# call

companyname: Agilent Technologies Inc.
symbol: A
date: 2023-02-28
year: 2023
quarter: Q1
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, welcome to the Agilent Technologies Q1 2023 Earnings Call. My name is Bill and I will be coordinating your call today. [Operator Instructions]\\nI will now hand you over to your host, Parmeet Ahuja, to begin the conference. Parmeet, please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Bill and welcome, everyone, to Agilent's conference call for the first quarter of fiscal year 2023. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Mike and Bob's comments will be Jacob Thaysen, President of the Agilent Life Science and Applied Markets Group; Sam Raha, President of the Agilent Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news release for our first quarter financial results, investor presentation and information to supplement today's discussion along with the recording of this webcast are available 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.\\nUnless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months.\\nOur guidance is based on forecasted currency exchange rates.\\nDuring this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now, I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Parmeet. And thanks, everyone, for joining our call today. The Agent team delivered an excellent start to 2023, exceeding both top and bottom line expectations. Q1 revenues of $1.76 billion or up 10% core. Agilent's broad-based portfolio and resilient growth model are on a full display during the quarter with growth across all end markets and geographic regions. Operating margin in the quarter are 27.1%, up 80 basis points. Earnings per share of $1.37 were up 13%.\\nLet's now take a closer look at our first quarter performance, starting with end market highlights. Chemicals and Advanced materials led the way for us with another outstanding quarter, delivering 14% core growth with strength across all geographies. The strength in our pharma business continues and is up 11%, with both large and small molecule growing nicely. This is on top of 17% growth last year.\\nOur environmental friend business grew 12%, while the academia government and the food markets both grew 8%.\\nOn a geographic basis, China once again led the way.\\nOur China team continued their record of strong execution overcoming any disruption associated with COVID and delivered 13% growth during the quarter, exceeding our expectations. In Europe, we also delivered stronger-than-expected results, growing 10%. The Americas shows a solid results with 8% growth.\\nLooking at our performance by business unit. The Life Sciences and Applied Markets Group delivered revenues of $1.03 billion, up 11% core. LSAG delivered growth across all end markets and regions.\\nOur LC and LC/MS platforms continued their strong performance during the quarter, growing faster than the market at 16%. Demand in the chemicals and advanced materials end market continues to be strong. particularly for materials used in manufacturing semiconductors and batteries.\\nOur Spectra business grew more than 20% in the quarter and we continue to strengthen our base in spectroscopy across multiple end markets.\\nIn Q1, we announced an appointment at the Insight200M. This system is used at checkpoints throughout the London Heathrow Airport to officially provide enhanced security and ensure passenger safety. The Asian Crosse group posted revenue of $381 million in Q1. This is up 13% core as the team continues to take advantage of record instrument placements over the past 2 years along with continued growth and attach rates. Across our team's deep knowledge of customer lab operations continues to drive consistently high levels of customer satisfaction. The breadth and diversity of our product offerings is driving record renewals for support contracts. At the same time, our Enterprise Services business continued its strong momentum, driving growth and converting competitive accounts.\\nThe Diagnostics and Genomics Group delivered revenues of $342 million, up 5% core.\\nOur pathology-related business performed well with double-digit growth led by the Americas and Europe. NASD posted another strong quarter, growing 22%.\\nOur Train B manufacturing expansion remains on track to come online mid-calendar year. In January, we announced an additional $725 million expansion of our NASD facility that will double our oligo manufacturing capacity. And 2 weeks ago, we are pleased to have the Governor of Colorado join us in our groundbreaking ceremony at the Frederick site.\\nIn addition to organic investments, we continue to invest externally in new technologies and partnerships. In the quarter, we welcomed the Avida Biomed team into Agilent, further enhancing our genomics capabilities. Avida is early-stage life sciences company designed to assist clinical researchers using NGS approach in the study of cancer.\\nWe also continue to partner with new technology platform companies to drive our solutions in the marketplace.\\nThis quarter, we announced a partnership with the Akoya Biosciences to combine our companion diagnostic and IHC workload expertise with their solution to drive multiplex tissue assay development for biopharma.\\nIn addition to these business group highlights, Agilent was again recognized among the top 100 most just companies in the U.S. by Just Capital and CNBC.\\nAs part of this announcement, we are very proud to be the leader in the medical equipment and services industry for our treatment of employees and focus on customer relations.\\nThe Agilent team navigated challenging market uncertainties in Q1 and yet once again produced excellent results. It was a great start to the year. Q1 was another outstanding example of the work we've done to build a resilient company with multiple growth drivers. Those growth drivers create through targeted investments that aim to expand and enhance our business in high-growth areas are the heart of our Build and Buy growth strategy.\\nAs we look ahead to Q2, we remain confident in the strength and resilience of our business.\\nWe have an unstoppable One Agilent team that continues to execute at an extremely high level and is well prepared to deal with any challenges they face.\\nGiven the strong start to the year, we are raising our full year core revenue and EPS guidance while also keeping a close eye on macroeconomic conditions. I will provide the detail on our overall outlook but overall, we remain convinced our strategic focus and unmatched execution capabilities will continue to drive strong results.\\nThank you for joining us today. And now, Bob, over to you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Mike and good afternoon, everyone. In my remarks today, I'll provide some additional details on revenue in the quarter as well as take you through the income statement and other key financial metrics. I'll then finish up with our updated full year guidance and initial guidance for the second quarter. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nWe are extremely pleased with our Q1 performance. It was a very solid start to the year. Q1 revenue was $1.76 billion, exceeding our expectations. Revenues were up 10% core and 5% on a reported basis. Currency was a 5-point headwind which was an improvement from the beginning of the quarter, while the M&A contribution was as we expected. Pricing for the quarter was higher than the full year forecast also as we expected.\\nNow I'd like to share some additional detail on our end markets. Results in our largest market, pharma were again very strong. Pharma grew 11% following 17% growth of last year. Performance was solid across both small and large molecules. Small molecule grew 12%, while large molecule grew 9%. And as Mike mentioned, Chemicals and Advanced Materials also continued to be very strong, growing 14% during the quarter on top of 15% growth last year.\\nThe chemical and energy subsegments of the market are doing well while the advanced materials market continues to deliver outsized growth. Semiconductors and batteries are driving demand, helped by government investment in this area. The food market grew 8% during the quarter, driven by double-digit growth in China. The environmental and forensics business grew 12%, led by the Americas as increased testing for PFAS chemicals drives customer investment in this area and recently approved U.S. legislation leads to broad spending in the environmental market.\\nOur business in the diagnostics and clinical market grew 4% versus 11% growth last year. Pathology led the way for us here, partially offset by industry-wide challenges in the genomics market. And the academia and government market was up 8%, led by LCs and services. Regionally, Europe and Asia showed strong results.\\nOn a geographic basis, the China team delivered 13% growth and Europe grew 10%, both exceeding expectations. The Americas had another solid quarter coming in at 8%, in line with our expectations.\\nNow let's turn to the rest of the P&L.\\nFirst quarter gross margin was 56.5%, up 40 basis points from a year ago. The gross margin performance, coupled with good cost discipline and SG&A helped drive our operating margin to 27.1%, up 80 basis points from last year. Below the line, our tax rate was 13.75% for the quarter and we had 297 million diluted shares outstanding, both as expected. And putting it all together, earnings per share were $1.37, up 13% from a year ago. In summary, Q1 ended with 10% core top line growth and 13% earnings per share growth, a very good start to the year.\\nNow some metrics on cash flow and our balance sheet.\\nIn Q1, we generated $296 million in operating cash flow, up 16% versus last year, while investing $76 million in CapEx. CapEx spending continues to be driven by our scale-up of our Train B manufacturing line and other capacity expansion projects. In the quarter, we returned $142 million to shareholders through $67 million in dividends and by repurchasing shares worth $75 million.\\nWe also announced we're increasing our dividend by 7%, along with a new $2 billion share repurchase authorization continuing our successful balanced approach to capital deployment.\\nOur balance sheet continues to remain healthy as we ended the quarter with a net leverage ratio of 0.8.\\nNow let's move to our revised outlook for the year and the upcoming quarter. The macroeconomic environment remains dynamic and interest rates and currencies continue to be volatile.\\nHowever, given the good start to the year, we are increasing our full year revenue to a range of $7.03 billion to $7.10 billion. This increase updates our full year core revenue guidance to a range of 5.5% to 6.5%, increasing the midpoint of our guidance to 6%. We've also seen the dollar weaken against major currencies in the first quarter although it has rebounded somewhat in February. And as a result, the full year guide reflects $100 million of favorable currency movements since our initial guide in November. And for the full year, we still expect currency to be an almost 300 basis point headwind to reported growth.\\nIn addition, we're also raising our full year EPS guidance to a new range of $5.65 to $5.70 per share.\\nAnd lastly, given the recently announced NASD expansion to double our oligo manufacturing capacity -- we are updating our forecasted capital spending for the year to $500 million, up $200 million from our guidance at the beginning of the year.\\nNow turning to Q2, we expect revenue in the range of $1.655 billion to $1.680 billion. This represents core growth of 6% to 7.5% and reported growth of 3% to 4.5%.\\nCurrency is expected to be a headwind of 3.1 points, while M&A will contribute 0.1 points of growth in Q2 which is consistent with Q1.\\nSecond quarter non-GAAP earnings per share are expected to be between $1.24 and $1.27, representing growth of 10% to 12% versus the prior year.\\nI'm pleased with how the team has delivered in the first quarter.\\nWe are focused on the things we can control.\\nOur team is driving strong execution in the marketplace and coupled with our broad portfolio of products and services, we expect to continue to grow faster than the market as we go through the year.\\nThanks for being on the call. And now I'll turn over things back to Parmeet as we take your questions. Parmeet?\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Bob. Bill, if you could please provide instructions for the Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] We take our first question this afternoon from Matt Sykes of Goldman Sachs.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Mike and Bob, maybe we'll start on ACG, just given the quarter that it had and the comp it was facing last year, you've talked in the past about areas of underpenetration.\\nI think China was a region you called out. Could you just maybe kind of give us a mark-to-market on where you feel from sort of an end market and regional standpoint, there's still a lot of room for that growth in ACG if we see it continue throughout this year and into next?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Thanks, Matt.\\nFirst of all, I appreciate the recognition of the numbers we posted and we think there's still a lot more opportunity in front of us. And I want to actually have provide a little bit more color on where those opportunities may lie.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nSo look, I think the broad product offering across the hardware platforms where we've had a value to -- where we add a lot of value to customer operations has been broad-based. We certainly see a lot of our offerings, particularly around asset utilization and so on, being able to be used outside pharma in different industries and we see that as an opportunity to grow.\\nI think also given our big installed base and our ability to attach in different markets and sectors is going to continue as we go through the year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I think we see a lot of opportunity, obviously, in China. That's when we flagged in the past.\\nThe other one that we're pointing to is a lot of the growth has historically been centered in the pharma space. We're seeing growing interest in the CAM space as well.\\nSo I think from an end market perspective, that's an area we would expect to see some more growth. And geographically, the China story still hasn't fully played out yet. And then again, I would just remind you, Matt, some of the points we made in the call, record renewals for support contracts and also clearly taking share on the enterprise level. Those attach rates we keep talking about are going up as well.\\nSo a lot to like here.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great. And then maybe just kind of refresh us on your outlook for instruments. I mean you've kind of guided to a mid-single-digit growth for the full year.\\nGiven that we're a little ways into this year, you probably have a little more visibility on that backlog. How are you thinking about sort of the back half for instruments overall?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo first of all, let me -- I'm taking a bit on this with Bob but let's -- I'll talk about the backlog, first of all, I think it's very important to just to remind the audience that the quality of our backlog remains extremely high.\\nSo -- and you can see the great work of our team at to work down the backlog but we're not seeing any cancellations or anything pulling out of backlog.\\nSo that gives us level of confidence around the revenues we can forecast.\\nI think there really isn't anything new to talk about today relative to new news relative to the second half, we still remain -- we still want to acknowledge the uncertainty about the back half of the year.\\nSo really no new news here. It's very consistent to what we talked about in November.\\nI think you're going to hear a lot of us talking about normalization of growth rates -- normalization of deal cycle times.\\nSo the funnels remain healthy. The deal cycle times are I think we've already more towards historical levels. And Bob, I don't know if you'd add anything to that?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"No, I think you're right. I mean, I think, obviously, we had a very strong start to the year with double-digit growth from LSAG we will go up against very tough comps in the back half of the year with the recovery of the business. But as Mike said, pleased with the very good start but not anything material change.\"}, {\"speaker\": \"Operator\", \"content\": \"The next to Brandon Couillard of Jefferies.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike, I think you said China was up 13% in the quarter. That's a lot better than we've heard from some of the other counterparts. Could you unpack that a little bit for us? Could it perhaps have been due to the fact that you're 1 month later maybe talk about linearity in China through the quarter and if your outlook for the full year.\\nSo I think it was high single digits has changed at all.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Well, I'm glad you noticed, Brandon and if you were in the conference room here, you see there's a lot of smiling in the room here because really proud of what the team has done here.\\nSo I don't think it's all a timing issue. It's about execution and its ability of this team to execute because our teams were hit with waves of COVID during the quarter. But we know how to execute. We've also enabled the -- our ability to interact with customers digitally.\\nSo while people maybe couldn't go to the office or couldn't go to customer sites, they were able to support the customers.\\nSo we were just -- we were just delighted with the performance out of China in Q3. And Bob, I think it was a broad-based story. We had growth and double-digit growth in pharma, chem, food.\\nSo it was really pleased with the results. I know our narrative is different than others are saying but I also think my team in China capability is also different.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Got it. And then on the NASD Train C, I guess, expansion. Can you just talk about time line for that build-out. And as I remember back to Train B, I think a good amount of that was already kind of earmarked for customer demand. In the same case this time around with the current expansion.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. I want to tag team a bit with this with Sam and myself and Bob.\\nSo we evenly refer to Train B. That's the latest expansion that's coming online this year.\\nIn fact, we had a chance to see that firsthand when we went to the groundbreaking ceremony for what we call Project endeavor or as you're referring to [indiscernible]; it looks really good. We're on track for that mid-calendar year go live and we have a full book of business for that just a matter of ramp. And again, project up. And then I'm going to pass it over to Sam and maybe you want to remind, Brandon, what our plans are with the new expansion, when we expect to see some of that first revenue coming into Agilent.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Yes, happy to do so. And as you mentioned, Mike, first of all, we're tracking right on plan for Train B, right, midpoint -- midyear coming on. And it was great to see first-hand, Bob joined me really the progress that we're making, the facility is looking really, really nice. A lot of validation work happening miles and miles of stainless steel piping and other infrastructure that's been put in place.\\nAs you also noted, we did at the end of February, the middle of February, pardon me, the groundbreaking for trains, C and D. And these projects will take some time but we've started the process and the first revenue from that would be coming online in 2025. And remember, there's 2 trains, Train C and Train D, both dedicated to siRNA, antisense capabilities as well as expanding our ability to serve customers with single guide RNA or CRISPR.\\nSo excited about the progress in the NASD team under Brian Crude's leadership is firing in all cylinders.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sam, unless you're going to commit to me for earlier to go live.\\nI think you meant to say '26, right?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Did I say '25? Thank you, Mike, for catching. Usually, you're the one that accelerates me instead of the other way. Indeed, it's '26. Thanks for catching that.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And Brandon, to your point around the question of purchase orders and so forth.\\nWe have good visibility into the pipeline in the funnel but we haven't started taking orders given the time frame there.\\nSo we have high confidence that we wouldn't be putting in $725 million into the expansion.\"}, {\"speaker\": \"Operator\", \"content\": \"We're going next now to Vijay Kumar of Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Congrats on a good print here, Mike. My first question here on the second quarter guidance, 6% to 7.5% organic. That's a sequential step down of 250 basis points at the high end. I guess the comps get easier. Is there anything in the second quarter? Was there any timing of revenues that got to fall to Q1? Or any China impact, anything that can explain here at the sequential guide for 2Q?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. I'll pass this over to Bob for additional detail but I think the answer is no, not the unusual about movements between the quarters. And Bob, I think what we're going to do is we want to set up another guide in Q2 that was above our full year guide.\\nSo that was the process there.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That's exactly right. I mean, I think as we look at this, we just came off a 10%, still 6% to 7.5% is still significantly above where we're forecasting the full year and I think we feel good and I think it's consistent with how we have guided in the past.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I have missed we're very prudent yet today, Bob?\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"I was waiting for that, Mike.\\nSo have to say the second quarter is a prudent guide. Is that a fair comment?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"That is correct.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Fantastic. And then I did have one on this NASD, Mike -- at Novartis.\\nI think they're pulling their API manufacturing in-house. And I know you're starting to train to see maybe provide some context and how big is Novartis as a customer? What's the pipeline looking in ASD and uses at risk?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. I'll tag team on this. I'll lead and Sam, if you want to add some additional color. But first of all, the announcement from Novartis is no new news. We -- that has always been part of the plan and we actually have contractual agreements relative to how much of the on market demand we get.\\nSo that's all well known. But relative to the Novartis is one of the many customers we have in this business and we really have worked hard to build a diversified book of business. And we talk a lot about Novartis great customer. I talk a lot about Anylam because we're allowed to talk about those programs but we have a much broader base book of business. And I think that gives us a lot of confidence as we move forward because we have a number of programs that we're supporting. We know not everyone is going to hit but we know that there's going to be a lot of success rates there as well.\\nAnd Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, let me just add something. I mean I would say this means nothing to our expansion. I mean or I want to be very clear about that. I mean I think we feel very good about -- we've continued to be capacity constrained. We've had more orders than we can satisfy. And I think that continues to be the case and we feel extremely good about the overall technology and our position in the marketplace.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Bob. I appreciate that build.