficulties, but that this really is right after the mainstream chemical and energy market, the Intuvo is really geared towards those high volume routine labs in food and environmental really a mass spec based analysis where the chemical and energy market tends to be more gas GC only kind of marketplace.\\nSo we're really excited about the product. I won't give you a specific number, but I can say this is one of I believe the proof points why we believe there perhaps is some upside to our current outlook on chemical and energy which believe, I think Bob we've got a low single digit for the year.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, and I think, Dan to your question, none of these individually is going to move the needle on the total company, but collectively the portfolio of new products that are being introduced, not only in LSAG, but across our portfolio is really what's helping us sustain and feel confident that our growth is going to continue above market levels just because of the value proposition that these are able to provide in the marketplace.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Yes.\\nOkay. Thank you. And then Bob, if I could on the out margin forecast, it sounds like you're on track operationally for the NASD build out. I'm just curious if you think the $12 million or so in investment that you've targeted last year as the 2019 spend holds?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. In general that is - that's consistent with, we haven't changed the forecast there relative to what we had said at the beginning of the year.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Okay. Thanks a bunch.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks Dan.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. That's our final question, so I'd like to turn the call back for closing remarks.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"All right. That wraps up the call for today. Thank you for joining.\\nIf you couldn't get to something because of the transmission issues or have any of questions, please reach out to us in the Investor Relations. Thanks very much.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. Ladies and gentlemen that does conclude today's conference. Thank you very much for your participation.\\nYou may all disconnect. Everyone have a wonderful day.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2019-05-14
year: 2019
quarter: Q2
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good day, ladies and gentlemen. And welcome to Agilent Technology Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode [Operator instructions]. Later we will conduct a question-and-answer session and instructions will follow at that time. And as a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Mr. Ankur Dhingra, Vice President of Investor Relations. Please go ahead.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Liz. And welcome, everyone to Agilent's second quarter conference call for fiscal year 2019. With me are Mike McMullen, Agilent's 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's Life Science and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Mark Doak, President of the Agilent CrossLab Group.\\nYou can find the press release, investor presentation and information to supplement today's discussion on our website at www.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-on-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 April 30th.\\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 for joining our call today.\\nOur Q2 results are mixed. On one hand, we continue to deliver strong growth in two of our three businesses.\\nOn the other hand, our LSAG business is experiencing unexpectedly soft market conditions. Despite revenue below our expectations, the Agilent team delivered solid earnings with EPS of $0.71 at the midpoint of our guidance. This represents 9% EPS growth over last year.\\nWe also delivered our 17th consecutive quarter of adjusted operating margin expansion.\\nFor the quarter, total revenues were $1.24 billion, representing 4% core growth.\\nLet me break that down; performance was led by our Agilent CrossLab Group with core growth of 9%; our Diagnostics and Genomics Group delivered 6% core growth, while our LSAG business declined 1%. There were two key market factors observed in the latter part of the quarter that contributed to the LSAG revenue shortfall; first, we experienced a slowing of internal orders in China; the second factor is tied to more general slowdown in orders from big pharma. I'd point out that this slowdown became apparent to us at the beginning of April.\\nLet me explain this in little more detail. In China, our overall business grew 3%, driven by double-digit growth in ACG.\\nHowever, our LSAG business declined by 1% during the quarter. There are two major factors impacting our China LSAG business.\\nFirst, the recovery in the food market has not yet materialized. Government labs have not yet resumed purchasing at the levels we have previously seen.\\nSecond, the Chinese government's 4 + 7 initiative to lower generic drug prices is having a greater than expected impact on small molecule pharma. Consequently, we're lowering our revenue expectations in China this year. China does, however, remain an important long-term growth market for us.\\nThe other factor affecting LSAG growth is moderating global demand in small molecule pharma. We've seen several large accounts delay and replace in purchases. In contrast, the small molecule pharma would continue to see strong global bio-pharma demand.\\nWhile overall growth declined 1% there are positive signs in other LSAG end markets, demand remained strong in environment forensics and biopharma markets with solid results in chemical and energy.\\nYou'll recall we strengthened our leadership in gas chromatography with the recent launch of the new 8860, 8890GCs. Since the launch, we were very pleased with the stronger than expected customer demand we've seen.\\nWe also have some other very exciting new products. In April, we introduced the new Agilent 6546 LC/MS Q-TOF system. This system is tailored to environmental, metabolomics research in food testing laboratories, providing ability to acquire high-resolution data across an unprecedented dynamic range. Customers can simply see more compounds and analyze them more correctly with this new offering.\\nIn addition during the quarter, we also introduced a unified purpose-built portfolio of SONOS products, targeting cancer immunotherapy with the addition of ACEA Biosciences. This offering enables research in this fast-growing segment.\\nOur SONOS business continues to deliver double digit growth.\\nWhile we're facing soft market demand in our LSAG business, we remain confident in the strength of our portfolio and believe we are well positioned to continue wining in the market.\\nNow, I would like to share more detail about the other two businesses. The Agilent CrossLab Group continues to deliver excellent results, growing 9% on a core basis. Demand is broad-based across all regions. This reflects the market-leading value of our portfolio and differentiated customer experience. In China, the ACG business grew in the mid-teens. The team continues to execute our strategy of leveraging Agilent's large instrument installed base.\\nWe also continue to expand our services footprint in emerging cities, and tailor our consumer's portfolio to local markets. The Diagnostics and Genomics Group delivered a solid quarter with 6% core revenue growth. Regional demand is led by strength in the Americas.\\nOur pathology related businesses grew high single-digits. Previously announced large competitive wins along with continued strong demand for our antibodies and our companion diagnostic services are driving our growth in that segment. Agilent also received expanded FDA approval for our PDL1 IHC companion diagnostic for metastic non-small cell lung cancer. This companion diagnostic would now be used to identify a broader range of patients who may qualify for first-line treatment with Keytruda. The NASD business continued delivering strong performance with mid-teens growth.