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Mike, if I can just add just a couple of quick things, right? We've stated this before. We think the therapeutic oligo market for the suppliers that we are $1 billion today, growing to $2.4 billion by 2027. And what's really encouraging about the market is the number of molecules that are advancing, right? Just to give you a little bit more color, we're doing work with over 30 pharma partners today and on dozens of programs at various stages.\\nSo the pipeline of programs are working on, some of which have the potential of being molecules also broad populations is absolutely there and something that we're excited about.\"}, {\"speaker\": \"Operator\", \"content\": \"We go next now to Puneet Souda of SVB.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"So first one, Bob, I don't know if I heard it on the call, contribution sort of from pricing in the quarter and for the full year. If I'm correct, you are still expecting 3% pricing contribution this year and that would imply a 3% volume contribution which it appears below historical levels for what Agilent has grown.\\nSo just maybe just -- we're trying to understand, given the tailwinds you're seeing in China, NASD and the other areas and obviously, congrats on the strong growth in the quarter.\\nSo is there anything you're seeing beyond sort of tougher compares that are emerging in the sort of the second half?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"No, it's a great question.\\nSo I did make a quick reference in the prepared remarks. Actually, Q1 was higher than the overall 3% as expected.\\nWe are still planning and forecasting that 3% price contribution for the full year of FY '23. And you're right, that would speak to roughly a 3-point volume. What I would say is we're taking it 1 quarter at a time.\\nAs we've said, we're dealing with -- looking forward, there's still some uncertainties around macro. And that's where I think our forecast and our guidance is prudent to use that word again. But I wouldn't say anything has materially changed since the beginning of the year from that standpoint. And I've been very pleased with our ability to continue to maintain that pricing throughout the course of the last several quarters and I would expect that to continue going forward.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. That's helpful. And then on the Lunar New Year, is that part of -- is that baked into the guide as well? And I just wanted to clarify on China. I mean obviously, you have heard about the stimulus, your -- actually Agilent is listed -- one of the companies listed within the document that was put out for the loan stimulus for China. This is sizable. How are you thinking about it? You obviously have the longest and one of the most legacy positions in China.\\nSo just trying to understand what does that mean for China growth in 2023 and '24.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You want to take the first part of the question.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Sure. Yes. But the impact of Lunar New Year was not only in Q1 but it's also been reflected in our Q2. It was roughly 0.5 point headwind in Q1 and that's come back to us in Q2.\\nSo it was kind of as planned. And in regards to the stimulus, the way we're looking at this is Sims got kicked off in the calendar Q4. There is a section in there that's focused on equipment for universities and hospitals. But from our perspective, it's still early.\\nSo we're kind of waiting right now to see how it plays out. And but I think at this point, we really haven't put anything assumed in our guide or China growth relative to the stimulus.\\nSo if it does get deployed and comes to our way, then that will be an upside to our current forecast.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I think Puneet, you said it well. I mean, our business in China continues to be very, very strong and I couldn't be prouder of the team, how they delivered in Q1 and that's continuing strong momentum throughout the second half of last year and we would expect that to continue here in Q2 as well.\"}, {\"speaker\": \"Operator\", \"content\": \"We go next now to Rachel Vatnsdal at JPM.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Congrats on the quarter.\\nSo first up on semiconductors, one of your peers have flagged that they were expecting the semiconductor market to be soft throughout 2023, just as semiconductors or semi customers were facing a reset just given a macro environment.\\nSo you mentioned strength in semi-dry prepared.\\nSo can you just walk us through, first off which part of the market do you guys really play in, in semis? And then are you seeing any of the softness that one of your peers have flagged?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I'll start and then we'll turn it over to Jacob to give some additional color about where we play and so forth. But I would say the short answer is no. I mean, our spectroscopy business grew over 20% in the quarter and we're still seeing strong demand. And Jacob, you want to provide a little more color?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely.\\nWe have -- I would say we have the strongest portfolio in atomic recopy for this market in semi but generally speaking, in material science. And we continue to see demand from the semicon industry, both in the fabs but also in the upstream for all the fine chemicals that goes into the fabs, they require the same level of QC testing like they do in the labs and hence, they are using the same instruments.\\nSo we see a lot of benefits. Those were the new fabs built but also for the continuous operation in the labs.\\nSo we expect this to continue for a while. We, of course, see a lot of news around investments into this in other parts of the world, also particularly in the U.S. Obviously, that will take some time before it comes into play. But we are -- we expect the whole semicon market to continue to be an upside for us. But as I mentioned also, we also see a lot of interest in the rest of the materials market, particularly in lithium batteries, where we see a lot of demand, not only for our spectroscopy business but really across our broad portfolio where lithium battery needs both the LCs, the GC, the spectroscopies and the CMS.\\nSo we are very excited about that space and see a lot of continued growth there.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Jack, I think the point you made earlier, too, about some of the funding environment, we're seeing some government funding coming in from different parts of the world as part of the semiconductor industry which has benefited us.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great. And then maybe just shifting over more towards pharma biotech. The small molecule grew faster than large molecule this quarter.\\nYou've talked in the past about some of that outpaced strength in small molecule being driven from spending related to instrument purchases that were delayed back in 2018, 2019 time frame. Can you walk us through really what inning are we in, in terms of that catch-up spend? And how long can you sustain an outpaced growth in small molecule before it kind of resets back to that normalized level? And then just update on large molecule as well.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Rachel, do I dare pass this question to the Danish member of the staff over that baseball analogy but I think, Jacob, got a great print on LC and LC/MS 17% growth, clearly outpacing the market. And I think we saw some really good strength in small molecule in particular this quarter.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely. I will start by saying, I don't think this is a baseball game.\\nI think there is a continuous opportunity on indicate space.\\nSo -- and we see both opportunities and we continue to believe that there is a big market in small molecules. And I think the current performance is a reflection of the investments we have done into -- we made into our portfolio over the past years both for the LC and the CMS.\\nSo it's really, really focused very much on where we have gone strategically on a lot of investment into making robust reliable and routine instruments and instrument solutions.\\nWe continue to spend significant time to truly understand our customers' pain point that is not only about the overall performance but also about how you can ease of use, a lot of smarts we put into the instruments and of course, also continues on focus on uptime of instruments. And our commercial organization is brilliantly going out and connect both our consumables and also the service contracts to it.\\nSo this just continues to be a great business for Agilent.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Rachel, maybe -- this is Bob, maybe I can add a few points because we talked at the beginning of the year, about this strong performance kind of normalizing this year.\\nWe also said if it continues, we're going to take it. And I think what you're seeing is some of that as well. But we still do think that this will normalize over time. And the portfolio that Jacob and team have I think speaks very well to us growing faster than the market. And I think you talked about the biopharma, the beauty of our business is we've got that nice diversification across both small -- and small and large molecule and certainly starting up the year very nicely.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Derik DeBruin [ph] of Bank of America.\"}, {\"speaker\": \"Unidentified Analyst\", \"content\": \"This is Peter [ph] on for Derik. Could you just dive a bit more into the latest on what you're seeing in Europe? You've expressed in bending some caution, particularly in Chem on the last call.\\nSo if you can touch on that as well, that would be great.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo I hope it came through in the call remarks and I'll make a few comments here, then invite organ here as well but we were delighted with the print in Europe in the first quarter exceeded our expectations. Actually, the strength across the marketplace was pretty good.\\nI think 5 of our 6 end markets were growing high single digits or better.\\nI think the standouts for us were actually the chem markets along with diagnostics. But I have to say we continue to watch closely the investment plans particularly for our large accounts in the chemical space as well as pharma space. But we're off to a really good start but that's -- that remains a watch area for us. But again, we're delighted with the broad-based growth we had. And I don't know if you...\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"I think you said it all, Mike, I think it's broad-based in 5 out of 6 markets, growing high single digits. And I think what the team has been able to do has been able to really work together to take share in a lot of areas on all the markets and our focus, of course, on attach rates in both services and consumables has really benefited as well.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think we don't talk about weather but I think the more favorable weather environment in Europe actually has put less pressure on customers relative to energy cost and energy demand.\\nSo that's been net positive but we're still keeping an eye on things.\"}, {\"speaker\": \"Unidentified Analyst\", \"content\": \"Okay. And then could you just discuss your margin outlook and then pacing across '23? What's kind of -- and then further ahead, kind of what's the level of expansion potential going forward? How much gas is left in the tank there, looking out in the out years?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You want to take that, Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I still have gas in the tank, yes. I mean I think, obviously, despite the inflationary environment that we're in, we're still able to manage growing our margins.\\nYou saw both a nice balance here this quarter with about half of it coming through gross margin as well as half of it coming through OpEx.\\nI think as we think about it going forward, I think that 50 to 100 basis points over the course of the next several years is still a reasonable way to think about it. That's how we're thinking about the rest of this year as well.\"}, {\"speaker\": \"Operator\", \"content\": \"And we'll go next now to Dan Brennan of Cowen.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"On the quarter -- maybe just the first maybe the first one, another a few questions asked on the Chemical and Advanced Materials segment. But obviously, great growth in the quarter.\\nJust wondering, with your new higher guide for the year, are you assuming something above the mid-single-digit outlook that you previously guided to for the year? And would love if you can give us any color on kind of how the growth broke out this quarter between advanced material and then chemical and energy.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. That's -- it's a great question, Dan. I'll take that.\\nAnd so with our revised guide, we have ticked it up a bit, given the strong performance that we had in Q1. And we continue to be surprised to the upside. When we talked about it at the beginning of the year, what was a source of upside. This would have been one of the markets that we would have talked about. And what we're seeing is actually good growth across all of the submarkets in our chem market. If I think about the chemical and energy markets, those were up high single digits and the growth was really outsized in that advanced materials that we've been talking about.\\nSo that semiconductor in batteries area grew in excess in the high 20s.\\nAnd so this is a continued strength really given not only the investment there but really the power and strength of our portfolio to be able to supply critical tools and instrumentation into markets that are really continuing to expand.\\nSo we're expecting that don't book high single digits and the high 20s for the rest of the quarter, so we'll take it. But we're expecting a slight uptick there, given the strong performance that we had in Q1.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great. And maybe just one on the balance sheet. Obviously, the -- it's in great shape, leverage is very low.\\nJust wondering what you're seeing from the M&A environment. Obviously, Waters had a deal in the quarter. I'm wondering what you're seeing in terms of -- have you identified any interesting opportunities like what's the appetite like for sellers to kind of move forward? Just wondering what we could expect for management while it's always hard at time. I'm just kind of wondering about your appetite potential to do something bigger since you guys have been looking for the right fit.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. No, I think you're closing -- happy to comment on the day your closing comments exactly where our head is at which is the right fit.\\nSo we think the environment is much more favorable than it was a year ago. We think it's now much more of a buyer's market, so to speak. Most people are willing to come off at a view of last round. There's still some dialogue around there.\\nSo we're -- we have obviously nothing to announce but we remain very interested in looking for opportunities that can augment our core organic business and this is at the heart of our build and buy growth strategy.\\nAs I've said a number of times, the buy side is all optionality for us. We'll do just fine with all the bets we have right now. But if we see the right thing, we will move on it. And we just have also just wanted to make sure we stuck with our framework and we don't ever want to have buyers remorse.\\nSo we've been very happy with all the deals we've done to date and we'll continue to use that framework moving forward.\\nI think that fit piece that you described is really a key criteria for us.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Patrick Donnelly of Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Maybe one on just the order side. I know you guys talked a little bit about the backlog remaining pretty healthy. Can you just give a little bit of color in terms of what the order growth looked like in the quarter? I know last quarter, you guys started eating into the backlog a little bit which is natural, just given the supply chain is normalizing a little bit. Can you just talk about, I guess, order growth versus revenue growth, what you saw in the quarter? And any color there would be helpful.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nLet me make some summary comments and then Bob, feel free to jump in here. But as you mentioned, we don't specifically provide book-to-bill ratios. But what I can tell you is that orders for the quarter were greater than revenue.\\nSo -- and so we continue to grow orders with particular strength in our ASD and the services business.\\nOn the instrument side, we continue to bring down this record backlog we had as we really are focused on meeting those customer shipment requirements and really thanks to the great work of the order fulfillment team, we've really been able to get back to a normal flow of shipment times and delivery commitments.\\nAgain, I would just say that the funnels remain healthy, the backlog is still a very high quality.\\nI think we have pretty much next to no cancellations.\\nSo the quality is good. It gives Bob and I that level of predictability around revenue from that backlog.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I would say, as Mike said, I mean, the backlog continues to be healthy and we haven't seen anyone back out of any cancellations or anything like that, that would be beyond kind of the normal activity.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"But I would emphasize one point I made earlier, the deal cycles are reverting towards the historic norms in this space. Again, this whole construct that we see of a normalization of particularly the analytical instrumentation marketplace evolving.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Yes, that's helpful. I appreciate that. And maybe just on kind of the environmental spend, PFAS testing.\\nYou've called out the last couple of quarters, Mike, I know you're excited to see some actual infrastructure dollars coming through in the U.S. here. Can you just talk about what you're seeing there, kind of where we are? I mean, it seems really early but just your perspective on kind of how that's tracking, what impact you guys are seeing from that and obviously, the durability as well.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure. Happy to talk about that. And I actually happen to have Jacob talk about it because I think you've just spent some time in front of the Board recently and talking about the PFAS opportunity. I don't want to educate the Board on what it's all about but the durability of growth we're seeing, we see here.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely. And we continue to see a lot of opportunities in the PFAS where at the beginning was really all about looking for PFAS in the water supply and now it's moving into food and other types of areas.\\nSo I think you are right, we are still in the early phases of the growth opportunity.\\nAs you know, the U.S. infrastructure build, there was a $4 billion set aside to PFAS testing.\\nAnd so we have one of the leading solutions here. I mean PFAS is very difficult to measure.\\nSo you need high-end instrumentation but also very specified sample prep and consumables to really make sure that you don't contaminate why you measure.\\nSo we have spent a lot of energy of putting a high-quality solutions out there and we continue to see a lot of opportunities and we will continue to invest in this space beyond PFAS.\\nI think environmental is really a place that there will be a lot of investment going in over the next decade.\\nSo really excited about that area also besides the Advanced Materials.\"}, {\"speaker\": \"Operator\", \"content\": \"And we'll go next now to Jack Meehan at Nephron Research.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Wanted to spend a little time on DGG. Maybe start with the pathology business.\\nSo double-digit growth was stronger than, I guess, what we've seen in the last few quarters. Was there anything you noticed in terms of the uptick in the quarter?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Jack, I'm going to actually pass that over to Sam because Sam actually is calling in from Denmark. He's actually with the pathology team right now.\\nSo you can get it latest and greatest on the ground from Glostrup. Go ahead, Sam.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Thanks, Mike. Jack, thanks for the question. I'd offer you a couple of things that we've observed in the quarter and I think are also promising going forward.\\nFirst of all, we continue to see the trend of hospitals and health care systems being able to work through COVID and start to reprioritize cancer diagnostics.\\nSo overall, I think that's been something that's positive. We've continued to see strength in our IHC solutions, be it our companion diagnostic solutions that are in the market. But more broadly speaking, including for the antibodies that we have, that we sell as ready-to-use reagents. We're also continuing to see good traction for our advanced staining system, the Dakotas.\\nSo all of that, you look at that geographically, we've had some good success, particularly in Europe but the Americas as well.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. And then sticking with DGG, either for you, Sam, or for Mike.\\nJust on the genomics side, I was backing into sort of like a high-teens decline in the quarter, if that sounds right. I'm just curious, different companies have called out different issues in this end market.\\nIf you could talk about just maybe what exactly you're seeing, that would be great.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, I don't remember the exact number but it was down but not to that extent.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, it was down close to double digits but not high teens.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay. And I'm going to have Sam talk about this but we're seeing some what we think is a transitory disruption in the diagnostics side of genomics that there's a lot going on with a lot of the diagnostic firms where we provide our solutions into their assays.\\nSo Sam, your perspective on the think would be really good.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, happy to provide that. And building on what you said, Mike, right, there's a lot of public information now that I'm sure, Jack, that you're aware of, it restructuring or other sort of operational challenges at a number of customers from research into technology-driven genomics companies and diagnostic testing companies are going through. Based on that, we've definitely seen conservatism from customers that they've pulled back on purchasing levels. They're working down excess safety stock that they perhaps have built up. And we've just seen a little bit of hesitation in purchase patterns.\\nNow that being said, just recently, earlier in February, I had the chance to attend AGBT which is one of the most important technology and science conferences. And there, we definitely saw good interest for our early access that we've been doing for our SureSelect cancer CGP which is a comprehensive cancer panel 679 genes.\\nWe continue to see really good interest in our Magnus automation system which is the walk away for our SureSelect platform and our broad-based market leadership and genomics and NGS QC remains intact.\\nSo I think this is some market headwinds that we're seeing but it's just, I think, a transitory thing, as Mike mentioned.\"}, {\"speaker\": \"Operator\", \"content\": \"We take our next question now from Josh Waldman of Cleveland Research.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"For you -- two for you, if I may.