\\nWe are on track to bring our second facility online. We anticipate the initial production of GMP grade APIs by the end of fiscal 2019. Material revenue contributions are expected in fiscal year 2020.\\nLooking ahead to the second half of the year, we're confident that the momentum will continue in ACG and DGG businesses.\\nFor our LSAG business, our outlook for the second half is tempered by our view of continued soft market conditions.\\nAs a result, we have revised our outlook for the full year, reaffirming our prior EPS commitment while lowering revenue growth. Bob will describe this in more detail but first, just a few summary comments. We now expect to deliver core growth for the year between 4% and 5%.\\nWhile we're facing market headwinds in our LSAG business, our full year earnings guidance remains intact. The Agilent team remains firmly committed to meeting our current guidance for earnings growth.\\nOur guidance reflects confidence in the strength of the overall Agilent business model and our ability to drive solid earnings results. Thank you for being on the call today and look forward to answering your questions. I will now hand the call to 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 second quarter income statement and some other key financial metrics. And then I'll finish up with our updated guidance for Q3 and the full year. Unless otherwise noted, my remarks will focus on non-GAAP results. And percentage changes will be on a year-over-year basis.\\nAs Mike mentioned, we delivered solid Q2 earnings despite slower than anticipated top-line growth, underscoring the strength of Agilent's financial model and our ability to respond quickly to changing market conditions. Revenue for the quarter was $1.24 billion with core quarter revenue growth of 4%. Reported growth was 3% as currency negatively impacted growth by 320 basis points, slightly higher than expected. This was partially offset by M&A contributing 190 basis points of growth.\\nAs Mike spoke to the business group's performance for the quarter, I will provide some additional details around our end markets and regional performance. Pharma, our largest end market, delivered 2% core growth.\\nWe continue to see strength in biopharma and aftermarket services and consumables, and in our NASD business.\\nHowever, the slowing of the instrument replacement cycle for small molecule applications led to a softer than expected result. Chemical and energy core growth was a strong 6%, above expectations and driven by strong low-teens growth in services and consumables. All regions grew led by strength in the Americas. Environmental and forensics was up 7%. Strength in forensics is linked to the ongoing global opioid crisis, which is driving demand for expanded forensic laboratory capabilities, more samples and broader screening requirements. The environmental market grew mid single-digits, and continues to be driven by an ongoing expansion of testing and oversight in China.\\nNow wrapping up our end market discussion, core revenue for both diagnostics and clinical and academia and government, both grew 5%, while food declined 3% due to the softness in the China market. Geographically, we saw growth in all regions, led by the Americas with 6% growth as conditions in the U.S. continue to be healthy. Europe, with 4% growth, performed better than anticipated, driven by pharma outsourcing trends and continued strong biopharma investments. China grew 3%. And while we had strong mid-teens growth in the ACG business, softer instrument sales in the food market and small molecule pharma led to lower than expected overall results.\\nNow before I leave revenue, the core growth of our combined LSAG and ACG businesses, while below our expectations, was 4% in the quarter. And we believe compares favorably to the overall analytical lab market growth.\\nNow turning to the rest of the P&L. Q2 gross margin was 56% and increased 70 basis points compared to the prior year.\\nWe continue to achieve good gross margin improvements through our productivity initiatives, and driving continued economies of scale in our ACG services business. Operating margin was 21.9%, up 60 basis points, mainly due to discipline cost management as shifting market conditions became increasingly apparent in the latter part of the quarter.\\nAdditionally, the tax rate was down marginally and average diluted shares were $321 million. This led to non-GAAP earnings per share of $0.71 in the second quarter, an increase of 9% compared to the prior year and at the midpoint of our guidance.\\nNow, before moving to Q3 guidance and full year guidance, I want to touch on a few additional financial metrics on cash flow and on the balance sheet.\\nOur free cash flow for the quarter was $213 million. We deployed $102 million in the quarter, consisting of $52 million in dividends and $50 million in share purchases, representing roughly 635,000 shares.\\nLastly, we ended the quarter with $2.2 billion in cash and $1.8 billion in debt. And during the quarter, we also renewed our revolving credit line of $1 billion, which remains undrawn. With our strong balance sheet position, we will be more active in the second half of the year deploying capital.\\nSpecifically, we intend to deploy $500 million for share repurchases with the majority of that to come in the third quarter. This underscores not only our balance sheet strength, but also our confidence in the future.\\nIn addition, we still have plenty of capacity for M&A and we have an active business development funnel.\\nAlthough, we will continue to remain disciplined in our approach.\\nNow, let's turn to our non-GAAP financial guidance for the fiscal year.\\nAs Mike indicated, we're reducing our core revenue growth outlook for the year.\\nWhile our expectations for ACG and DDG aren't changing, our forecasts for the second half is tempered by softening market condition in certain segments on the instrument side of the business. The developments in China, coupled with continued uncertainty on trade is creating a more challenging macro environment.\\nAs a result, we are updating our full year revenue guidance to a range of $5.085 billion to $5.125 billion representing 3.5% to 4.3% reported growth. Currency is expected to be a headwind of 210 basis points, partially offset by M&A. And as a result, we're now expecting core revenue growth in the range of roughly 4% to 5%.\\nNow despite reducing revenue guidance, we feel confident in holding to our full year earnings per share guidance range of $3.03 to $3.07, representing growth excluding currency of roughly 10% to 11% and reported growth of 8.6 to 10%.\\nAs Mike mentioned, our EPS guidance reflects confidence in the strength of Agilent's business and our ability to drive earnings through multiple levers. These include disciplined expense management and the use of our balance sheet. Based on deploying the additional $500 million toward share repurchase, we are updating our average diluted share count down to $319 million for the year.\\nNow finally, turning to the third quarter, we're expecting revenue in the range of $1.225 billion to $1.245 billion, representing reported growth of 1.8% to 3.5% and core growth of 2.7% to 4.1%. Currency is estimated to be a headwind of 210 basis points, partially offset by M&A contributing roughly 120 basis points to 250 basis points growth.\\nThird quarter 2019 non-GAAP earnings are expected to be in the range of $0.71 to $0.73 a share, which is 6% to 9% reported growth versus a year ago. The share count for Q3 is expected to be $317 million.\\nLet me conclude by saying we are pleased with the team's ability to preserve earnings performance despite shifting market conditions.\\nWe are confident in the strength of Agilent's business and our ability to navigate softness in certain markets. With that, before opening up for questions, I will turn it back to Mike for some closing comments.