\\nFirst, on the core growth guide, I wondered if you could provide a bit more color on the considerations that went into reiterating the top end of the core growth outlook for the year. I guess, maybe a bit surprised, we didn't see more of the Q1 upside flow through to the full year. I'm wondering if maybe this is backlog work down benefit here in the quarter that starts to abate as we get into the second half for some, I guess, something else?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Bob, I'll let -- I think the headline is more just the recognition of the continued uncertainty about the back half but...\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I think the way to think about that, Josh, is we raised the midpoint of the guidance delivered 10% in Q1. We're saying that Q2 is going to be higher than the full year. And we're going to take this 1 quarter at a time, given some of the uncertainty that we're seeing. Obviously, we did talk about having great visibility into Q1 with some of the backlog activities and so forth. But I wouldn't say it was just that. I mean, I think what I would characterize it as a prudent guide given kind of what we're seeing and taking it 1 quarter at a time.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Got it.\\nOkay. And then, Mike, following up on pharma, I think these accounts typically start to get better clarity on their full year budgets this time of year. Wondered if you could update us on what you're hearing from key pharma accounts with respect to instrument budgets and purchasing plans here in '23?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sure, Josh.\\nIn fact, Padraig, I think you've just done recently around with some of the large pharma accounts and...\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nSo I think what we're seeing is our funnels are very, very stable on it. And of course, you're correct, the pharma budgets are set around this time of the year. And I think we're watching closely on how that moves to the second half but for now, no change.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So I think we probably haven't seen any surprises on those like themselves but they're not aggressively releasing yet either.\\nI think that's -- that's why I made a few times on this call comments around normalization of deal cycle times.\"}, {\"speaker\": \"Operator\", \"content\": \"And we'll take our next question now from Lisa Garcia of UBS.\"}, {\"speaker\": \"Lisa Garcia\", \"content\": \"Congrats on the quarter. I wanted to talk about sell analysis if we could. Obviously, it's like a $400 million business over for you at this point. I'd love to hear about performance. And then I think in a recent presentation, kind of indicated that it's pharma that's like maybe the largest customer set followed by research.\\nSo it would be great to get a sense of kind of the different customer groups and what you're seeing there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"It's hard to get all the good news in but I think we had a good start to the year at cell analysis, Jacob, as I recall?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. We had another good quarter in sale analysis. Actually, we're really proud of what we build up of the business over the past years here in cell analysis in the M&A and the acquisitions we have done. And you're absolutely right that the main opportunities are within the biopharma academia and we've actually done a really good job in diversifying where we had some of the business we acquired was very exposed to academia and we've been able to really penetrate into the biopharma over the past years.\\nSo we continue to see opportunities and especially actually in the high end of the business that there's still a lot of opportunities in the biopharma space and especially in understanding the immune system, immuno-oncology, CAR-T and others is areas that we have put a lot of investments into and we see that pays off.\\nSo I believe there is still a lot of opportunities in front of us here. There is a strong correlation there in the biopharma academia space. There's a lot of collaborations where especially if you look into the CAR-T where you see a lot of the big university hospitals that is investing into this.\\nSo it's kind of a crossover between the academia and biopharma right now.\\nSo we see opportunities in both those areas right now.\"}, {\"speaker\": \"Lisa Garcia\", \"content\": \"Awesome. And then I guess...\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Just one other comment.\\nJust you had asked about kind of growth rates. What I would say is it grew faster than the overall company faster than LSAG.\"}, {\"speaker\": \"Lisa Garcia\", \"content\": \"Awesome. Super helpful. I guess if I could just squeeze in one last one on the attachment rate.\\nYou're just crossed over the 30% line.\\nI think I'm more thinking about kind of -- how do we think about kind of the incremental, particularly I'm thinking about services, ACG did pretty well this quarter. The revenue progression as we're looking at a larger installed base that's been put out over the past couple of years?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And I'll have you make some cost or part. But I think we're expecting the continued step-up in that attach rate.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nI think there's significant opportunity to drive growth for our business and it's about at 1 point of attach rate is about $30 million annually. And we know our customers have adopted workflow solutions that a tight integration on the instruments. And that allows us, of course, with the 1 commercial organization to demonstrate the value and of course, attach more services and consumables. I will say if you think about what Jacob said about PFAS and biopharma, our focus on solution selling has really paid off. That's really driven attach rates. And I think our overall attach rate in both services and consumers are now in the low 30s and that represents a 2% increase and we expect that to grow as we move forward.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And as your question focused on the attach rate on services. But I'd be remiss not to have Jacob talked about what's going on in attach rate to consumers that ties in this workflow solutions because we did make some changes organizationally but the ACG strategy of driving connect rates and services and consumables remains intact.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, exactly. And I think along what Padraig mentioned is that there's been a lot of investment from both the businesses and in commercial about driving connect rate also with consumables. And it's more about selling the full solution and hence, going out not only present an instrument but percent, the instrument is the consumables, informatics to go after as Padraig was mentioning, PFAS, other workflows in the biopharmas and really addressing -- we're starting to addressing the high-end parts of the market. And we've seen a significant uptake in our attach rates in our consumables and -- and I would say we are -- we will continue to see growth. We still have a long -- a lot of opportunities but I've been really impressed with the team to take it from the 20s up way beyond the 30s now.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Paul Knight of KeyBanc.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"On the RNA or the oligo production business, it looks like we've had, I guess, 4 or 5 here in the last 4 years or so dominated by Alnylam and Novartis. I'm assuming that this customer count you talk to and project count is expanding well beyond that group of that customer.\\nSo my question really is what's your position in the market? Do you think you're the dominant vendor? And two, does this number of partners suggest you're going way beyond Novartis and Alnylam?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Paul, I'm really glad you hung on and got your question because very enthusiastic to answer that question.\\nWe have a much broader base of business beyond 2 very good customers but the programs go much, much, much broader than that.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And we are the market leader.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. We crossed over on the siRNA piece.\\nWe are clearly the market leader.\\nWe are going to be going after more aggressively the CRISPR space where we can't yet claim leadership. But overall, we've really -- with the capacity expansion, the continued great work of our team.\\nWe continue to gain market share. And from the math we're doing, we've now crossed over in the leader in the space.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"So in fact, what you're really building out is the kind of market or the technological I guess, threshold we've now achieved. Is that fair to say?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I'm not sure I understand completely the question. But I think what we're doing is, I think I got it which is we're actually expanding our portfolio which is we're the leader in siRNA. We've got a broad base of business broad-based set of number of pharma customers. Over time, you hear more about those when their therapeutics come to market. but also we're expanding into the CRISPR area. We've got a small business there right now. We do really well. We just don't have all the capacity we need and that's part of the storyboard what we're doing, what we call Project Endeavor.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And Paul, to build on what Mike was saying is not only are we expanding but I think just as importantly, the market is expanding.\\nAnd so the Alnylams of the world were the pioneers of this technology or one of the pioneers. But if you look at the number of products that are in the clinic or compounds that are in the clinic, it goes well beyond the 2 customers that you just talked about.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Rob, maybe just to add just a twitch color to that. The actual number of programs that are in various stages has literally doubled over the last 4 years. And then in terms of pharma partners, we're not in a position today to share anything publicly. But I already said we're working with more than 30 pharma partners. And I think what's encouraging for us is even within pharma, the caliber of the companies that have now entered and advancing molecules at various stages.\\nSo this is a market that is maturing the number of FDA approvals that have happened, European approvals that have happened.\\nSo there's momentum in the market. And we are -- we've worked hard to be the leaders in siRNA but there's momentum that's there for us to ride as well.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. And gentlemen, it appears we have no further questions today. Parmeet, I'll hand things back to you for any closing comments.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Bill and thanks, everyone, for joining. With that, we would like to end the call for today. Have a great rest of the day, everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Parmeet. And ladies and gentlemen, this concludes today's call. Thank you again for joining and you may now disconnect your lines.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2023-05-23
year: 2023
quarter: Q2
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, welcome to the Agilent Technologies' Q2 2023 Earnings Call. My name is Sarah, and I will be coordinating your call today. [Operator Instructions]\\nI will now hand you over to your host, Parmeet Ahuja, to begin. Please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Sarah, and welcome, everyone, to Agilent's conference call for the second quarter of fiscal year 2023. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Mike and Bob's comments will be Jacob Thaysen, President of the Agilent Life Science and Applied Markets Group; Sam Raha, President of the Agilent Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group.\\nThis presentation is being webcast live. The news release for our second quarter financial results, investor presentation and information to supplement today's discussion along with the recording of this webcast are available on our website at www.investor.agilent.com.\\nToday's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis.\\nCore revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months.\\nOur guidance is based on forecasted currency exchange rates.\\nDuring this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Parmeet, and thanks, everyone, for joining our call.\\nIn our call today, I'd like to first cover our second quarter results. I'll then provide some insight into the recent market dynamics that we are seeing and how this has translated into lower expectations for the second half of this year. I'll then turn things over to Bob for more detail on the quarter and outlook before returning for some brief closing comments.\\nIn an increasingly challenging market environment, the Agilent team delivered very solid results in the second quarter. Revenues of $1.72 billion are up 9.5% core above our expectations with growth across all end markets and regions.\\nOur results are driven by an innovative and broad portfolio, a differentiated customer experience and outstanding execution by the Agilent team.\\nOperating margin for the quarter 25.6%, up 30 basis points. Earnings per share of $1.27 are up 12%. Highlights from an end market perspective include our two largest markets, pharma and chemicals and advanced materials performing very well in the quarter.\\nOur pharma business grew 6% on top of 13% growth last year.\\nPharma was led by biopharma, which grew 16% driven by lab services, consumables and our NASD business, while small molecule declined 1%. In previous calls, we talked about the small molecule replacement cycle and that the exceptional double-digit growth rates we've seen in the past two years would eventually moderate, which is what we started to see this quarter.\\nOur chemicals and advanced materials business delivered strong results once again growing 16%. The advanced materials segment grew more than 20% and the chemical and energy segment grew double digits. On a geographic basis, 32% growth in China exceeded our high expectations.\\nWhile the compare was an easier one, even adjusting for the COVID lockdowns in Shanghai a year ago, we still achieved double-digit growth in China.\\nIn addition, Europe delivered 5% core growth, while Americas grew 3%, albeit against a tough compare of 13% a year ago.\\nLooking at our performance by business unit. The Life Sciences and Applied Markets group delivered revenues of $968 million, up 10% core.\\nOur strong results were aided by backlog conversion across our instrument platforms.\\nOur LC and LCMS products continued to lead the way with 16% growth in the quarter with strength across all end markets.\\nContinued demand for lab consumables led to 13% growth in that business as well.\\nDuring the quarter, we added additional strength to our LCMS product line by acquiring e-MSion and their innovative electron capture technology. e-MSion technology allows researchers to develop biotherapeutic products more quickly for treating disease. Agilent's LSAG team continued to bring several innovative new products to market, including enhancements to our Bravo NGS automation, Cary UV-Vis and the cell analysis NovoCyte systems. Many of these enhancements are specifically focused on serving our customers in the biopharma market.\\nThe Agilent CrossLab Group posted revenues of $387 million. This is up 13% core driven by strong revenues from service contracts. ACG's growth was broad-based, representing ongoing resilient demand for our services.\\nWe continue to see many opportunities for future growth given our services portfolio. In particular, the benefits of our service offerings as they help customers drive productivity in lab are even more relevant in today's challenging environment.\\nOur strong and trusted customer support is also helping us to drive share gains and acquire new enterprise customers. The Diagnostics and Genomics Group delivered revenues of $362 million, up 3% core. Strength in our pathology and NASD businesses drove growth, partially offset by general industry-wide weakness in genomics. NASD posted another strong quarter growing in the high 20s.\\nOur Train B manufacturing expansion remains on track to come online later this quarter, while construction has already started on the next phase of expansion.\\nOverall, we wrapped up Agilent's first half of fiscal 2023 with double-digit core growth in both revenue and earnings per share.\\nHowever, continued macroeconomic uncertainty, coupled with stresses in the banking system have accelerated a more conservative approach from our customers across the globe.\\nThis has primarily affected CapEx-related instrument spending across most end markets but are centered mainly in the pharma markets in the U.S. and China. Early stage biotech customers, while a small part of our revenues, dramatically scaled back purchases as funding and liquidity challenges drove cash conservation.\\nOutside of these early-stage biotechs, the order funnel continues to be healthy, but it has taken a longer time for order to be approved, slowing deal velocity and generation of new orders.\\nWe expect this constrained capital environment to remain in place throughout the course of our fiscal year. Because of these factors, we are taking a more cautious approach to the second half and have revised our forecast downward.\\nAs a result, we now expect core revenue growth to be in the range of 3% to 4.5%, with EPS growing faster than revenue at 7% to 8%.\\nOur operating margin increased in the first half of the year and we're doubling down on delivering cost efficiencies and increasing productivity to drive more leveraged earnings growth in the second half.\\nAs we've done in the past, we will generate additional cost savings so we can continue to invest in innovative new solutions and support for our customers as we enable future profitable growth.\\nWe have an unstoppable One Agilent team that is battle-tested. They consistently execute at extremely high level and are well prepared to deal with any challenges they may face.\\nBob will provide the details on our outlook for Q3 and the full year, but overall, we remain convinced our strategic focus, customer service and unmatched execution of the Agilent team remain the keys to our continued success. After Bob delivers his comments, I'll be back to provide some closing remarks.\\nAnd now, Bob, over to you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Mike, and good afternoon, everyone.\\nIn my remarks today, I will provide some additional details on revenue in the quarter as well as take you through the income statement and other key financial metrics. I'll then finish up with our updated guidance for the year and our third quarter outlook. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nQ2 revenue was $1.72 billion, exceeding our expectations. Revenues were up 9.5% core and up 6.8% on a reported basis. Currency was a 2.8 point headwind, while the M&A contribution was minor as expected. In Q2, we continued to leverage our backlog and exited the quarter with our backlog at a normalized level.\\nAs Mike mentioned, our two largest end markets performed well in the quarter.\\nPharma, our largest end market, posted 6% growth led by biopharma, while small molecule declined slightly. Chemicals and advanced materials continued to drive strong secular growth of 16% during the quarter on top of 9% growth last year. The chemical and energy subsegments of the market are doing well, with the advanced materials market continuing to lead the way.\\nAs in past quarters, semiconductors and batteries are driving demand in this space. And looking at the rest of the end markets, the food market grew an impressive 21% during the quarter driven by very strong growth in China.\\nWe also saw strong results in the Americas and in Europe. The academia and government market was up 11%, led by China and Europe as the funding environment continues to be constructive.\\nOur business in the diagnostics and clinical market grew 6% on top of 5% growth last year. Pathology again led the way for us here, partially offset by genomics. And the environmental and forensics business grew 2%, led by China and the Americas, while Europe declined. The Americas slowed after a very strong Q1, but still delivered mid-single-digit growth.\\nOn a geographic basis, the China team exceeded our expectations, delivering 32% growth following last year's COVID lockdowns in Shanghai.\\nAs we mentioned last year, the COVID-related lockdowns deferred roughly $55 million in Q2 from last year into third and fourth quarters.\\nSo while Q2 is an easier compare, we will have much tougher compares in China going forward. Taking out the effects of the lockdown this quarter, we estimate China still grew double digits, so very solid results by our China team. And the rest of Asia grew high single digits, better than expected.\\nThe Americas grew 3% with growth across all end markets. From a group perspective, both ACG and DGG grew, while LSAG unexpectedly declined low single digits as we started to see the accelerated effects of the slowing CapEx environment. Europe grew 5%, in line with expectations led by pharma and CAM.\\nNow moving down the P&L.\\nSecond quarter gross margin was 55.3%, down 40 basis points from a year ago, largely due to an unfavorable product mix. The benefit of pricing was as expected. Below gross margin, we had good cost discipline in SG&A, which drove our operating margin to 25.6%, up 30 basis points from last year. Below the line, we benefited from higher-than-planned interest income due to higher interest rates and strong cash flow.\\nOur tax rate was 13.75% for the quarter and we had 297 million diluted shares outstanding, both as expected.\\nNow putting it all together, Q2 earnings per share were $1.27, up 12% from a year ago, a very good result, combined with our 9.5% core topline growth.\\nDuring the quarter, operating cash flow was very strong, generating $398 million. This result was helped in part by deferring estimated U.S. tax payments of roughly $60 million to our fiscal fourth quarter. This is due to the payment deferral relief made available by the IRS to taxpayers in designated counties affected by the winter storms in California.\\nWe returned $151 million to shareholders, $66 million through dividends and repurchased shares worth $85 million, while also investing $57 million in CapEx, continuing our successful balanced approach to capital deployment.\\nOur strong balance sheet is even more of an asset in this market environment and remains very healthy as we ended the quarter with a net leverage ratio of 0.7x. And earlier this month, Moody's upgraded Agilent's investment-grade rating on our corporate long-term debt to Baa1. This action is an important recognition of Agilent's financial strength.\\nNow on to the revised outlook for the year and guidance for Q3.\\nFor the year, we now expect revenue to be in the range of $6.93 billion to $7.03 billion. This represents reported growth of 1.2% to 2.7% and core growth of 3% to 4.5%. Currency is expected to be a headwind of 1.9 points while M&A will contribute 0.1 points of growth.\\nIn addition to revising our guidance, we've increased the guidance range for the second half of the year to reflect a wider range of possible outcomes.\\nFor modeling purposes, I would encourage you to use the midpoint of our guide.\\nOur updated guidance reflects a more constrained capital market, primarily impacting our instrument business. The outlook for our recurring revenue businesses remains largely unchanged. From an end market perspective, the market most impacted is pharma where we are now expecting full year growth of low single digits, down from high single digits. And from a geographic perspective, we see impacts focused in the U.S. and China.