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks Bob. I just want to add a few closing words before we move into Q&A. Great companies do not just react to market conditions, they see market opportunity. At Agilent, we will continue to drive productivity and double down our efforts to be a more agile company.\\nWe have marginal levers to drive earnings, including disciplined expense management and use of our balance sheet.\\nHowever, we are not going to expense to cut our way to grow.\\nWe will continue to bring innovative new products to market and aggressively compete for market share.\\nNow, Ankur, back to you for the Q&A.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"Thank you, Mike. Liz, if you can please provide instructions for the Q&A.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator instructions] Our first question comes from the line of Dan Leonard with Deutsche Bank.\\nYour line is now open.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"So first question, trying to make sure I understand the issues in small molecule pharma. Is that an LC comment specifically, or more broadly customers you're labeling as small molecule pharma? And can you comment on the trends between ethical pharma and in generics?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So I will make a few comments and then, Jacob, feel free to jump on this.\\nI think it's primarily LC related, and it\\u2019s a situation we're seeing actually globally. I called out specifically the government initiative in China.\\nWe also saw in our large pharma accounts in U.S. and Europe this delays in purchasing.\\nIn fact, I remember talking with our European field manager. We had an order that was supposed to close in January with big European pharma company it was pushed out, we thought it was going to close at the end of March and now this closed in May. And perhaps you can add your thoughts here as well, Jacob.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"No, you're absolutely, Mike, that that is primarily the LC business.\\nHowever, many of those pharma companies also have investment into some other areas and when they now see some chances in the generics, they might put back also in other areas.\\nSo LC is a prime focus, but it certainly also expands into mass spec.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I think just to close this off. Dan, I think the comments for China were specific to generics.\\nI think globally, we saw both in ethical and generic drugs in small molecule side.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"And then, Mike, my follow up. Can you elaborate just further on the actions you're taking to respond to the market softness? And I ask because the detrimental margins in LSAG were pretty high.\\nSo can you elaborate a bit on what you're doing to react? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So as Bob mentioned in his call notes, we're actually quite pleased by the action of the team to really rapidly adjust the cost structure in a phenomena developed probably over the last four to six weeks of the quarter. And the actions are just double downing on the agile Agilent programs that we had already in flight, but also really making sure that we looked at the expenses that weren't directly related to growth and really able to call to action to pull back on things that really don't drive growth, like internal travel, for example.\\nSo we pulled all the levers we could. But while maintaining intact our coverage model in the field, as well as our MPI programs. And Bob, I don't know if you have anything to add?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I would just add, Dan.\\nWhile the LSAG business did show a decline year-over-year, I would remind you to look at the total company, which actually did improve margins for year-over-year and for the 17%.\\nSo we operate this as a full company its part of the One Agilent approach.\\nAnd so we're taking a number of initiatives. But as Mike said, we're also doubling down on areas, such as the new products in the areas where we think we can drive. We did see pockets of strength in LSAG and Jacob and team are really focusing on those areas; areas such as cell analysis and chemical and energy, and some of the other areas as well.\\nSo it's not just an expense, it is really ensuring that we're focused on the areas that we have the fastest opportunities for growth.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Tycho Peterson with JP Morgan.\\nYour line is open.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"So I'm going to follow up on some of the pharma questions. When we did the CEO call back in early April, you did call out the China generic headwinds. We didn't really hear about the pharma delays at that point.\\nSo obviously, it seems like it came up later in the quarter. And you mentioned it was several accounts.\\nSo can you maybe just talk on how widespread it is? And is this a transitory issue in your mind, or how you're thinking about pharma for the remainder of the year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks for the excellent question, Tycho. And I do recall our conversations.\\nI think it was in early April. And I had just come back from China and we were first hearing about the four by seven initiatives in China. And to your question, I think that we saw it fairly broad based, this is outside of China.\\nSo I think China's got some specific things happening relative to the government actions around for 4 plus 7, which I think are fairly publicized, but we saw that both our U.S. and European customers. And we just had a major account review and all of our major accounts were down year-over-year. And there's just a level of caution relative to replacing investments in the small molecule side of businesses, The same companies, however, are investing quite heavily in the biopharma side.\\nSo it's a sort of a tale of two cities from the standpoint of what's really going well inside some of our larger accounts versus where there's been a pause. And Bob, I know you've looked at this quite closely as well. I don\\u2019t know if you have anything else to add to that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No, I think you're right, Mike. And Tycho, as we're thinking about the guidance going forward in the second half of the year, we are looking at probably a more moderated growth for pharma going forward. But still not at the rate at that we saw in Q2 but probably in the mid single digit where we were expecting probably high single digits globally.\\nSo I think we're taking a prudent approach there as we are thinking about the outlook for the year. I would say that we're continuing to, as Mike said, grow our biopharma business. But we still have the proportion, a large proportion of our pharma business being in the small molecule side.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And it was somewhat surprising -- go ahead\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I would just add, Tycho, one thing we have seen though is on the small molecule side, there still is very high demand for chemistries and services. And I think you've seen that reflected in the strong ACG results.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And it was a little surprising to see food down, now that you've anniversaried it. Can you maybe just -- and I know it's not recovering, but is it getting worse?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"This has surprised us well. It's not getting any worse; it's just not getting any better. And we had anticipated coming on the anniversary that the central government will start reinvesting at the previous level and the spends just are not there.\\nNow we're seeing in other parts of the end markets, so the spends and investments in environmental are quite strong. But they've not yet returned to the spending levels that we had seen prior in the food market. But again, I would say the same story here relative to the aftermarket flows.\\nWe are still seeing strong growth on the aftermarket flows in food; it's just the instrument purchases aren\\u2019t there.\\nSo it's not getting any worse but it's not getting better as we had thought.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"And then one just last clarification on the cost side. Are you taking any additional tariff remediation efforts given round three, just curios?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"We continue to be focused on additional remediation to minimize that, the increase between the round three from the 10% up to the 25% is incorporated into our guidance. It was a -- I've talked about this before, it's roughly about $750,000 to $1 million in the second half of the year, net of the efforts that we're taking.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Patrick Donnelly with Goldman Sachs.\\nYour line is now open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Just some clarity around some of the slowing you saw beginning in April. In the last call you talked about January being slow.\\nSo maybe just talk us through the cadence of the quarter, particularly in China? Were February and March trending okay and then you've got the signs of four plus seven, and April really slowed, because again one of your peers who didn\\u2019t have April in their quarter had some real softness there, which obviously was in March.\\nSo maybe just talk us through month-by-month how things trended there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We really want to make sure it's clear to the investment community what we saw during the quarter.\\nSo what I'd say is if we've been having this discussion at the end of February we're feeling really good about the quarter.\\nIn fact, we got off to a very good start. And as we looked at our forecast for the remainder of the quarter, it looked pretty solid. But as we increasingly went through the month of March, we were expecting in the last seven to 10 days our normal push of orders to close this. And I'd say normal pushes across all the regions, because often we have lot of customers who have quarter end date.\\nSo typically, March is a pretty strong month for us. And when we closed the last week or so, the orders in March, it just wasn\\u2019t there. We just didn\\u2019t get normal month end surge. And then perhaps maybe some order didn\\u2019t get booked at the end of March, we didn\\u2019t see anything unusual in the beginning of the April.\\nSo I think it was that timeframe that we knew we're in the midst of something that we hadn't expected. I would say, again, I think it caught our teams by surprise. I had been in China at the latter part of March, and we just reviewed the forecast. And then we could see that they were caught unexpectedly by customer delays in China.\\nWe also saw the same thing in Europe and in the U.S. as well.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay, that's really helpful color. And then maybe just\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Patrick, if I could just add one more thing. What I would tell you is and just to reinforce the confidence we have in regards to the second half outlook. April did come in relative to our expectations on orders, our recast orders on the LSAG front, obviously, too late for revenue. But that gives us confidence that we have a handle on where the market is right now.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"So the orders trended a little better in late April?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We came in relative to our forecast, yes. But again, we're still saying that it's going to be subdued the second half. I really wanted to -- it's not a situation where we see a continuing worsening of the end market environment, but we're also not seeing a dramatic improvement either. But we do believe we've gotten a level of predictability back in the business based on what we saw in April.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"And then maybe just one housekeeping item. Could you just help us frame how much of your business is small molecule? I know 30% is under that biopharma umbrella. But maybe just help us think about how much is specific to the\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"In fact, Bob and I were just talking about this right before the start of this call. And I think right now we characterize it as 80-20, which is about 80% is small molecule -- was about was about 85% two or three years ago. We think there will be a shift to more biopharma naturally in 2020, given just the continued strong growth we're having with today's portfolio. But back to my comments on NASD, once that additional revenue flows, you will see the benefits of our broader biopharma play that Agilent has. But right now, I'd characterize it at about 20% of our -- 20% or 30% is in biopharma.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Ross Muken with Evercore ISI.\\nYour line is now open.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"I guess just going back to China. I mean how much did you debate what to do with the assumption there, even though April came in seems like, or at least overall for the book in line. Obviously, the last couple days have been quite a lot just in terms of some of the trade tensions and the uncertainty. It's possible some of the four plus seven pieces get worse just in terms of China's restrictions. I guess, how confident are you that you titrated this correctly, not just for what you saw in April but the current macro relative to the last week or so where obviously we had a pretty disappointing outcome on trade?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Ross, great question, I almost feel like you may have been inside the hall here at the Agilent offices.\\nSo this was a big point of discussion with the team. And where we landed was our team had brought down their forecast in China relative to where we were before. And what we said is we're going to take a very conservative view. We're going to assume that the strain on the overall pharma market continues in China, as well as food there is no recovery.\\nSo basically, we're assuming that the softness that we had experienced already through much of to the back half of the quarter will continue in the second half.\\nSo I think we've tried to be prudent relative to taking a very conservative and bringing our forecast down. And as you know, we had a high single digit forecast for the full year for China, but I think we're probably at about 3% for the whole year. Again, I would remind the group too that lot of the call is focused on LSAG, which has really been the center of our weakness for the quarter on the top line. But one of the reasons why we have confidence in the overall growth forecast for China is that we have very predictable results coming through on the ACG side, which is mid-teens growth. And I think it's been fairly well-publicized that we're underpenetrated on DDG So we have expectations of good solid growth in both of those businesses.\\nSo it feels like tail of two cities, we expected the continued strength on the ACG and DDG side in China, while bringing down our expectations on the LSAG side. And Bob, I know we have lot of debate on this one.\\nSo maybe you have something else you'd like to add there.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Ross, maybe to put some dimensions to that when we think about how we've taken our guidance down for the second half of the year, really about two thirds to 70% of that reduction is really reflective of China and the other third $10 million to $15 million is probably the broader pharma.\\nSo the majority of it is the lower expectation or tempered expectations in the China market.