\\nWith the change in revenue, we now expect full year fiscal 2023 non-GAAP earnings per share to be between $5.60 and $5.65, representing growth of 7% to 8%.\\nAs with revenue, I encourage you to model at the midpoint of our guidance.\\nNow turning to Q3.\\nWe expect revenue in the range of $1.64 billion to $1.675 billion. This represents a decline of 4.5% to a decline of 2.5% for both reported and core revenue. This is on top of a tough compare of 13% growth last year. Adjusting for the China deferral in Q3 of last year would add roughly 200 basis points to both reported and core growth in the quarter.\\nCurrency and M&A impact in Q3 are minimal, and are expected to offset each other.\\nThird quarter non-GAAP earnings per share are expected to be between $1.36 and $1.38, representing growth of 1.5% to 3% versus the prior year.\\nWe are pleased with the first half performance, and while we are facing a more difficult market environment than we were estimating a quarter ago, I am confident that our team will continue to deliver for our customers.\\nThanks for being on the call. And now I'll turn over things back to Mike for some closing comments before we take your questions. Mike?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Bob.\\nDuring Q4 '22 call in November, I shared with you that I believe Agilent has the right growth strategies, the right team and right culture to continue delivering strong above-market results. My belief remains unchanged.\\nOur customers know we are reliable, resilient and extremely quick in reacting to meet their needs.\\nThe Agilent team continues to work hard to earn their trust.\\nWhile the near-term outlook points to continuing challenges in the market, we remain confident in the long-term growth prospects in our end markets and our ability to continue to grow faster than the market.\\nAs a trusted partner that our customers know they can rely on, despite the current market environment, I remain confident in our ability to deliver on our shareholder value creation model.\\nOur core values and approach haven't changed.\\nOur focus on investing for growth, providing the industry's best customer support, our innovation prowess and being a great place for our team to work with a differentiated company culture are here to stay. They remain Agilent's formula for long-term success.\\nThank you. And now to you, Parmeet, to lead the question-and-answer session. Parmeet?\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Mike. Sarah, if you could please provide instructions for the Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] Your first question comes from the line of Brandon Couillard with Jefferies. Please go ahead.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Hi, thanks. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike, it would be helpful if you kind of unpack what you're seeing in terms of instrument demand between, let's say, mid to large pharma relative to smaller biotech.\\nSome of your peers have talked about maybe that large pharma budget just being delayed coming back later in the year. Curious what you're embedding in kind of your outlook and how you're bringing those two customer bases?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure. Happy to do so, Brandon.\\nSo I think there are differences between the two sectors. The small biotech is pretty much shut down. We've seen real efforts on cash conservation as they've been dealing with the financing challenges of less venture capital money out there, banking crises and limited access to the IPO market.\\nBut on the medium-sized and large pharma companies, we still see a very -- actually, an increasing level of conservatism coming from new capital investments, particularly as it relates to our business in instruments.\\nYou can make a case that perhaps, there'll be a year-end budget flush, if customers go to try to spend their year-end money that they're not spending now. We're not assuming that because all we can really comment on right now is what we're seeing today. We're not giving any indications that that situation will change. And I think what remains to be seen is, I think it's going to be a CEO/CFO decision at our larger pharma companies about how they'll handle their full year budgets. And again, that relates primarily to the instrument side of our business.\\nAs we commented in our prepared remarks, consumables and services continued -- demand continued quite strong in these marketplaces. Anything else to add to that?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Brandon, this is Bob.\\nJust to kind of frame in, if we think about these businesses, this emerging biotech, which is the one that has really changed during the course of Q2. That represents roughly about 10% of our pharma business, and we were projecting that at roughly low double digits. And now we're expecting that to decline. And as Mike was saying, the rest of the business was high single digits, and now we're assuming kind of low double digits, given this more conservative capital.\\nI would also say the funnels are healthy from the standpoint of working with them. It's just taking longer for them to translate that deal velocity into orders.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, one thing I forgot to mention as well is we aren't hearing the budgets are being cut. But the timeline, as Bob mentioned, are extended, and we're often here -- often at higher levels of approval as well within our customer base.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"That's helpful.\\nLastly, if you could unpack kind of what you're seeing in Europe. Overnight, we got pretty weak manufacturing PMIs. I was just curious if you see any slowdown in terms of the more cyclical, let's say, industrial odds in the geography.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sure, Brandon. No, you may recall earlier this year, we really were pointing to Europe as a watch area, particularly Western Europe. I have to say, we continue to point to it as a watch area, but we've been pleased with the results to date.\\nWe are seeing signs of increased cautiousness on the chemical side of our customer base in Europe, but advanced materials continues to be -- demand there. And we're pleased with how the business is holding up right now.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Vijay Kumar with Evercore ISI. Please go ahead.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hi guys, thanks for taking my question.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Mike, can you just frame sort of what April trends were? How it may progress because I'm just trying to make sense of the guidance.\\nYou guys did double digits in the first half. And we went from double digits to low single-digit declines.\\nJust frame us this pace of slowdown. Is there any historical analogies when you see these kinds of slowdowns? Do these things last like a couple of quarters or is this like four quarters? And I'm assuming this guide change so far, it's only pharma, correct? Like we're not reflecting any other end market changes?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So there's a lot to unpack there. Bob, so you and I maybe can tag team on this. But let's first of all talk about the pace of business.\\nSo as you're right, Vijay, it really is a tale of two cities. I mean, look at how we performed for the first half, double-digit core growth, double-digit EPS growth, continued margin expansion.\\nBut we saw -- and we have been signaling a level of cautiousness in our customer base, and we talked about the uncertainty that was assumed in our second half guide. We've been talking about that for a few quarters.\\nBut what I would tell you is that we actually started and it's really a late quarter phenomena. We started to see a little bit maybe the last week or so of March, really centered in April, where the level of caution from our customers increased. Deal cycles were continuing to get further pushed out, deals weren't closing. And that really was the reason for the push in terms of downward guide for the second half.\\nWhat I can tell you, what we're seeing so far through May, I think that was also one of your questions, is mid-May today orders, if you will, are tracking towards our revised order expectation.\\nWe haven't -- we've been through these cycles before in terms of downturns. These are always hard to predict because it's always hard to know exactly when the cycle started. But our experience is at least 12-month kind of cycles, 12 to 18 months.\\nSo -- and I think that's really the question that we need to work through here in the next few quarters.\\nAnd again, as Bob and I have said in the past, we take one quarter at a time. And what we're trying to do here is comment to you today is what we're seeing today in the marketplace, and it's a level of increased cautiousness on capital deployment.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Vijay, maybe just to add a couple of other comments to what Mike was saying. In the second quarter, we talked about revenue exceeding our orders, and that was really at the -- towards the back end. And we came into Q2, we'd say, still greater than normal backlog.\\nAnd so we were able to -- our OFS team was able to actually drive down our backlog and leverage that. And if you took the backlog impact out of our numbers, we would have been at mid-single digits for transparency in Q2.\\nAnd we had built some of that into our forecast. We just didn't refill the funnel as much as we thought we were going to coming into Q2, which means resulted in a lower expectation for the second half of the year.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That's extremely helpful, Bob and Mike.\\nSorry, go ahead, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I was just going to say too, Bob, I think it's fair to say relative to our guide assumptions, we're mainly looking at the pharma market.\\nAlthough this level of cautiousness -- the increased level of cautiousness we're seeing is really across all end market segments, but really centered in pharma.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That's helpful, Mike. And just one quick one. This back half EPS and margins up, I think 2Q operating margins missed and just rough math here suggests back half operating margins need to be up 300 basis points from 2Q levels. With revenues coming down, can you just walk us through what gets us to that? What drives that margin expansion?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, you're right. In Q2, we did -- we had higher revenues than expected. And we did have some negative mix effect that resulted in a lower-than-expected margin.\\nNow we did expand. We just didn't expand as much as we had anticipated. And as a result of the lower guidance, as Mike talked about doubling down on cost efficiencies, so we've taken a number of actions to streamline our spending profile in the second half of the year in order to drive greater margin expansion in the second half to drive the EPS.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Vijay, I'd also point out there is a level of variability in our pay plans tied directly to adjust for the company's performance that are assumed in our guide for second half.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Thanks guys.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"All right.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Puneet Souda with SVB Securities. Please go ahead.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes, hi Mike, Bob, thanks for taking the question. Thanks Mike.\\nSo first one is really on, obviously, China, very strong in the quarter. Can you elaborate a bit on sort of the stimulus contribution that happened this quarter? And what are you -- obviously, you're expecting moderation in the second half. Also, if you could talk about if you're seeing anything relevant to the new COVID wave that's emerging there. Is that something baked into your guide and overall just expectations for China for the full year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Why don't I start out with answering the last question first, and then I'll probably mention to you, Bob, to our guide assumptions. But in terms of -- I think you mentioned the new COVID wave, we've not considered that into our second half guide, and I don't believe we would because we have experienced pretty significant COVID waves throughout the years. And as we've shown each quarter, we can very easily -- not easily, but we can navigate through that.\\nIn fact, that was a storyboard that you may recall from Q1 of this year.\\nRelative to stimulus, we've been on record and the story remains the same as we've seen no material impact from China stimulus, which, in fact, we understand was closed off at the end of -- in February. And that initial stimulus program from our understanding was really focused on more on the high-end research space, things such as NMRs and SEMs, products where we don't have an offering or compete.\\nSo we're not seeing much happening at all on our front relative to stimulus.\\nNow there is some discussion in the marketplace that maybe there's another one coming. If that would occur, that would be upside to our forecast for the year as we're assuming really no change in the current environment and no stimulus is assumed in our second half guide. And Bob, I know we've made some adjustments to the outlook for China for the year?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Puneet, if we look at Q2, we always assumed that Q2 was going to be a very strong, given what we were facing on an easier comp, and we talked about that in our prepared remarks, where Shanghai was shut down for roughly six weeks. That deferred roughly $50 million to $55 million of revenue that's now showing up in Q3 and Q4 of last year, which will make it much tougher comps. And to give you a perspective, last year, we went minus 3% in Q2, 29% growth and then 44% growth.\\nSo we're always expecting moderated growth expectations in the back half of the year just given that tough comp.\\nNow what we've seen is not a pickup in the performance in the marketplace, particularly in pharma, which we were expecting coming out of kind of the first quarter after the elimination of the zero COVID. And we're assuming that this current performance will maintain through the second half of the year. We're not going to see a recovery.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. That's super helpful. And then if I could touch on the early-stage biotech customers. Can you just remind us for the overall company, I know you provided pharma. But for the overall company, what's the mix there?\\nAnd then also, is there any impact that you saw -- expect there in the NASD business or your cell therapy offerings as a result of that? And just given the number of questions we're getting here, just at a high level, Mike, instrumentation, very strong over the last two years, one of the remarkable cycle of instrumentation placements that we have seen over the last few decades. When do you think we get back to sort of a normalized order pattern for instrumentation?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So maybe we start with the biotech and NASD business questions first.\\nSo no impact at all in our NASD business.\\nI think, Sam, we can say that pretty equivocally, right?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And to give you a perspective, emerging biotech, Puneet, is roughly -- it's less than 5% of the total company. It's roughly closer to 3% for the full company in terms of revenue.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And your last question is the toughest question, which is, sort of, if you will, your crystal ball question. We've typically seen 12- to 18-month kind of cycles historically. And as Jacob and I and Bob have talked in the past, we've always felt that this is more of a mid-single-digit kind of growth market with -- for instruments, which is still very healthy end market growth rate and particularly when you build around at the service and consumables piece. We're not calling for that yet to occur for this year.\\nSo I think the only other thing I would say is for a large majority of our instrument business it is a replacement cycle. We've talked about that time and time again.\\nAnd so these products are in the installed base. They will have to be replaced. The question is when.\\nAnd again, interest and demand remains high. I mean, our backlog is strong.\\nAs we mentioned in prior calls, and I just -- we emphasized that again today. Quality backlog remains high, no significant order cancellations and as Padraig likes to say, we're adding fresh funnel to the backlog.\\nSo it points to future demand, but we're just not seeing indications of when their buying behaviors are going to change.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"All right, thanks. Thanks guys. I appreciate it.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Matt Sykes with Goldman Sachs. Please go ahead.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Hi. Good afternoon, Mike and Bob. Thanks for taking my questions. My first question is just clearly the -- it seems to be the delta in the changing full year guide is largely concentrated in pharma, both large and small. But given the sort of resilience you've seen in the strength in the chemical and advanced materials space with that 16% growth, what is your kind of outlook on that end market? I mean should we expect a level of durability of demand certainly relative to what you're seeing in pharma over the course of this year, which could help offset some of the growth impact you're seeing in outside?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"It's a great question. And Bob, I think that's actually what we've assumed in our full year guide.\\nSo maybe you want to share some of the specifics?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Matt. What we've built into the -- if you looked at where we were at the beginning of the year, the largest changes in pharma, where we were at high single digits, and as I mentioned, going to low single digits.\\nOur chemical and advanced materials, we're still assuming a mid- to high single-digit growth for the full year. Certainly front-end loaded given kind of the challenges that we see in terms of the comps with China. But we are seeing -- we are expecting that to be more resilient given some of the fundamental secular drivers of semicon and batteries.\\nSo it continues to be strong and are expected to stay strong in the second half of the year as well.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Got it. It's really helpful. And then just a second question for you guys, maybe Padraig.\\nJust on ACG, just given if we do have this sort of 12- to 18-month cycle, you've talked in the past about the ability for ACG on the services side, whether it's extended warranties or others in terms of kind of helping to offset some of the weakness you might see in sort of capital equipment purchases by extending those services or increasing the services revenues. I realize it's a smaller portion of revenue relative to LSAG. But I'm just wondering if this is sort of a 12- to 18-month cycle, could you see some level of acceleration or at least durable sort of low double, high single-digit growth in ACG over the course of that time period?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Look, I think the breadth of product offerings across many of the hardware platforms enables us to add all types of customer -- all types of customer operations. And what we're seeing is extremely strong demand for our services as utilization of the installed base happens. And in particular, we're seeing lab-wide enterprise service offerings, a big demand for that where we're helping customers with their efficiency, their asset management and so on.\\nSo I think it's a very durable business, and I think it's going to continue to be durable over that time frame.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think durability is the right word to use here, Padraig and Matt. And this is a resilient part of our company's portfolio. We've talked about these recurring revenue businesses. And I think the story here is even bigger, Padraig, than extension of instrument life as people are deferring replacement purchases.\\nWe also believe we've been picking up share and particularly been doing really nicely job on the enterprise level.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"I would also say, Mike, we still have a big opportunity to attach our service contracts onto the business. And of course, as we go through this cycle, we continue to accelerate that.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great. Thanks very much.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Rachel Vatnsdal with JPMorgan. Please go ahead.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Okay, thank you for taking the questions.\\nSo first, just maybe some questions on backlog.\\nYou noted that you worked on your backlog this quarter.\\nSo could you just tell us how many months of backlog do you have on that instrument portfolio today? And then last quarter, you noted that you'd worked on the backlog on the instrument portfolio, but for the total business, orders can grew faster than revenues.\\nSo can you kind of give us some of that context as well in terms of order book and backlog trends between instruments versus the rest of the business as well?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Rachel, thanks for the question.\\nAs you know, we don't report on book-to-bill, but what we can use is how to qualitatively describe the backlog and I think we used the word normalized backlog from the elevated levels we have seen in the quarter.\\nSo we're at a normal level of backlog in terms of month supply.\\nSo -- and we've been talking about this movement towards normalization in terms of the backlog, and we're there now. Yes.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And Rachel, you're right.\\nOur orders grew greater than revenue in Q1. And as I mentioned earlier in the call, Q2, it reversed where revenue was greater than orders. And we did eat into backlog both in Q1 and Q2 in the instrument side and supply.\\nAs to the delivery times declined, we thought that that was a healthy thing. And we're back at normalized delivery times as well as a normalized backlog.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, I think we did have some pretty tough compares in terms of our prior year order growth. But -- and I think ACG and DGG continued to grow in the quarter.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That's right. Yes.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great. And then a question on the LC market here.\\nYou guys grew 16% in the quarter.\\nSo we've heard some varying comments on this market.\\nSo can you just walk us through what are you exactly seeing?\\nAnd what do you expect for the full year for LC growth? And then finally, you've said some comments today about share gains.\\nYou talked about that in some recent weeks as well or recent months as well.\\nSo can you just talk to us about share gains and kind of what parts of the market, whether that's geographic basis or customer segment wise, that you're doing in LC?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I'm going to pull Jacob into this call, but he has had an opportunity to join in the conversation. But I think the storyboard here for LC is very consistent with the overall macro environment we described, which is an increasingly cautious set of decisions being made by customers relative to new instrument purchases.\\nAnd as you know, we've been talking for some quarters about the moderation we were expecting to see in small molecule LC placements, that the 20-plus growth rates that the industry have been seeing for a number of quarters, would actually see a level of moderation start to occur. And that's what we saw in this recent quarter, and we would expect to see that continue throughout this year. And perhaps, you want to add some of your thoughts here as well, Jacob, and then take on the question about market share as well.