\"}, {\"speaker\": \"Ross Muken\", \"content\": \"And maybe ACG margins were pretty impressive. The pull-through there continues to be north of 50%. I guess what's driving the massive step up in that business this year? Because the expansion even relative to what you saw in the first quarter accelerated, and so trying to get a feel for the underlying.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So Ross, I'm glad you noticed that, because we really were quite pleased with the overall margin performance in ACG. And I think I made the comment inside the company and said, listen we've proven that we can scale our service business and make good margins. What I would like to do is maybe turn the call over to Mark Doak to let him take a little bit of a bow here with the audience and maybe share, Mark, what specifically has been going on within your team?\"}, {\"speaker\": \"Mark Doak\", \"content\": \"Thanks Mike. And on the margins front, obviously, we have seen a nice expansion through the first half along that. I'd just add to a couple of things I think Mike and Bob has alluded to.\\nFirst of all, on the agile Agilent programs, many of these are shared services across the company, which certainly help the broader gross margins for the business. But inside of the business, particularly services, there has been two major themes. One is we've used advanced analytics to really look at how we can improve various aspects of our operations and using the analytics pretty widely over the course of the last year to help drive that. And now the second component of that, I have talked many times about our drive to put our business online and use things like mobile apps that fundamentally facilitate faster and more complete work flows for team on the ground.\\nSo you can put all those pieces together, it's turned up to be actually a quite positive development but this is after a lot of years of investment to really build a platform across our services business that\\u2019s scalable.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Doug Schenkel with Cowen.\\nYour line is now open.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"I\\u2019m going to have a couple more questions on pharma in a second, but I actually want to start on DDG. If pathology grew high single digits and NASD grew mid-teens, it would seem hard for DDG to only grow 5.3% core given those businesses account for about 60% of DGG sales, unless you have some weakness in genomics. How did genomics go in the quarter in the quarter? And how are competitive dynamics evolving in target enrichment? Or maybe I'm just stop off course here and if so maybe, you can point me in the right direction?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I don't know the exact math at about 6% overall for the DGG. But I think the answer would be genomics business came in exactly as we had forecasted overall. Clearly, there's some competitive wins out there on the target enrichment side. But the main challenge that we've seen have been more on our legacy genomics. And Sam, anything you might want to comment on there?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Mike, you said it right. There are puts and takes in any business. I mean, overall we performed as we expected. We had some -- we're continuing to see some really good strength related to our QC part of the portfolio.\\nAnd so really nothing more to add it's\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And the reason why I mentioned, recall our non-NGS part of genomics -- on NGS side, which is inclusive of target enrichment, which was close to double digits.\\nSo it's been more of some of the older products\\u2026\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Exactly, yes.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"So on LSAG, it looks to us like LSAG would have to decline to get to the midpoint of fiscal Q3 guidance. We get to the high end with it actually flat year-over-year. And that's not changing our DGG or ACG assumptions, which we don't think we're being too aggressive there and basically being consistent with what you guys have been talking about all year.\\nSo are you assuming LASG core growth declines in the third quarter? And if so, how do we reconcile that with your comment on instrument orders improving in April? Does that tell us something about May order trends, or is this just conservatism coming off of a weaker than expected quarter?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"As we think about the various pieces, obviously, there's some variation there. But we're assuming roughly flat for LSAG in Q3. Hopefully, that proves to be conservative. But given that we saw this late in the quarter, I think we're taking a prudent approach for Q3.\\nAs Mike said, our April orders hit our revised forecast but that's also one month.\\nSo, hopefully, it proves to be conservative but I think it's the appropriate level of forecast right now.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I think, Bob, the way that Doug's thinking about the modeling of ACG and DGG, that's just how we've been thinking about as well.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That\\u2019s right.\\nWe expect them -- they continue to perform as expected, and we would have continue to see the growth rates that they've experienced in the first half be similar in second half of the year.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"And last one, the slowdown in small molecule demand is something you've been talking about for a while. And clearly things were and are worse than you expected.\\nSo I think all of that's clear. But I want to make sure on the large molecule side that growth met your expectations?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So that's, like I said earlier, it's a tail of two cities. The biopharma continues to do quite well, both in the instrumentation side but also we've been investing very heavily on the chemistry side, inclusive of one of our recent acquisitions. ProZyme was really targeted in the in the biopharma side. And then also we have the NASD story as well.\\nSo the biopharma is right where we thought it would be.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Doug, I would say the other thing is and that we're talking a lot about pharma and certainly it didn't meet our expectations. I would say the biggest variable in the quarter though was because we were expecting the anniversary of the reorganization and to have a much better performance and it was still down.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Derik de Bruin with Bank of America.\\nYour line is now open.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"So following up on the two question, just looking and this is -- obviously, your waters has issue as well. I mean, is it some business just go to Shimadzu, or some business go to Dionex or some of the other companies that are out there. I mean can you just talk about that\\u2019s it's not just business shifting around rather than things not coming back?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"In fact, I think it was almost a year ago in my Q2 '18 call that we first started talking about the organization of the whole foods, safety and structure in China. And we're really confident the business isn\\u2019t going anywhere else, it's just not there. And when I talk about the business, think about it along two dynamics; one, which is the business that\\u2019s been shifted to contract testing labs, which we're well positioned. What we're focusing on the central agencies where Agilent has historically had a strong position. They were just not investing right now beyond supporting their ongoing operations with the chemistries and services.\\nSo we're confident that the business isn\\u2019t going anywhere else, it's just not there.