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely, and thanks for the question. I mean, first of all, we continue to see good market share gain in the LC business. And we see that, as Mike was mentioning also, over the last year, we have really seen a high growth in the LC business over many of our end markets. Obviously, being fueled significantly in the pharma, both small and large molecules. And as both Mike and Bob was talking about, these markets are changing right now.\\nSo while we will see a change in the market dynamics and thereby also some of the growth rates, the strategy have been in place from LCMS and pretty much the whole portfolio has been to build these workflows that is based on robust reliable instruments and really solution-oriented. And we expect and we see that this is what our customers are looking for. And hence, I'm expecting that while the markets are down, we will continue to see market share gain in this business and also in the LCMS business.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Leonard with Credit Suisse. Please go ahead.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Hi, thank you.\\nGoing back to the, Mike, so your comment on large pharma, mid and large pharma, the 90% of the business is not the emerging biotech within your reported pharma segment. Do you have any sense or any theory from your field team on why that customer base has gotten more cautious and why deal cycles have lengthened? I wouldn't think it would be very GDP, PMI-tethered and I wouldn't think that Silicon Valley Bank or what have you would be that material for that customer set.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. I don't think you can point to Silicon Valley, but you can point to the pressure that the pharma companies run relative to their P&Ls, and they're cautious. They're really cautious about deploying new capital. And it's...\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. And I would add, Mike, the approval levels that we're seeing are going up and up and at the highest levels within pharma accounts are making decisions on capital purchase.\\nSo a lot of caution is around that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And Dan, I have to say in all transparency, it's a little bit hard to figure out, right, because we had a similar thesis, which was the markets would be more resilient.\\nAlthough we expect with some level of pressure as we assumed in our second half guide, a little more resilient in the face of slowing GDP. But things have -- obviously, things have moved more quickly than we had anticipated. And this level of increased costs was something we've seen in the last probably four to six weeks.\\nAnd it's difficult to figure out from the standpoint is there's no obvious external catalyst. We just know we're seeing it across a broad section of our customer base.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Appreciate that. And a separate question. Can you comment a bit more on what's going on in the genomics market within your DGG business? Do you think there's any share shift happen? Is it all the pressure is market related? And when would you expect that that could improve?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo I'm going to invite Sam on to this, but I think what you'll hear from him is he'll talk to you about it's a U.S.-centric phenomenon, not a market share issue. And there is that level of CapEx there that's on the instrument side that we're feeling a bit as well.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Absolutely, Mike. And thank you for the question. What we found is that when you think about translational research, we've already talked about pharma here also as it's used in genomics and diagnostic testing too. There's just become a slowness in decision making, not only in instruments, but even in the usage of consumables particularly on the instruments.\\nI will tell you that even within the quarter, our NGS QC backlog for consumables related to NGS QC, that's actually grown and our orders have grown.\\nSo we're doing well there. But there has been a slowness that we're seeing that's broad-based. And to answer your question about share, we don't believe that we're losing share. Similar to what you've heard about the instrument, it's not that we're losing orders at the time in which the orders are being placed. It is just being lengthened. And in U.S. in particular, a little bit in China is where we're seeing the impact.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We are assuming a level of improvement in our genomics business in the second half in our guidance I'll recall, Bob, and not full recovery, but improvement.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I would say, Dan, some of our end customers have had a really challenging time and shut down sites, and that has affected our volumes. We saw that in Q1, and it continued into Q2.\\nAs Mike, you're saying, we start anniversary-ing some of those in the back half of the year and expect it to perform better. But some of those are customer-specific.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Thank you for all the color.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Derik De Bruin with Bank of America. Please go ahead.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Hi, thanks for taking the question. This is Mike Ryskin on for Derik.\\nJust following up on the previous point on pharma -- big pharma slowing down.\\nYou used a lot of comments in a slower deal velocity taking longer to close the deals, et cetera. But as you just said, you're not seeing an obvious catalyst. Is there any risk you're going to see slower deal velocity elsewhere as you go through the year?\\nI mean, academic and government, applied materials, these are sectors that also had, I would say, above trend growth in recent years and in the fiscal first half.\\nSo -- but you're not building in any conservatism in those areas for the rest of the year.\\nSo how would you characterize the risk there just given how quickly pharma turned?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure. Bob and I think we've got a realistic forecast here. And that's why we're asking to think about guidance in the midpoint. We had already assumed some level of slower capital investment in those end markets in our previous guide.\\nSo there really is no change to that.\\nWe think that outside of maybe the chemical side of CAM, those other end markets will hold up relative to our guide expectations. And listen, we've had experience in these cycles before. And Mike, one of the things I wanted to mention earlier to a previous caller's question was, we know when the market is low. This is actually when the Agilent team even shines further. We always gain market share in down markets.\\nSo I'm absolutely convinced you heard in my prepared remarks that we're going to come out of this thing stronger.\\nI think the only debate is how long the cycle is going to be.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Right, right. Yes. And then kind of to that point, for the fiscal second half, I mean, you're pointing to a 3.5% decline core growth, core sales growth in 3Q, but then it implies roughly flat in 4Q.\\nYou touched a little bit on comps at China moving around and things like that. But still sequentially, that's a pretty big reacceleration in the fourth quarter regardless of how you look at it even in absolute dollar terms.\\nSo are you assuming any reaccel in the 4Q? Are you -- any indication of that happening in terms of orders? I guess, just why is it really fiscal 3Q that's being hammered here?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I mean, we typically do have some seasonality built into our results.\\nIf you not just looked at last year, but historically, our Q4 does have a typical ramp-up from Q3. And we're looking at it.\\nIf you look historically kind of how we're looking at the seasonality, that's kind of how we built it in.\\nWe are expecting stronger both revenue and order performance, Q4 relative to Q3, based on what we know today.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Okay, all right, thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Brennan with TD Cowen. Please go ahead.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great, thanks. Thanks guys for the questions. Mike and Bob, maybe just a question just kind of clarifying some of the numbers here on emerging biopharma. What did that business do in the quarter itself? I don't think I caught that. I know, Bob, you said it's going to decline as part of your guidance.\\nSo if you just flush out like what you're assuming for the rest of the year for emerging biopharma and then kind of what does that imply for the commercial biopharma? And I didn't hear any as well for LSAG. Like did you guys talk about what you're expecting LSAG to do in the back half of the year?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I would say -- let me take the last one first.\\nOur LSAG business, where we were assuming for the full year kind of mid-single-digit growth with it front-end loaded, we're now expecting low single digits, just above 0.\\nSo we're actually expecting a decline in both the second -- third quarter and fourth quarter for LSAG driven in part by the emerging biotech and the small molecule.\\nIn terms of the biopharma, biopharma actually in total grew 16% in the Q2 results, and that was benefited obviously from NASD.\\nIf you took NASD out, it was 11%.\\nSo what we saw was this change in the quarter, and we're assuming that change will stay pretty consistent in the back half of the year.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Got it.\\nOkay. And then -- and maybe just one on NASD since you brought it up.\\nAnother terrific quarter. Can you just unpack a little bit on kind of what the funnel looks like there? Is the same level of growth kind of persist in the second half? And now that you're bringing on -- kind of working on the new Train, kind of what's the durability of that growth as you look out beyond year-end?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Of course, you will take that one.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, super pleased with the performance of NASD. And as we look out to the second half of the year, we feel good about the performance and are excited about Train B coming online. And we're having conversations with customers as we look to fill that Train up. And what I would say is kind of stay tuned from that standpoint. But what I would say long term, we're extremely excited about this.\\nThat's why we're investing another $700 million in adding Train C and D as well.\\nSo we think that we're in the early stage of therapeutic discovery here in terms of RNA, siRNA-based therapies and there will just be more larger indications as those move through the clinic.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great, thanks guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Jack Meehan with Nephron. Please go ahead.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you. Good afternoon.\\nSo I have one more question on China. Obviously, great quarter even if you exclude the comps. But you're talking about some incremental caution here. Can you talk about like what customers in the China region you're seeing.\\nSome of this incremental caution, is CDMOs one of those? Just any color on specific customers in the region would be great.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure. Maybe I'll tag team with you, Padraig, on this one.\\nSo as Bob mentioned, even adjusting for the Shanghai shutdown last year, we did 10% core in China in Q2.\\nWe are bumping up some pretty hefty comparisons, 29% and 44%, if I remember the numbers correctly, for Q3 and Q4. But I would say that the China market is really reflective of what we're seeing in the United States as well.\\nSo it's our pharma customers in China. It's our chemical customers in China, albeit the advanced materials piece of the China market continues to hold up quite nicely.\\nAnd Padraig, I know you've been in conversations with our China sales leader. What are you hearing from them?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. No, I think you said it well, Mike. It's a very similar dynamics in China from what we're seeing in the rest of the world, which is quite simply customers have become more conservative CapEx budgets and spending decisions, albeit on the EV markets and so on, that's a particular strength that we're going to continue to see. But I think that's what we're seeing. Yes.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. And then one market you didn't call out in CAM was the PFAS testing. I was wondering if you could give us an update on that and just how you're -- if there's been a change in terms of the market dynamics there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think we remain very positive on that, Jacob, right?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, absolutely.\\nI think that we are still in the -- to use the baseball term, the early innings.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, American baseball terms.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"I think I am, but we certainly are early innings here.\\nWe have been -- we've seen a lot of growth last year, and we continue to see it. Obviously, right now, since there's also a lot of funding through the government, it's a little bit lumpy. But if you look at for the long horizon, this is a huge opportunity for us, and we have a very strong position with our LCMS business here. And we're also seeing it expanding into new areas with the DCMS business.\\nSo I'm still very bullish on that, and we continue to see a lot of business here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Jack, I think it's also fair to say it's primarily a U.S. and a little bit European phenomena. We've got to see really new ranks being deployed and implemented in China and Japan, which down the road could be a source of continued growth on a global basis.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, you're absolutely right, Mike. I mean there's a lot of things going on here in U.S., and there's been regulation in certain states right now, but it's driven by regulation.\\nSo when regulations go onboard and online in different countries, you see a step-up in that.\\nSo there's definitely more to come here.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Got it. Thank you, guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Patrick Donnelly with Citi. Please go ahead.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Hi guys, thanks for taking the question. Mike, just a quick one.\\nJust following up on the LSAG piece. Getting a good amount of inbounds on that. I know you don't want to talk about the book-to-bill, Mike, but just given the level of focus and the visibility here, I know you mentioned the backlog, back down to normal. It seemed like that was adding to it a little bit this quarter. Can you give us a sense on the orders? I mean, were they down double digits? And Bob, maybe just the magnitude of what that decline could look like in 3Q in terms of LSAG revs would be helpful.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure. We want to give you some additional insights, Bob, so I think you've got some?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo if you looked at our overall orders, they were down low single digits.\\nAs Mike mentioned, ACG and DDG grew and LSAG was down mid- to high single digits in the quarter. And as I mentioned before, our guide contemplates a decline for LSAG in both Q3 and Q4.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. Got it. And then maybe just a margin piece. I know you talked a little bit about the second half. And Mike, I think you flagged maybe some additional cost savings in the second half. Can you just talk about, I guess, where you guys are pulling some costs from? How nimble you can be, and how aggressive you want to be as well. Mike, you obviously sound good on the long term.\\nYou're kind of dealing with this pullback here. Looks like it's transitory.\\nSo how do you think about just the expense management in the near term and that second half margin ramp?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Thanks for the question. I'm really glad to address this head on.\\nSo because you hit one of the key messages, we still are very positive on the long-term growth opportunities in these markets we serve. We think we're in a pause in certain segments of our market, but we remain very bullish on the long-term end markets.\\nAnd the trick here is to make sure you're doing the right thing to manage the business in the short run in terms of being able to deliver leveraged earnings growth for our shareholders, and that's why I talked about the confidence we have in our shareholder value creation model. But at the same point in time, make sure that we don't cut off things that are going to get in the way of our long-term growth.\\nAnd we know how to do this. We've done this before. We've got some variable pay programs.\\nWe have things we look at relative to travel and other things that are associated with expense, things that aren't necessarily immediately near-term revenue generating. And then what we'll do is we'll prioritize. We'll make sure that we're focusing on the sustaining our ability to realize the growth opportunities in a lot of these businesses, which are growing right now.\\nOne thing that came out today is it's a story of the multiple growth drivers across Agilent. Clearly, we're having some near-term challenges right now in analytical instrumentation business, yet pathology is growing well. NSE is growing well, services, consumables.\\nSo we've got a pretty rigorous program. And what I can assure you is that we will make the reductions in areas that we don't think will get in the way of our ability to continue to sustain what we believe to be out market growth.\\nAnd Bob, I know you put a lot of thought and time on this, but we've already been activating a lot of the software already.\\nSo we didn't wait to the earnings call to get started on this, but I know that we think there's a path forward here for us.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nJust to build on what Mike is saying. Obviously, we've got -- we've been looking at discretionary spend, things like travel but also demand related. If there's not demand, we're not going to spend the same level of marketing funds as an example. And we continue to really drive productivity.\\nWe talked about that at the very beginning of the year around productivity in our workforce, and we'll continue to do that, making sure that we don't get ahead of ourselves in terms of adding more people relative to the business.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Understood. Thank you, guys.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Sure.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Josh Waldman with Cleveland Research. Please go ahead.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Mike, curious what year-over-year orders were in LC and mass spec? Were orders there down kind of in the mid-teens range? And then within large pharma, I think you mentioned the funnel remains healthy, but it's just taking longer to close deals. I guess based on conversations with key accounts recently, anything you can point to that gives you confidence that the slower orders here are more reflecting delays in the purchasing process as opposed to just tighter budgets and maybe lapse reprioritize the capital to other instrument categories, maybe outside of LCMS?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I want to tag team with Padraig on this, and then I'll go back to the order question to Bob. But yes, I mean, what we're hearing or I heard directly is customers aren't cutting their budgets. And I happened to be in Europe last month at our demo facility in Vauban, Germany. It's fully booked for the next three months. I mean -- so there's a lot of interest, a lot of interest in Agilent solutions.\\nWe just can't get the PEOs through their approval process inside their companies. And that's why we think it's transitory, although we have to acknowledge what we're seeing today, and that's reflective of the revised guide for the second half.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. No. Look, I think you're right, Mike.\\nI think the customer activity remains high.\\nI think one thing that we've really seen is no uptick in cancellations whatsoever. Funnels remain intact. And actually, we're adding fresh funnel in certain cases.\\nSo I think it's really a case of slower deal velocity.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"And on orders, Josh, we won't disclose individual product lines. But as I mentioned, the order growth for LSAG was down mid to high, and they were higher than that. The decline was greater than the average.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Okay. And then just a follow-up, I think, on Jack's question. Can you provide more context on what within pharma in China has been softer than expected? Any examples of customers -- any examples that customers have provided on why they're pulling back? And then curious if the softness has been pocketed within a few large accounts there or if it's been fairly systemic?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think there's no real significant difference between some segments of the overall pharma market. And I think the -- and Padraig, correct me if I'm wrong, I think the overall sentiment is economic uncertainty and just being cautious. It's a -- it's like I said earlier, it's a hard one to initially figure out because there's no obvious external catalysts because we deal with this. But -- this is what we're seeing, and we just thought it was important to share that directly on the call today.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think, Josh, the one thing that we did see, and we talked about this at the beginning of the year because there was a lot of talk about the stimulus. That stimulus was targeted at higher-end applications and instrumentation that we don't necessarily have the product portfolio or compete in.\\nAnd so I don't think that has moved budgets, but it created a stimulus for potentially areas that we're not as exposed to as maybe some other players in the marketplace.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Okay. I appreciate all the detail.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Your final question comes from the line of Liza Garcia with UBS. Please go ahead.\"}, {\"speaker\": \"Liza Garcia\", \"content\": \"Thanks for squeezing me in. Really appreciate it. I guess coming back to the margin progression in the guidance and just kind of -- I appreciate all the clarity on kind of the cost potential. But also with the second train line kind of ramping and thinking about NAV, I know that you've talked about how those should be accretive -- train line should be accretive to the overall margins. But just as we think about it ramping, can you just give us some context to how to think about that train line coming on and its impact in the back half?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, do you want to take that? .\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, sure.\\nSo Liza, if you looked at that in isolation, actually, there is margin compression, given the Train B startup. But we've taken that into account. We had that in our initial guide, and that's money. That's good money to spend because we've got a lot of opportunity there.\\nAnd so the cost savings that we've been talking about is really not in that area. It's in the other parts of the business.\"}, {\"speaker\": \"Liza Garcia\", \"content\": \"Great. And I just don't think I caught this, but I'm assuming pricing is still tracking to -- is 300 bps still kind of what we should be thinking about in the guidance?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That's correct. That's correct. It was actually a little over 4% for Q2.\"}, {\"speaker\": \"Liza Garcia\", \"content\": \"Great. Thank you so much guys.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"You're quite welcome.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Sarah, and thanks, everyone, for joining. With that, we would like to end the call for today. Have a great rest of the day, everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today's call. Thank you for joining.\\nYou may now disconnect your lines.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2023-08-15
year: 2023
quarter: Q3
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, welcome to the Agilent Technologies Q3 2023 Earnings Conference Call. My name is Bo and I will be coordinating your call today. [Operator Instructions]\\nI will now hand you over to your host, Parmeet Ahuja. Parmeet, please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Bo, and welcome, everyone, to Agilent's conference call for the third quarter of fiscal year 2023. With me are Mike McMullen, Agilent President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Mike and Bob's comments will be Jacob Thaysen, President of the Agilent Life Science and Applied Markets Group; Sam Raha, President of the Agilent Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news release for our third quarter financial results, investor presentation and information to supplement today's discussion along with a recording of this webcast are available on our website at www.investor.agilent.com.\\nToday's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted currency exchange rates.\\nDuring this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Parmeet, and thanks, everyone, for joining our call.\\nIn today's call, I'll walk you through our Q3 results, share what we're now seeing in the market and provide context for our revised full year outlook. I'll then turn things over to Bob for more detail on the quarter and outlook before returning for some brief closing comments. The Agilent team continues to execute well as we navigate our way through ongoing challenges of the current market environment.\\nOur Q3 revenue was $1.67 billion at the top end of our expectations.\\nThis is a decline of 2% on a core basis against a tough compare of 13% in Q3 of last year.\\nWe continue to be proactive and are taking steps to help us deliver on our leveraged earnings model. Operating margins are 29.3%, up 180 basis points. Quarterly earnings per share of $1.43 are up 7% and above our expectations. The major drive behind our Q3 year-on-year decline in revenue is our China business.\\nExcluding China, the rest of Agilent grew 2%, which was better than expected. We knew we're up against a difficult compare in China and had previously guided for lower China revenues in Q3.\\nHowever, the economy in China continued to weaken during the quarter, translated into a more challenging market environment than we had anticipated.\\nWith the softer market conditions in China and continued global macroeconomic challenges, we have lower growth expectations for the remainder of the fiscal year. We now expect core growth for the full year to be around 1%, down from our previous guide.\\nBased on what we're seeing at this time, we're not assuming any improvement in the China market for the remainder of the year. We, however, view the near-term challenges we're experiencing as transitory and remain confident about the long-term growth prospects of our end markets.\\nBefore turning now to our third quarter results, I'd like to touch on our two largest end markets.\\nOur total pharma business is down 8%, driven by the pharma market in China being down 30%. Within pharma, our biopharma business grew 5%, while small molecule was down 16%.\\nThe Chemical Advanced Materials market declined 3% versus a 22% increase last year.\\nWhile we did see the chemical energy space being weighed down by macro concerns, slowing growth in Advanced Materials was more a function of a difficult compare as the volumes have remained steady and robust.\\nLooking at our performance by business unit. The Life Science and Applied Markets have delivered revenues of $927 million. This was a decline of 9% of a very tough compare of 18% growth.\\nLast year's growth was helped by the benefit of recovery from the Q2 2022 Shanghai shutdown. LSAG's performance continues to be affected by the market environment in China across all end markets and pharma globally.\\nOur sales funnel remains healthy and are up year-on-year, but deal velocity continues to slow as customers remain cautious in making capital purchases.\\nWe expect this market environment for new instrument purchases to continue for the rest of the year. At this time, we are not assuming any benefit from a year-end budget flush or incremental stimulus in China.\\nAs we said before, we are continuing to prioritize invest in innovation.\\nAs an example, in June, Agilent's investment innovation were on full display at the Annual ASMS Conference. The LSAG team introduced new products and comprehensive workflows to enhance data quality and productivity for our customers. These include two new LC/MS systems, a new PFAS workflow solution and an AI software for data analysis, among others. The Agilent CrossLab Group posted revenues of $396 million.\\nThis is up an impressive 11% core with growth in all regions and end markets, as customers continue to embrace our value proposition.\\nWe continue to see strong demand for our services as we help customers drive productivity in the lab. The Diagnostics and Genomics Group delivered revenues of $349 million, up 3% core. Pathology grew high single digits as demand for our diagnostic test continues to grow.\\nOur NASD business grew high teens.\\nThis growth was partially offset as we are continuing to see market weakness for our Genomics and Resolution Bioscience businesses.\\nRegarding resolution Bioscience, the market for kidded NGS-based companion diagnostics has not developed as we expected. Furthermore, we don't see a realistic path to profitability.\\nAs a result, we've made a difficult decision to shut down the business.\\nHowever, our investments in future growth continue.\\nFor example, we achieved an important milestone during the quarter when our NASD business generated the first revenues from our Train B investment in Frederick, Colorado.\\nNow looking forward for the company, as we navigate this challenging macroeconomic environment, we remain confident in the Agilent team and our ability to continue driving leverage earnings growth, use our agile Agilent framework.\\nWe faced challenges before, and we're taking actions now that will make us stronger and position us well for the future.\\nAs we stated last quarter, we are doubling down on delivering cost efficiencies and increasing productivity. The goal is to generate additional cost savings so we can continue to invest in innovative new solutions and support for our customers as we enable future profitable growth.\\nWe are on track to achieve the cost savings we've targeted for the second half of this year.\\nWe are in attractive markets that will produce long-term growth.\\nOur innovation engine remains strong and the battle test at One Agilent team is driving outstanding execution. Bob and I will provide the details on our results as well as our outlook for the remainder of the year. After Bob delivers his comments, I will be back to provide some closing remarks.\\nAnd now, Bob, over to you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Mike, and good afternoon, everyone.\\nIn my remarks today, I will provide some additional details on revenue in the quarter as well as take you through the income statement and other key financial metrics. I'll then finish up with our updated guidance for the full year and our fourth quarter outlook. Unless otherwise noted, my remarks will focus on non-GAAP results. Q3 revenue was $1.67 billion, a decline of 2.3% core and down 2.7% on a reported basis.\\nThis compares with 13.2% core growth last year. Currency was a 0.5 point headwind while M&A contribution was minimal.\\nAs you may recall, Q3 of last year benefited from roughly $35 million in revenue deferred from the second quarter as we ramp back up from the Shanghai shutdown in China. Accounting for this, our Q3 core growth would be roughly flat versus a year ago.\\nAs Mike mentioned, Pharma, our largest end market, declined 8%.\\nThis is in line with our reduced expectations coming out of Q2 with underperformance in China, offset by better performance in the rest of the world. The Chemicals and Advanced Materials market was down 3% off a very tough 22% compare, but dollar-wise was flat sequentially.\\nThe academia and government market was up 5% and with all regions showing growth except the Americas, which was flat.\\nOur business in the diagnostics and clinical market grew 3%, driven by high single-digit growth in pathology, partially offset by genomics weakness. The environmental and forensics business grew 2%, driven by double-digit growth in the Americas and Europe.\\nThe growth was generated by the build-out of water infrastructure projects and an expansion of funding for PFAS-related activities. The food market grew 1% based on strength in Asia outside of China and mid-single-digit growth in Europe, driven by new food testing regulations. On a geographic basis, while China underperformed, the Americas and the rest of Asia were better than expected, while Europe was in line with our expectations.\\nMoving down the P&L.\\nThird quarter gross margin was 56.3%, down 10 basis points from a year ago.\\nLike last quarter, this was largely due to the product and services mix, and pricing was slightly better than our expectations. Below gross margin, the expense reduction actions we initiated in the second quarter helped strengthen operating margins.\\nWe also benefited from a reduction in variable pay expenses.\\nAs Mike mentioned, margins were 29.3%, up 180 basis points from last year. Below the line, our interest income was higher than planned, while our tax rate was 13.75% and we had 295 million diluted shares outstanding.\\nPutting it all together, Q3 earnings per share were $1.43, up 7% from a year ago, a very good result given declining revenue.\\nNow let me turn to cash flow and the balance sheet. I continue to be pleased with our cash flow generation this year. Cash flow from operations was $562 million in the quarter, and is $1.3 billion year-to-date. In Q3, we invested $81 million in capital expenditures, totaling $214 million year-to-date, effectively flat year-on-year as we continue to optimize our CapEx spending.\\nGiven the strong year-to-date results, we are increasing our free cash flow forecast for the year to $1.2 billion, comprised of operating cash flow of $1.5 billion and CapEx of $300 million. This is an increase of $250 million from the midpoint of our previous guidance. Despite the challenging macroeconomic conditions, our balanced capital allocation strategy is intact.\\nDuring the quarter, we returned $401 million to shareholders. $66 million through dividends and repurchase shares worth $335 million.\\nThis ongoing balanced approach to capital deployment is another example of the confidence we have in our team and our belief in the long-term strength of our markets.\\nBefore getting into the revised full year outlook, I want to mention we have taken a $291 million pretax charge in Q3 associated with the decision to shut down the Resolution Bioscience business.\\nThis charge, which is excluded from non-GAAP results, includes an impairment write-down along with charges associated with the wind-down and exit of the business.\\nWe expect the wind down to continue through Q4 and into early FY '24.\\nNow to the revised outlook for the year in Q4.\\nGiven the more challenging macroeconomic environment we are seeing, particularly in China, we now expect full year revenue to be in the range of $6.80 billion to $6.85 billion. This represents a decline of 0.7% to flat on a reported basis and core growth of 0.8% to 1.5%. This is a core growth reduction of 260 basis points from the midpoint of our last guide.\\nRoughly 85% of the change is related to reduced expectations in China while the remainder is due to some incremental cautiousness from our customers on CapEx spend as well as softness in genomics and the shutdown of Resolution Bioscience.\\nAs Mike said earlier, we are not assuming any incremental stimulus in China or any material year-end budget flush in these revised projections.\\nGiven the large change in China, I wanted to provide some additional perspective on how we are forecasting the rest of the year, recognizing that the market continues to be very dynamic. To provide some context, in Q3 through June, our business in China was tracking to a mid-single-digit decline in revenue, which was in line with our expectations.\\nHowever, in July, we saw a further deterioration in China, resulting in the 17% decline for the quarter. And while the Q3 decline in China was centered in pharma, which was down 30%, we did see weakness in the other end markets as well.\\nWe expect the conditions we've seen in July to persist in China for Q4.\\nIn addition, we are facing our most difficult quarterly compare in China, where we grew 44% in Q4 of last year.\\nWe are now expecting Q4 to decline in the mid-30s year-on-year.\\nFor the full year, we are expecting China to decline mid-single digits versus growing mid-single digits.\\nWith the change in revenue, we now expect full year fiscal 2023 non-GAAP earnings per share to be between $5.40 and $5.43, representing leveraged earnings growth of 3% to 4% and roughly 6% to 7% growth net of currency. The change in full year guide results in Q4 revenue being in the range of $1.655 billion to $1.705 billion.\\nThis represents a decline of 8% to 10.5% on a reported basis and a decline of 9.5% to 12% on a core basis. The recovery last year in Q4 of the remaining revenue deferred from the Shanghai Q2 shutdown negatively impacts the year-on-year results by roughly 1 point. In fourth quarter, non-GAAP earnings per share are expected to be between $1.33 and $1.36. Thanks for being on the call.\\nAnd now I will turn things back over to Mike for some closing comments before taking your questions. Mike?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Bob.\\nWhile today's macroenvironment is challenged for new instrument purchases, we remain confident in the long-term growth prospects of our end markets, the diversification of our business and in our proven ability to grow faster than the market. I'd like to share a few examples why my confidence remains intact despite near-term challenges.\\nIn Pharma, our largest end market, innovation and advance of medicines continue with new therapeutics flowing into the market. The demographic drivers of this market are on our side, a growing global population that expects access to health care and extending life expectancy to be key priorities from their governments.\\nOur market-leading solutions are critical to innovation behind new therapeutics and ensuring the safety and quality of on-market drugs. In the applied markets, growing PFAS testing and the electrical vehicle transition are here to stay, action in new opportunities for growth.\\nEveryone wants to have a safer water to drink, food to eat and air to breathe and the search for and production of more sustainable materials and energy sources remains a global priority. Agilent is a diversified leader in a unique position to help our customers drive their solutions. We remain a trusted partner, our customers though they can rely on in both good and challenging times.\\nOur combination of leading instrumentation and world-class customer support is a long-term competitive advantage. At the heart of this long-term competitive advantage is the Agilent team and the One Agilent culture.\\nYou see this reflected in a recent recognition on Glassdoor and in being named A Great Place to Work in all 27 countries and territories around the world where we qualify for certification.\\nWe have a company mission focused on advancing the quality of life. To learn more about this, I would encourage you to review the latest addition of the ESG report that we issued last month.\\nWe have proactively managed the company through the short term, always with an eye towards our customers and in the long term.\\nWe have been proactive in managing our business to drive leveraged earnings but not at the expense of customer satisfaction and future growth. Yes, these are challenging times, but we have the team, the strategy and the right culture that would deliver long-term success. Thank you for joining us today.\\nAnd now over to you, Parmeet, to lead the question-and-answer session. Parmeet?\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Mike. Bo, if you could please provide instructions for the Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Parmeet. [Operator Instructions] We'll go first this afternoon to Matt Sykes at Goldman Sachs.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Hi. Good afternoon. Thanks for taking my questions. I thought maybe I'd start just with China, sort of a high-level question.\\nYou guys talked about sort of the transitory impact of the current environment.\\nYou mentioned pharma. Could you kind of extend those comments to China? Do you think it's more cyclical versus structural? Are there competitive issues that you're facing or just your outlook on that region? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Matt, thanks for the question.\\nSo let me start with the last part of your question. This is a macro story, not a competitive story.\\nSo market shares continue to be very, very strong. I know there's a lot of discussion about increased local competition, but we've moved pretty aggressively on our made in China strategy.\\nSo we don't see that all as a competitive issue.\\nTransitory, the comment there is really about the fact that the China market is not going away. It's going to be a big market for years to come. It clearly is challenged right now. And we're not -- we're taking a sort of one quarter at a time, actually month by month. And as Bob mentioned in his comments, I think July, we actually saw the weakest performance within the quarter, and we're still seeing weakness in the pharmaceutical industry, for example, the level of manufacturing declined pretty specifically in the month of July.\\nSo we think the market is going to be there, but it's going to take a while for it to get back to growth.\\nAnd I guess probably the other thing to point here is - and again, I'm talking specifically around the instrument side of the China market.\\nAs you know, we have a very large, in fact, the largest installed base of instrumentation in the marketplace.\\nSo very positive on the ability to grow the aftermarket in our diagnostics business.\\nProbably anything you add to that? Okay.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Maybe just for my follow-up, just on ACG.\\nSo a good quarter in that business. And I know you guys talked about a year or two ago about sort of a goal of 30% plus margins obviously achieved this quarter. Can you maybe talk about sort of where you see the durability of that growth is sort of high single, low double, 30%-plus margins, how we should be thinking about the business? Or were there some one-offs in the quarter that you'd want to call out to kind of measure expectations there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. We've consistently communicated that we think this is a high single digit, low double-digit kind of growth business for us. It's been that way since pretty much most of my tenure as CEO, and we don't see that changing as we go forward.\\nOf course, there'll be puts and takes by quarter. But we're continuing to see good growth in our connect rates, which we've talked a lot about.\\nAnd we're also doing very well on winning the enterprise business as well to complement the other aspects of our portfolio offerings. I would say that the profitability was probably a little bit higher in Q3 than - but we do think that the high double-digit number you quote about is pretty manageable for that business, but not at the level we saw in Q3, right, Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Matt, this is Bob. And just maybe to further what Mike is saying, when we think about the components of that business, the fastest-growing component is actually the contracted business, which is that connect rate. And it was in the mid-teens this last quarter and continues to be faster growing than the overall business. And as long as we continue to be able to drive that increased attach rate, we feel very good about that.\\nAnd that comes with - with that growth comes scale and being able to leverage our team with the work that the digital initiatives that we've had as well.\\nAnd so as Mike said, don't book, I think it was 32% going forward because there were some variable pay true-ups. But certainly, what you've seen quarter in, quarter out is a nice, steady cadence of margin improvement there.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Got it. Thanks guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. We'll go next now to Jack Meehan at Nephron Research.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Jack.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Mike, I was hoping you could talk a little bit more about some of the more cyclical areas of the business in the CAM segment.\\nJust what are you seeing from some of your chemicals customers.\\nYou've heard some conversation of budget cuts there. Are you starting to see that? Just how is your visibility into some of these cyclical areas?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo as we've talked earlier - thanks for the question and Jack and comments and then have Jacob jump in on this one as well. But we look across the CAM, I'd say the Advanced Materials segment of that market, which we've communicated is more driven by secular trends and cyclical trends continues to hold up quite well. And by the way, also, I just want to point out we had a really tough compare, I think we grew 22% last year in Q3 in CAM.\\nIf we look at the chemicals and energy side of it, the energy side actually popped up a bit, particularly driven by the U.S. where we are seeing some weakness is in the chemical side where customers are looking at the macroeconomic environment and are slowing their capital investment there.\\nSo I'd say that kind of puts and takes. But I think in terms of the quarter, Bob, I think we came in right about where we thought we'd be in CAM and I'd say it's a mixed story in terms of different segments growing at different rates.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nBefore Jacob, maybe you can jump in.\\nI think the one thing that I think is important is you really have story in China, which is its own and then the rest of the business.\\nAnd so if you think about where Americas and Europe is, it's performed extremely well. And if you actually look - we mentioned this in the call, sequentially, the dollars actually were very stable.\\nAnd so we are expecting a challenging Q4, mainly because we grew 70% in China.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"43% in Q3.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo it's a compare situation. But this business continues to be very strong.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Do you want to make the comments on the Advanced Materials side of the house there, Jacob?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, I can say that. And Mike, I think you also started with that saying that we continue to see a lot of activities in that space, especially in the battery space, where, of course, there are also compares we are against, but there's still a lot of interest in that space, and we are doing very, very well. Semicon is also cycling down right now, but we are - we continue to see business in that space, but not as strong as we did last year.