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"And did you -- I mean, I think we're all surprised by the strength in the first fiscal quarter. I men, did you -- is some of the weakness just potentially as you saw the recent stockpiling you didn't see happening in Q1 that\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No, in fact I think as I said earlier, we were sitting here at the end of February thinking that this quarter wasn\\u2019t developed just as it was. And what we didn\\u2019t anticipate was just how quickly the pharma business slowed down in China and then as well as the lack of recovery on the food side. And then there seem to be this whole small molecule side in U.S. and Europe.\\nSo really, it was a tail of the latter part of the quarter. We saw nothing unusual about our -- we can't point anything usual relative to our Q1 results.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"And the U.S. and European pharma slowdown. Was this just capital not being -- I mean, I know there is always a little bit of slowness when we release the capital fund at the beginning of the year. Is it that? Or just people -- I mean, you mentioned some order delays. And I guess is because that the company is just nervous on their small molecule businesses? I mean, are they -- once again you've certainly been asked the question that they've asked to extending the life on their current instruments, or going along those lines just trying to figure out what's driving that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I think it's a little of both, Derek. I do think that there -- we haven't seen -- we obviously have a backlog, but we haven't seen orders being canceled, or people saying they are not purchasing. It's actually being delayed.\\nAnd so the question for us was, is it transitory and we'll catch up, we are taking the approach that is probably not going to catch up and it's just going to continue to push. But I also do think that there is probably some element of trying to get more mileage, so to speak, out of your existing instrumentation, particularly as they are looking at capacity.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Bob, I think it's very clear out there that we see that there's certainly a conservative procurement tactics happening right now, and people are stalling a little bit. But at the same time, we have to see that our fund is quite rich.\\nSo we still see a lot of business, but it goes much slower these days.\\nSo we actually do believe that it's a great opportunity out there, but we can't call it right now.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Brandon Couillard with Jefferies.\\nYour line is now open.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike, I'd like to step back a little bit, I've realized it's early. But could you speak to -- as we look at fiscal '20? Could you speak to the relevancy of the 4.5% to 6% mid-term range that you talked about at the June Analyst Day last year relative to the 4% to 4.5% you're going to put up this year? And what specifically needs to get better to achieve that?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think it's probably a little early to talk about 2020. But there's really isn\\u2019t anything developing that we can see that takes away from our long term view of still to grow this company. And we've got -- as I mentioned in my opening comments, we have two or three businesses, are performing very well. And we have some incremental stuff that\\u2019s going to be coming in those businesses in 2020. And then I think what we need to see is really focused on the soft points that we saw in the LSAG business, which is a return to positive growth, a higher level of growth in China, which I called out of my remarks and listen, the quarter obviously not developed as we had forecasted. But we believe that as things -- eventually things will get settled down, issues will get resolved and we'll get clarity on even in generics, which are currently under lot of pressure. When that industry gets through that knot and the survivors are going to be in a reinvestment mode and who need to drive productivity, we think there's going to be business there.\\nSo I think that part of the story for 2020 is it would turn to an improved China market environment takeover. Jacob, I think you'd like to jump in on this as well?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, I think overall we over the past few quarters, we have also delivered some very nice NPIs new products introduction here in the market, and we still have a very strong funnel.\\nSo as Mike is saying, when the market is coming back, we are absolutely in very strong position to take our share of the market.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"In addition too, as Bob noted in his call, the chemical energy business, which I had positioned earlier on is the wild card for Agilent.\\nOn the upside, we actually had really, really solid growth in Q2. And we're pretty optimistic about that for the rest of the year.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"And then secondly would love to get an update on how some of the more recent acquired assets are performing relative to your deal models, like a CN and AATI. Looks like the M&A contribution expected for the year came down a bit.\\nSo would love to get an update on how some of those assets are performing? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Overall, I think that they continue to do -- is early but in fact we just had to review on this yesterday afternoon, I mean it delivered strong double digit growth ahead of expectations.\\nSo while that is not yet in revenue so it's tracking very nicely. AATI was still very pleased with the performance to-date. The growth rates are probably a little bit slower, tied to if you look at the number of new instrument placements that Alumina had in the first quarter.\\nSo to some extent that business growth rate is tied to the growth rate of the NovoCyte and some other parts of the portfolio in Alumina. We're expecting I think, Sam, in the back half is probably looking a little bit better for that as Alumina gets one of those instruments placed.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, that\\u2019s absolutely right, Mike. And looking at overall NGS QC, we're still tracking with the market absolutely.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I think we also got a fair number tied to PacBio, so that gets resolved. But you're close to the numbers but overall, there's still double digit growth out of the companies we acquired. And I've pointed to the cell analysis business overall has been a double digit grower for us in the quarter.\\nAs being the double-digit growth for us in the quarter.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Jack Meehan with Barclays.\\nYour line is now open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I wanted to follow up and was hoping you could just elaborate a little bit more, contrasting some of the weakness on the capital side versus the strength you're seeing in ACG. I guess, just what\\u2019s embedded in the outlook for CrossLab through the end of the year? And just the level of comfort that some of the slower replacement cycle in the instrument side that the recurring piece can hold up as you look out over the next year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, we're really confident about the outlook on the ECG business. And often we find that if you have a slowing capital replacement that actually is an upside to the services, in particular where they'll often be extending the life of equipment.\\nSo, Bob, I think we're pretty -- this is an area of high confidence for us.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And Jack, we're expecting the continued performance into the second half of the year like we have in the first half. And quite honestly, the way we had in '18 as well, which is high single digit growth there, really behind both services as well as the consumables.\\nWe aren\\u2019t seeing testing volumes decline, whether that'd be in pharma or any of the other end markets that are actually quite strong.\\nAnd so we feel pretty good about that.\\nOur forecast remains unchanged there.