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thanks Jacob. And my follow-up, I wanted to ask about margins.\\nJust how you're thinking about some of the puts and takes for 2024.\\nI think some of the cost savings you've talked about should extend to next year, should get some leverage out of NASD. But at the same time, some of the performance comp comes back and would think some of these top line pressures extend as well. I don't know, can you just talk about maybe relative to the LRP, how you're thinking about margins for next year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, do you want to lead that one? Yes. By the way, one thing I'd add to that before Bob's, the specifics, Jack, is our decision on the Resolution Bioscience business so as part of the story for us next year in terms of margin expansion.\\nSo Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I would say that our view of leveraged earnings growth continues into '24.\\nAnd so while we do have some things coming back to us, some of the actions that we've taken will continue to move into a full year for 2024. And quite honestly, that's kind of what we expect our job to be is to be able to drive that leveraged earnings growth.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. We go next now to Vijay Kumar at Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hi, guys. Thanks for taking my question. Good job on the margin execution here, Mike. Mike, maybe I missed some of the comments here. Can you talk about the phasing in the quarter here in China? I think I heard when you start off down mid-singles and was July off like minus 25%, minus 30%, is that the exit rate?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. We take a change within the quarter.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Vijay, this is Bob.\\nYour math is in the ballpark. Yes.\\nSo we were down mid-single digits through June.\\nSo May and June kind of tracking as we expected, and then we saw incremental weakness in July, and we ended up for the full quarter down 17%. And what we're assuming going into Q4 is that, that performance will continue into Q4. And given the tough comp that we have because I think we grew 44% in Q4 of last year, we're estimating roughly a 35-ish percent drop in Q4 in China.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Sorry. That's helpful, Bob. And just -- sorry, where I was going with that question was, can you talk about capital versus recurring? And I think when I look at your Americas in Europe, America is just flattish. Do you see a similar sort of phasing in ex-China, maybe talk about exit rates in July?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"So actually, if you think about the ACG business, actually ACG grew in all regions and all end markets, inclusive of China.\\nSo there wasn't a change there. And I would say both in the Americas and Europe, we didn't see that same effect.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And overall, outside of China, the geographic performance was better than expected.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Correct.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We saw no trends like the China trend in our other geographies.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That's helpful, Mike. And Mike, maybe one that you mentioned a couple of times on transitory.\\nI think that's a new firm that you're using -- what have you heard -\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think I move away from prudent to transitory.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Yes. What have you guys heard on the ground on China stimulus, maybe some positive commentary, but nothing is concrete and why use the word transitory is the implication here fiscal '24 should be a more normalized year when we look at the comps?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo, a couple of thoughts here, I think relative to the China business, we're hearing similar things, but nothing really significant and there's not enough to go onto assume we have kind of material impact on our outlook for the rest of the year. When we talk about transitory, we talked about the fact that these markets are driven by investments to improve the human condition as I mentioned. They're not going to go away.\\nAnd neither while we're not going to get into the specifics of an actual number, we actually see a path to growth next year for full year for Agilent. And of course, we have the tough compare the first half of next year, we did coming off a double-digit print for first half this year, but as we looked at our business keep in mind, we're - what's behind my thought process here which is - we're instrument company, yes, we have big instrument business around 60%, we have a 40% of those in recurring revenue business.\\nI don't know if you caught it in Mike call script, but our sales funnel for instruments are actually growing.\\nSo that would say that at some point in time those budgets are going to be released and the orders will close, when I've seen deals come out of - the funnel. We're not seeing order cancellations, we're not seeing changes to our one loss ratio. And we're encouraged by the growth we're seeing in biopharma.\\nOn the small molecule side, we know that different rates of replacements during the cycles, but we think this will follow historical cycle.\\nI think the real wildcard for us, we look forward into '24, is really what do we assume around the China market. We're not assuming any kind of major further degradation, but at the same point in time, it's the path to return to kind of historic growth rates. That's the open question right now.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Understood. Thanks, guys.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Dan Leonard at Credit Suisse.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Dan.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Thank you. Hi, Mike. I wanted to follow-up on that last part.\\nYou've seen a lot of cycles in China over 30 plus years. What would you compare this to and how do we get out of it?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I am as old as the dirt and have been working in this marketplace since the mid-90s. I haven't seen a cycle like this before. And we've not seen a situation where the - there's really seem to be a lack of confidence right now in the macro economy.\\nNow, look I'm not sharing - anything that the audience here doesn't fully understand already.\\nSo, the way we get out of this, I think is China led by the government.\\nWe'll get back to focusing on its long-term goals of making China an innovation driven economy, which will require continued investments in R&D. It's going to also get back to focusing on improving the health of - the population, addressing some of environment issue, so we think it's getting back to fundamentals. Yes, we think that eventually will occur, but there's a lot of issues that we may be work through within the China right now.\\nBut - it's a very large market, the market is not going to disappear. And I think there'll be investments.\\nI think there's also needs to be a level of confidence in the private sector in China, that it's a good time to reinvest and maybe I shouldn't wait on the sidelines hope for its stimulus, but get back to work and get my business going.\\nSo there's a lot of dynamics. I really have to say though, I don't know if I have a comparable situation that we've been through for this long.\\nI think Bob and I were talking earlier today. The change in the food ministry, a number of years ago is - was the biggest thing we've seen or 24 plus seven some of the biggest things we've seen a change, but this is much more of a macro economic issue in China, which is different than what we've seen before. Obviously, we have an impact on life sciences tool, but it's a much bigger macro story is really driving the softness right now in our markets.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. The only thing I would say, Dan to build on what Mike was saying is, as he mentioned, the demographics are with us when you think about the aging population, the need to actually access healthcare more important therapeutics, and the importance of ensuring the water and food supply. They are the world's leaders today in electric and clean energy. It's hard to believe when everyone thinks about that.\\nBut they are the leader, and they have more electric cars than any other region.\\nAnd so, I think that investment is going to be key as Mike talking about from the government, but unless they changed their strategic priorities, I think that's the benefit for life sciences in general.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"I appreciate all that perspective. And just a follow-up. I was hoping you could elaborate on your decision to shut down Res Bio. I was surprised by that, given that you acquired the company only a couple of years ago?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure Dan. Happy to do so.\\nSo obviously, a very difficult decision, then I'll have Sam jump in on this conversation, but our fundamental belief was that our differentiation will be all around what we called the kitted strategy to have a distributed on market companion diagnostics for our pharma partners, and that market really hasn't developed as we had anticipated. Sam?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, Mike. Building on what you said, while NGS and cancer diagnostics is here and we serve that market in a number of ways, right, for just to be clear, too. We absolutely continue to serve cancer research translational research and diagnostic, test developer customers. But our core to our thesis, our differentiation is really the ability to develop and distribute these kitted tests in the market, the pharma market and the testing market just as evolve that way.\\nAnd we also looked at our recent analysis and concluded that even with more additional investment, this is going to be a business that's going to be undergoing significant losses for some foreseeable future, so. It was a difficult, as Mike said, that the right decision to make this move now. But again to be clear, we continue to serve cancer research and diagnostics in a number of ways.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think - Sam, when we've talked about this in the past.\\nSo, we think we're still going be able to participate in what we believe the strong growth of liquid biopsy market. But to really providing a lot of the - if you will, ingredients for the test developers for themselves.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Here and Mike. I'm going to take this opportunity to also just to say beyond our core SureSelect Target Enrichment portfolio which is used broadly for liquid biopsy testing today. Early next year, we'll be launching solutions from Avida BioMed, an acquisition that we announced earlier this year, which we think is really going to be a differentiated way to look at methylation, as well as classic mutation analysis.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Maybe just one add, Dan, is obviously a difficult decision for us, but I also think it also looks - it shows the discipline that we have in terms of our portfolio rationalization, and we felt we had better returns in other places to invest in so.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Understood. Thanks for the time.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Brandon Couillard at Jefferies.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Hi, guys. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike would you just find packing mass spec versus LC trends in the quarter? And then based on your revised guide, what is the four-year CAGR from 2019 for LSAG instruments exiting the year? How does that compare to historical average over the cycle?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Brandon, I'm going to start with the response to your question. I'll let Bob dig through his notes to find the actual number. But first of all, I just started to say, is that we believe what we're dealing with here in our core instrument portfolio, inclusive of LC and LCMS continues to be a macro market story.\\nOur market shares are holding up really well. We're seeing in our one loss data.\\nWe're seeing it in the external reports from order. And I think when we look at our performance in those core platforms versus our peers, we're reporting some numbers and kind of adjust for the timing of when we report.\\nI think we're putting up similar kind of numbers. And Jacob, I know you looked at this thing pretty closely and I'm trying to buy some time for Bob to check down the...\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"We're trying to find the CAGR the last three years, which I don't have in front of me here, but you're right Mike, we follow this very accurately. And we're doing - we continue to do very well in this marketplace.\\nWe continue to innovate into it. And we have seen - actually, we have taken share over the last period of time. And if you actually compare our calendar two versus competition, would actually see that we are approximately flat in the LC, LCMS space. And I think that stacks up very well versus competition.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, hi Brandon, we can get that to you afterwards.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"I can tell you though, if you looked at the LSAG business over the last three years, it's been averaging 5% CAGR, despite being forecasted to be down this year. And obviously, those are two large businesses.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay. And then I guess, two housekeeping questions for you, Bob.\\nYou talked about NASD growth in the third quarter? I imagine it might have been up sequentially with Train B coming online and on the CapEx line.\\nYou pushed out $200 million you spend in that.\\nJust roll into '24? There are some projects maybe you decided to defer from the time being - the environment?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, it's a great question.\\nSo NASD, we continue to be very pleased with that. We had our first revenue in Q3 from Train B, the first of many more revenues to come from that standpoint, and expect it to continue, and we're still on track for the numbers that we've been talking about through 50-plus for the full year. And in terms of the CapEx, some of that will roll forward, but it's not - we're not going to spend that $200 million in '24 as well.\\nThis would be - we have deferred projects being very rational, really focused on revenue-generating programs.\\nAnd so, I do expect some of that will flow into '24, but I don't expect '24 to have an incremental $200 million show up in the forecast.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Got it. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Puneet Souda at Leerink Partners.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Hi Mike, Bob. Thanks for taking the questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"The first one, thanks.\\nSo maybe, Bob, could you elaborate a bit on pricing here? I know pricing was a meaningful contributor initially this year. We're seeing China, obviously, you talked quite a bit about it, and we're seeing the headline for China deflation.\\nSo wondering if you are expecting pricing to maintain there, or do you expect pricing pressure in China continuing? And also, we're seeing some of the peer sort of bioprocessing companies talking about local competition rising on the less high tech product.\\nAnd so wondering if you're seeing that on any of - sort of your product lines as well?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nLet me take the second question first. We can compete against the Chinese local competitors each and every day. And nothing has changed from that standpoint.\\nWe continue to feel very good about our portfolio, and continue to drive that growth. In regards to pricing across the board, we were slightly better than what we had expected. It was roughly over - a little over 4% for the quarter. And that was driven across all three of the groups.\\nSo we continue to drive - positive price across not only our DGG and ACG business, but also our instrumentation and that's globally. And we expect to be able to continue to demonstrate the value of our instrumentation across the globe. Obviously, in a deflationary environment, that will put a little more pressure on the instrumentation business, particularly in China but we've incorporated that into, our forecast and are still on track for positive price contributions, for the full year in excess of 3%.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Bob, maybe Bob or Padraig and also going to maybe comment on some discounting trends he may have been seeing?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. No, I think - no, I think it's the pricing holds discounts has really held stable as well.\\nWe haven't seen any - increase in that rate of it, and we continue to monitor that, but it's been very stable, Mike.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. Thanks for that. And then if I could ask an academic and government here, smaller segment for you, but it did solid in the quarter. Maybe could you talk a little bit about what you're seeing across the globe in different geographies for academic and government and your expectations here going forward? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Bob, I think this is an end market that is holding up reasonably well. I mean we're seeing that on a global basis, in most cases, with the exception being China, where the funding is there, the funding is stable. And it's been a positive surprise for us so far through this year. And I don't...\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"No, it's really across many of our instrument platforms as well as the service business. And from what we're seeing, Puneet, is funding continue to be available, and it's flowing from governments.\\nI think they're seeing the strategic nature of many of the investments that they're making. And our expectation is that, that funding will continue.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. Super. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Rachel Vatnsdal at JPMorgan.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Good afternoon. And thank you for taking the question.\\nSo first off, one of your peers have flagged that they were actually seeing some early signs of pharma spending recovery I appreciate that most of the incremental this quarter, is really related to the China weakness.\\nSo maybe ex-China, can you walk us through if you're seeing any signs of recovery of spending with biopharma customers. And then you've previously flagged for us that historically, when pharma spending slows down, like we're seeing today that it can take 12 to 24 months to recover.\\nSo how are you thinking about the timing, and recovery given the incremental weakness this quarter?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Rachel.\\nSo while we saw signs of stabilization in our European and U.S. business stabilization relative to expectations. We're not hearing anything along those lines yet in terms of recovery or desire to increase spending, the fact we're hearing the exact opposite right now from our large major pharma companies.\\nSo, I hope that commentary from others in this space is correct.\\nAnd there's going to be a big recovery here from year-end, but we're not seeing any kind of indications of that. If it does happen, great. It would be upside relative to our current outlook, and we know we do well in these markets. But Padraig, I don't think we're seeing and hearing anything like along those lines.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"No, I think it's spot on, Mike.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"The only thing I would say, Rachel, is if we look at our funnels, they continue to be growing.\\nSo it's a question of when, not if, and particularly in pharma. And as Mike and Padraig just mentioned, we're not assuming a budget flush into our Q4. And if it happens, that would likely happen in our Q1 in any event, from a revenue perspective. But what we see at least from our funnels, is they continue to be helping.\\nAnd let me just answer Brandon's question from a couple of times ago. If I look at LC and LCMS on a three-year CAGR, they're between 7% and 9%, so higher than the overall LSAG average.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Right. Thanks for that and Bob. And Rachel, I think the second question relative to - I think you're referring to the small molecule replacement cycle. And as you know, coming probably at least for the last 12 to 18 months, we had been indicating that we were expecting to see a slowdown in the rate of replacement. And in fact, we've seen that occur this year. Actually, given the weakness in China even beyond our expectations with a minus 16% number overall in the quarter.\\nThat being said, we do stay with our view that these tend to be 18 to 24 months, 12 to 18-month cycles, and we'd expect that they'll start to see movement back towards a higher growth rate. And that's one of the reasons as we look into '24, we're saying some of these markets will start to turn as - the base cycle gets back to more of a growth phase in that cycle. And as we've mentioned earlier, we see that particularly in liquid chromatography is probably about a five percentage kind of growth market long-term.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great. Thank you for all that color. Maybe just following up on your small molecule comments there.\\nSo small molecule declined 16% this quarter.\\nSo can you talk to us about how much of your China exposure is really tied to those small molecule workflows? And then what else is really driving incremental weakness on the small molecule side? We've heard of IRA pressuring some pharma decisions and potentially leading to them reprioritizing the pipeline.\\nSo is there any risk that you won't see a recovery? Or could the growth rate for small molecule really be reset in? What are your conversations with customers on that trend? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay.\\nSo you got it.\\nSo relative to China, I would say it's probably the same ratio as the global business, right? That's probably what 60%, 65%?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Is probably related to a small molecule. And relative to what's happened in large pharma, what we're seeing is in medium-sized pharma is, again, a continuation of this cautious about deferring capital. I'm sure they're thinking through implications of iRNA also other expenses are running hotter in their P&Ls where they need to make some offsets with capital purchases. That being said, if you believe, and I know pharma believes the importance of having safe on-market drugs.\\nYou have to have the instrumentation QA/QC environment to support that.\\nThat requires you to have modern liquid chromatography fleets.\\nSo, I don't think it's a question that they can - that this market is going to go away and won't be an area that the pharma will need to invest in.\\nYou can defer for a period of time, but then only last for so long.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. We'll go next now to Patrick Donnelly at Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Hi guys. Thanks for taking the questions. Mike, maybe just given that commentary around the instrument cycle, you're not really seeing much improvement yet. Obviously, the China piece transitory, but certainly seems like it's going to linger.