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"And then just wanted to follow up on some of the comments related to the NASD business, obviously growth came in a little better again in the quarter than we're expecting. But just the pacing of when the new line is going to open up and just that fourth quarter step up you're expecting, just to confirm that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"In fact, we decide a review very timely call.\\nSo, we\\u2019re expecting most likely the fourth quarter is where we start to see some initial revenue coming out of the new site. We're still in the final phases of validation.\\nSo we don\\u2019t want to say we're done yet, but we're getting close. And we have our first customer lined up to for those initial batches out of our Frederick site. And we're planning and opening in mid June, but that\\u2019s just a ceremonial opening. We won't be yet producing a product that we're forecasting inside the company in the fourth quarter of this year.\\nAnd so that\\u2019s some initial revenue then with the largest step up coming in 2020. I'd also just complement Sam and his team, because we continue to find ways to get more revenue out of our existing voter site.\\nSo I would also tell you that our full year revenue projections on NASD are well intact.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And Jack, just to maybe build-on that. I wouldn\\u2019t build any incremental revenue in Q4 for your model, because as we ramp up the facility, it's really going to be a material contribution in 2020.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Puneet Souda with SBD Leerink.\\nYour line is now open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"So maybe my first question is just wanted to clarify on USP regulation. I know USP has been helping you in the past in terms of ICP-MS. Was there a step down in that application as well across the pharma channel worldwide or was it just weak in China? And what's your outlook in that business aligned with ICP-MS? I mean, I\\u2019m asking this because it's levered to small molecules and your customers are using it for analyzing the small molecule coatings.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I'll make a few summary comments, and then I'll have Jacob jump in on this. But I believe we think that was actually been declining in the pharma space. But overall, we expect really good growth in our spectroscopy business as we look out with some of the other applications given the stronger PMIs in U.S. and demand for product and other end markets outside of the USP. But, Jacob, why don't -- you're closer to than I am?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, you're absolutely right that we still have very nice opportunity last year in USP, but now it's moved on both to water analysis but also the STM business. And generally speaking, we see that the ICP-MS growth, particularly in U.S. is very strong this year.\\nSo we actually see that data, plenty of opportunity with ICP-MS. Obviously, when new regulations come in place, then there is a certain opportunity but it looks like we jumped in for opportunity in that space. And I think it will continue to grow.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"And my second question is around -- I appreciate that you're getting challenging quarter in LSAG here. But just help us understand the -- I mean, you talked about the magnitude of benefit that you received in 8890 and 8860. I don't know if you quantified that in the quarter. And I'm asking that because in last call you\\u2019ve mentioned you started shipping that instrument, I think, in the second week of February. And just wanted to get a sense of how that instrument is contributing and what's your expectation for the rest of the year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Puneet, thanks so much for asking about this, because this is a real bright spot in the overall LSAG performance in Q2, and it speaks to our view of the future. We didn't quantified and probably won't quantify the exact contribution but we did start shipping. But I'd say right now we have more orders in backlog than we shipped. And I think we're 150%, 200% of our forecast. I mean it's pretty significant.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"It has been very significant. Obviously, it is also some customers decided to move from the 78 into the 88 faster than we anticipated. But at the same time, we're also seeing that that with the 8860 going for the mid range that that combination with the mass spec has actually been quite successful also.\\nSo overall, we see good momentum but we haven't quantified the incremental.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"And just last one if I could squeeze in around food again, just wanted to understand. Again, is that business largely all LC there, or how much is the comp -- I mean, how do you look at that business in terms of the types of customers that are actually there, and how do you expect this improvement? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So when we think about the food safety marketplace, in particular, which is where we've been focusing on comments relatively China. It really is primarily a mass spec place.\\nYou're talking about GC/MS, LC/MS, ICP-MS and some standalone LCs. And I think this is one of the reasons why we've done so well in this place historically is just the breadth of the portfolio we have across all those technology platforms.\\nSo it is broader than -- for Agilent, it's broader than LC.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Catherine Schulte with Baird.\\nYour line is now open.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Just going to your guidance commentary, two thirds of the reductions from China. How much of that is four plus seven versus food?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I would say of that, roughly two thirds of it is food and about a third of it is four plus seven.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"But I think we did some rough math on the overall generic pharma there's probably two-ish.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Overall, when we think about China, the small molecule business in China is roughly 2% to 3% of the overall Agilent revenue just to frame in the size.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"And then on the four plus seven program, what's the incremental risk if that moves beyond the initial 11 pilot cities? And how long do you think it takes the market to work through these changes?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I actually think the way we're thinking about that, Catherine, is actually because while it's only in 11 cities, I think it's created a pause throughout the provinces to understand what the impact is.\\nSo it's actually got greater. We think we're seeing that impact now as opposed to further impact down the road.\\nI think actually what you'll see it's once this determined, it will actually create clarity about what's going to happen throughout the course. And we think we've seen the impact broader than just those 11 cities.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"In fact, that was the taking behind the calculation we did.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"And then just last one, we saw your SPMI drop below 53 in April, and your spends below 50 for a couple of months now. It sounds like you're pretty optimistic on chemical energy outlook.\\nSo maybe talk about what you're expecting in the back half for chemical energy and the puts and takes there?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Our chemical and energy business in the back half is, we've talked about when we gave initial guidance at the beginning of the year low single-digit, and that\\u2019s what we're thinking about. We're positively surprised in Q2.\\nFor reference, Q1 was roughly 2% grew to 6% in Q2. We're assuming low single digits in the back half of the year consistent with our early guide.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I think just on the overall, European outlook is\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And for Europe as well across the businesses we're thinking low single digits, again consistent with our estimates at the beginning of the year. We're positively surprised in Q2 but we're expecting it to be consistent with what our initial expectations were.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Steve Willoughby with Cleveland Research.\\nYour line is now open.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"Two things for you, Mike. I guess, first, as it relates to the China food business. Have you thought it all -- is it possible that the softness continues for quite a while here even though we've started anniversary it as that volume moved to these more efficient commercial labs versus the previous government run lab? And then I just have one quick follow up.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"What's happened also the charter of what these organizations do has changed.\\nSo a lot of the volume activities has been to the contract special labs and these guys are all now developing methods and the new reg.\\nSo we think they are going to require ultimately the next generation technologies equivalent to stay on leading the edge of research and development of new applications. If that being said, we're not assuming any recovery in the second half of this year.\\nSo we've become much more cautious about the outlook for food in the second half.\\nI think that\\u2019s fair\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I mean, to be honest, we've assumed recovery and it's taken a little longer than we expected.\\nSo we're going to temper our growth until we're wrong to the upside.\"}, {\"speaker\": \"Steve Willoughby\", \"content\": \"And then, Bob just one quick follow up for you. And I know you're not going to provide any 2020 guidance. But just give us some perspective on the new Frederick NASD site. It sounds like minimal revenue here in fiscal '19. Where do we get in fiscal '20 as it relates to the $100 million revenue potential capacity?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Steve, you're correct. We're not going to give a forward looking. What I would say though is we're generally on track with what we said back in June of last year in terms of the ramp up and so forth.\\nSo how that ramps across the quarters and across the year is still -- we haven't gone through our planning cycle. But what I will tell you is that we feel very good, we have a very robust funnel for products that are going into that site. We've already had some customers toward the site. Obviously, it's not operational yet, because we're still doing the validation, as Mike talked about. But it's moving along as we expected.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Dan Brennan with UBS.\\nYour line is now open.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"I wanted to ask a question maybe back to, Jacob. I was hoping you can provide a little bit more color about what you're hearing from customers on the pharma side in U.S. and Europe to account for the more restrictive budgets and if it's related to anything with global macro, maybe for Mike. Have you seen any such impact to other businesses as well?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Actually, what don\\u2019t I start off, Dan. And thanks for the question. And then I'll pass it down to -- over to Jacob for specifics on pharma.\\nWe haven't seen that in the other segments of the marketplace. And there's a lot of noise out there, so uncertainty is never good. But we really can't point to anything specific. And I think if you look at our results, I mean, you saw two, three businesses continue to perform as expected and do quite well. And then we had some isolated but obviously impactful slowdowns in aspects of the LSAG business, albeit the chemical energy, academic government, environmental forensics, and biopharma, were continued sources of strength.\\nSo I think it's really been isolated to the factors you mentioned. And I know, Jacob, you've been trying to do a little bit more diligence around this. And we have some theories but I'm not sure we have 100% specific answer of what's driving the customers and delay the purchases on the small molecule side.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"No, clearly, we are seeing that conservative procurement tactics that they are they using. And obviously, we've been out doing our own digging to understand what is really going on there. And first of all, we don't see any change in competitive dynamics. This is not -- this is truly a market situation we're in right now.\\nSo this is where it's -- people are the procurement organizations and customers and they only are just more cautious in their decision on capital equipment expenditure right now.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So I think just more speculation on our part, but we -- some of the things where, hey, there's still some question about where prices are in land in certain parts of the world in terms of unused prices, some questions about growth. And then again, as we mentioned earlier in the call, prioritization that when push comes to shove, privatization of biopharma over small molecule. Again, we just think it's a push out delay business has not been canceled.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"And then the related to a question, I know that was asked earlier, just want your clarification.\\nSo I think you gave us what pharma has baked in for Q3. Can you just let us know what assume pharma and food for Q3 and Q4 and just remind us, how big is your China food business?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"So on the on the guidance -- Dan, this is Bob. We're assuming, as I mentioned before, for pharma mid single digit growth for the full year, and that's consistent with where we are for Q3 as well on a global basis.\\nSo better than the 2% that we had in Q2. In food, we\\u2019re expecting for Q3 probably a slight decline as well.\\nAs I mentioned, hopefully that proves to be conservative but we're assuming that overall for the full-year, food will be flat to slightly down.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I think historically, Bob, it's run about 15% to 18% of our China business has been in food. Obviously, with the decline is probably close to that 15% number.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"And then if I can ask one more since that seems to be the trend here, just on the cap deployment, obviously, more towards the buyback in Q3. But how are you thinking about M&A? Obviously, you have a lot of balance sheet optionality.\\nJust wondering what the pipeline looks at and how we think about over the next say six to 12 months? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"In fact, the pipeline looks very robust. And as I signaled I believe in the last call, we're very active right now and don\\u2019t have anything announce, but we want to deploy the capital. We want to leverage the strength on the balance sheet. Bob is very explicit to how we're going to use one aspect of that relative to the buy back side, but we have plenty of firepower to execute on targets. And as you can see based on my earlier comments and some of the numbers we\\u2019re putting up with the companies we have acquired, we're increasingly confident in our ability to deliver on SOVs, if you will, for our shareholders when we deploy that capital.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Sources of value\\u2026\"}, {\"speaker\": \"Operator\", \"content\": \"And that concludes today's question and answer session. I would like to turn the call back to Mr. Dhingra for closing remarks.\"}, {\"speaker\": \"Ankur Dhingra\", \"content\": \"So with that, we will close today's earnings call. Thanks a lot for joining.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.\"}]"