\\nYou only a couple of months in '24 for you guys here. How do you think about some of these impacts lingering in? I think you said there's still plans for growth next year, but it certainly sounds like some of the headwinds at least will linger into the first half, given some of those costs. I just wanted to talk through that top line setup given some of these headwinds lingering into next year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. We still have a few more months so we finish off the fiscal year, and we'll give you our guide in November. And I think we'll know a lot more by then. But I do think we know that we'll be able to grow this company in '24. That said, I was very careful in my comments to make sure that there's a full year growth rate.\\nWe do expect the first half of the year to be a challenging year just from a comp standpoint to begin with, but also some of the things that we've been talking about today in the call, we don't expect a quick snapback to be occurring in the next quarter or 2.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. That's helpful. And then I know you mentioned budget flush is still a little bit away from that at the calendar year event for pharma and other areas. Do you have any view at this point? It sounds like you guys are expecting to be a more subdued budget flush, but whatever you're hearing from customers would be helpful just to pull back a little bit more on that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure, Patrick, happy to do so, and then I'll invite Padraig to this conversation. I know he's been talking a lot to his team about this. But as I mentioned earlier, we're not really seeing any kind of indication of customers saying, hey, listen, I'm going to have money. I'm planning to spend it this way.\\nIn fact, we've seen the opposite where sometimes orders that we thought were closed to actually keep deferring and require more purchases.\\nIn fact, I think one story we heard was we probably 3x.\\nFondo CFO, approved it on the third go-around and the CEO overruled it.\\nSo we know eventually going to get that business. But this is kind of dynamics ever seen.\\nSo we're not seeing a lot of indications of a strong year-end budget flush. Again, we'd love to see the opposite happen, but we're not going to indication of that.\\nAnd I don't if you have something to add there.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"What we're hearing from the customers is that we're not planning on a budget flow through the end of the year, but we're - we will take the upside of corsa.com.\\nI think I think one thing is really clear that the funnels are very strong, and it's there, but we're not seeing them to be released through a big push at the end of the year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think this comment, Patrick, on the funnel being strong and these funnels are actually growing is really important because this is one of the reasons why we think about full year outlook in '24. We know the business is there. It's just a question of when it's going to get -\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. We watch very closely our win loss rates. And we haven't - we've seen them very, very stable -- we had a strong funnel, which is very positive over time.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Understood. Thank you, guys.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Derik De Bruin at Bank of America.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Hi. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Derik.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"A lot of what I wanted to ask has been asked, so I've got some cleanups here.\\nJust did you give a specific instrument core growth number in consumables growth or number for 3Q and then sort of your all-in number for this year, what you're expecting?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. We didn't. LSAG for Q3 was down roughly 9% core. Consumables was up slightly.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Got it. Thank you.\\nSo what's the revenue contribution for Res Bio in 4Q? And what do we need to pull out for 2024?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo we've got a minimal number in Q4 as we wind down the business. And I would say it was roughly 1 point to a little over 1 point to the headwind to DGG going forward in FY '24.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Got it.\\nOkay.\\nAnd so staying on the topic of M&A. I mean, you've done a couple of genomics deals, which haven't gone your way. And I'm just sort of wondering what's your thinking about deployment going forward? I mean valuations have obviously come in, industry is consolidating, you would say, but we have -- it's been relatively quiet across the space for the last 18 months.\\nAnd so like how are you sort of thinking about capital deployment? And at what point do you decide you maybe want to buy -- start maybe doing even with the share prices, maybe doing some share buybacks.\\nYou sort of talk about your general capital deployment strategy at this moment?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think Bob alluded to it a bit in his prepared remarks, but we still are staying with our balanced capital allocation strategy, and you saw us in the market opportunistically on share repurchases given where we saw the share price setting that.\\nIn terms of our - an appetite for M&A, it remains unchanged given - despite the Resolution Bioscience decision. We knew that was a higher risk acquisition for us, early-stage company in hot area based on a really differentiating strategy that didn't want this to play out. But we've had some success in other aspects of our genomics acquisitions, including the AAT acquisition on the instrumentation side.\\nSo we're still out there looking. But as Bob mentioned, we take a disciplined approach to not only to how we view our internal choices and our internal business performance in terms of what's in the portfolio, but we'll also take that same lens, if you will, on how we look at M&A.\\nSo really, nothing has changed beyond the fact that this is more of a buyer's market. And companies with a strong balance sheet like Agilent, I think they're in a good favorable position to work on opportunities, but we're going to stay disciplined and not get caught up in what once was a value of a company, either in the private or public space.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Just one more follow-up, if I may. What are your orders in liquid chromatography? How is your order book? Are you seeing orders increasing?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Our order book was down, largely a function of China, but they were down year-on-year.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. We'll go next now to Josh Waldman at Cleveland Research.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Hi. Thanks for taking my questions. A couple for you.\\nFirst, Bob, can you provide more context on the puts and takes within the fourth quarter core organic growth guide? I guess maybe the assumptions by business unit. And then curious what areas or in markets outside of China seem to be like slowing real time that you're trying to reflect in the guide versus areas that maybe have stabilized or improving over the last few days.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo Josh, just real quick. When we think about kind of the Q4 implied guide, the big driver is China.\\nAs I mentioned, down roughly mid-30s and that really impacts a number of markets you can imagine, both AR and chemical and energy, which are - or chemical and advanced materials, which are the two largest markets in China.\\nI would also say that the diagnostics and clinical is also down. We've seen that softness in genomics. And then obviously, the shutdown of Res Bio also impacts that business, and that's primarily a U.S. phenomenon.\\nSo we did see an impact in U.S. on that side. And then there's some puts and takes in other places, but those are the two big pieces for Q4.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"But as I recall, I think 85% of the change was really China driven and bleeds over into pharma in CAM.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Got it.\\nOkay. Then Mike, I guess, staying on China and a follow-up there. Can you unpack a bit more of what you're seeing by end market? I mean, like where demand is holding in versus like areas that you've seen come in lighter as the quarter progressed again. I guess, outside of China - sorry, outside of pharma. And then I guess, a follow-up on Dan's question. I believe it was earlier. What are the variables within China, Mike that you're trying to account for as you forecast the medium term? I mean, maybe beyond just the next couple of months. And I guess any risk that we need to kind of rethink, the underlying growth rate in the industry if China remains light here in the medium term?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo let me start with the view by end market.\\nI think the academia and government market was - grew for us in the third quarter. But everything else was pretty much down. The big change really were in the pharma space. And as Bob commented earlier about how we exited the quarter, the July performance.\\nSome weakness in chemicals, but I'd say the down there was really just a byproduct of - we're going off of 43% compared last year.\\nAnd we're looking at a 70% growth compare in the fourth quarter. But I'd say the concerns or the cost of this in the China marketplace is really across the board. And with varying degrees, but I think it's really most reflected in the pharma outlook.\\nI think that's a $64,000 question.\\nI think there's a case to be made that this market will get back to its longer-term growth rates, but it will take a period of years to get there. It's not going to be a snapback in 12 months.\\nBut again, that's work to be done. The factors that we're looking at, I think are the same factors that everybody else is staring at, which is what's going to happen to the macro in China. Storyboard here is a macro story and is bleeding over into life science tools, but we need to see the China economy get moving again.\\nWe need to see consumer confidence coming back. We need to see investment commerce is coming back in China.\\nI think those things will take some time. But I do think there are priorities of the government, and they'll find a way to make that happen. But we're not calling for a quick snapback here either.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Got it. Appreciate guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. We'll go next now to Dan Brennan at TD Cowen.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great guys. Thanks for taking the questions. Maybe just one on instruments, Bob, I think you talked earlier, I think to Derik's question maybe you gave the L segment, but I know there's consumables within that. Could you just break out what the instrument number is? I know we've got on the Q.\\nJust wondering how instrument did and as we look ahead, I think given your instrument exposure, it's always a key question, I know there's been various times asked throughout, but just how would we think about kind of the outlook for instrument, whether it be fourth quarter, if you want to point to go out a little further?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo to maybe add a little more flavor and clarity to my answer previously, LSAG was down 9% core. It was down 9% in instruments as well.\\nSo the consumables business was up basically a point.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"And as we look out there, I'm just wondering. I guess it's really depends upon that - the type of product, which you guys already discussed, it sounds like you're optimistic on LSAG given the funnel is going to get back towards that excuse me LCMS is going to get back to that 5% growth. I guess, would you assume instruments as a starting point growth in fiscal '24 for what you see today?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Based on what we see today, yes.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Got it. I mean one more, quick one just on - yes\\u2026\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"There's no reason to believe when we think about kind of the level of investment over-time. And the importance of our instruments in the Discovery of new therapeutic areas or food testing, we think about as Mike was talking about these new areas around Applied Markets, there's no reason to think that there is something fundamentally has changed, that they don't need instrumentation.\\nAnd so, I think we feel very good about our market-share and our good about our market-share, and our competitiveness and do expect our LSAG business to be a growth driver for us going forward. Yes, no completely. No, is this more just on the comp basis, after making\\u2026\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"That sounds great. Bob and just one quick one, just on - the applied versus the chemical, you mentioned some chemical weakening just that were concerned during the quarter, but the applied obviously powering through. Can you just maybe unpack a little bit more how you're thinking about like how we exit the year across your different buckets within the chemical and applied segment?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I mean, I think if you look at Q4, it will be really an impact of China.\\nSo we're actually looking at chemical and advanced materials declining in Q4, because of that 70% increase that Mike mentioned in Q4 of last year. That was across-the-board. I would say the advanced materials will be much stronger than that down high or down double-digits. And the chemical side, probably we will have a bigger impact.\\nIf you recall, the Shanghai shutdown impact was centered in the chemical and advanced materials market, because that's where our GC manufacturing was and that's a Workhorse for some of those products.\\nSo, we do see it down in Q4, but up for the full-year.\\nI think that's a really important to make sure that people understand.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great, thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. And we have time for one more question this afternoon, we'll take that now from Luke Sergott at Barclays.\"}, {\"speaker\": \"Luke Sergott\", \"content\": \"Great. Thanks for squeezing me in.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi Luke.\"}, {\"speaker\": \"Luke Sergott\", \"content\": \"Just real quick on the - thanks.\\nSo real quick on NASD. But are you guys seeing any pressure from the market, seeing any in-sourcing from the market? I know Novartis has talked about doing some of this as well. And then lastly additionally, with that with the CapEx guide down. Are you guys still investing in additional lines there for the year? Or is that really on pause is that have anything to do with that kind of CapEx stepped down?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Let me leave it there. And then have Bob jump-in and Sam as well, but from in-sourcing standpoint. No, we're not seeing any material moves in this direction. And in fact as we head into '24, we continue to broaden our book of business and we're going to have more customers overhead in terms of breadth of customers as we go into '24.\\nAnd yes, it's called Project Endeavor.\\nSo Train B we went live, which we had a different code-named. And that's live, but we continue to move forward with our expansion plans on the other front, siRNA front, along with what we like to do on the CRISPR side as well And antisense.\\nSo, we're going to broaden that.\\nSo our stated investment plans remain unchanged.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, to be very clear, Luke, to add what Mike said, we are not slowing that down at all. That investment is one of the highest priorities, we've trimmed back spending in another less more infrastructure kind of oriented projects as opposed to kind of revenue-generating.\\nI think what you're seeing actually is it's actually coming in better-than-expected, because the pricing is better-than-expected and you probably have seen that in other places.\\nAnd so, the availability of parts and the key materials is better than what we had initially planned as well.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, I only add to what you guys said that Mike along with having more customers and actually more diversified set of customers, we're going to be we're contracted to do more programs next year than in the history of NASD.\\nSo it's a yes, all full-speed ahead.\"}, {\"speaker\": \"Luke Sergott\", \"content\": \"Got you. Got you. And then I didn't - hear anybody asked about the ACG margin, maybe they did I missed it, but you guys had a material step-up there, can you talk about really what went on there, is that - is there any benefit that you saw from Mike lack of incentive comp just kind of break-out, where the drivers there and really how we should think about that in Q4, and as a jump-off point?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, we did mention that there was a benefit, Luke, of the variable pay comp, obviously, that's got a big component of people in it, but it's also a reflection of the scale and - continued growth of that business. We didn't say take that 32% I believe it was in Q3 and kind of book that as the new starting point. Because it had outsized growth. But we continue to be pleased and expect continued margin expansion for ACG going-forward.\"}, {\"speaker\": \"Luke Sergott\", \"content\": \"All right, great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. Ladies and gentlemen, at this time I would like to turn things back to Parmeet Ahuja for any closing comments.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks Bo, and thanks everyone for joining the call today. With that, we'd like to end the call. Have a good day everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Parmeet. Ladies and gentlemen, this does conclude today's call. Thank you for joining. We wish you all a great day. Goodbye.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2023-11-20
year: 2023
quarter: Q4
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, welcome to the Agilent Technologies Q4 2023 Earnings Conference Call. My name is Bo and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Parmeet Ahuja, Vice President, Investor Relations. Please go ahead, sir.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Bo, and welcome, everyone, to Agilent's conference call for the fourth quarter of fiscal year 2023. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO. This presentation is being webcast live. The news release for our fourth quarter financial results investor presentation and information to supplement today's discussion along with a recording of this webcast are available on our website at www.investor.agilent.com.\\nToday'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 year-over-year, and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Parmeet, and thanks, everyone, for joining our call today.\\nBefore we get into discussing our results and outlook, I want to mention that we're joined today by Padraig McDonnell, President of the Agilent CrossLab Group, and Sam Raha, President of the Agilent Diagnostics and Genomics Group. We're also joining this call for the first time by Phil Binns, President of the Agilent Life Science and Applied Markets Group, Phil's name may be new to some of you, but he's well known at Agilent and in the industry. Phil has been with us for more than 13 years, coming over with the Varian acquisition and overseeing our market-leading spectroscopy business. We're extremely pleased to have some of the Phil's knowledge, experience and proven leadership strength heading up our LSAG business. In a short time in the row, we've already seen Phil at tremendous value as a member of our senior leadership team, welcome, Phil.\\nNow on to our fourth quarter results. The Agilent team once again continued to perform well under challenging market conditions. Revenue of $1.69 billion declined 9.7% core after increasing 17.5% last year. This is at the high end of our guidance.\\nOur proactive approach to manage our cost structure in this market environment helped us deliver healthy fourth quarter operating margins of 27.8%. Q4 earnings per share of $1.38 exceeded our guidance.\\nWhile this was a decline of 10%, it comes against a tough compare last year when EPS grew 26%.\\nWhile the market continues to be challenging, we believe we're starting to see signs of stabilization.\\nAs an encouraging data point for the quarter, our book-to-bill ratio was 1 for the company and greater than 1 for our LSAG instruments.\\nLet's now take a close look at our Q4 performance, starting with our regional results.\\nDuring the quarter, while down year-on-year, we delivered sequential growth, except for China as expected. In China, our business declined 31% year-on-year after growing 44% in Q4 last year.\\nWhile China was down sequentially, these results are very much in line with our expectations. And the year-on-year monthly performance improved slightly as the quarter progressed.\\nIn addition, orders were slightly higher than revenue for the quarter.\\nWhile it is too early to call these 2 data points at trend, we see this as occurring a sign of potential stabilization. In late September, I traveled to China the first time since the COVID outbreak to meet with the Agilent team, key customers and government officials. I was reminded of both the sheer size of the Chinese economy and our market there. I saw firsthand the work being done to bolster economic activity in the near term and create an environment that will support continued growth into the future. I remain convinced China will continue to play an important role in life sciences, and I'm confident that the China market will return to growth. In looking at our largest end market, pharma declined 14%, driven by continued caution among customers on capital expenditures for new instruments. Within pharma, biopharma form better than small molecule, Geographically, our biopharma business outside China grew high single digits.\\nLooking at our performance by business unit, the Life Science and Applied Markets Group delivered revenue of $928 million, down 18% core versus a tough compare last year above 22%. Customers continue to hold off on capital expenditures, particularly in the Pharma segment of LSAG's business, which declined in the high 20% range. This is against growth in the low 20s last year.\\nOn the other hand, we continue to see strong customer demand and growth in our PFAS solutions as well as continued strength in the Advanced Materials segment. These are 2 secular trends [indiscernible] higher than before and we remain optimistic about future growth in these market segments.\\nWhile the market environment remains challenged, we continue to innovate and provide unique solutions for our customers. The new products we've launched in June at ASMS, in particular, the 6595 LC Triple Quad, which is focused on key applications like PFAS, continue to generate positive customer interest and new orders.\\nWe're also bringing innovative new solutions for customers across the biopharma value chain. We [ also ] saw a number of our online UHPLC systems with large biopharma companies. The systems are easy to use, reliable and deliver significant value by providing fully automated analysis of critical quality attributes allowing real-time decision-making outside the lab. The Agilent [indiscernible] side group posted revenue of $404 million, up 4% core and 6% on a reported basis. ACG delivered growth across all end markets and in all regions except China. The Contract Services business was up double digits, offset by the services associated with new instrument placements.\\nOur strategy of increasing connect rate continues to pay off. In the quarter, the contract services business represented 65% of ACG revenue, a number that has grown nicely over the years. The Diagnostic and Genomics Group delivered revenue of $356 million flat on a core basis and up 1% reported.\\nDGG's results led by the pathology NASD businesses, which both delivered low double-digit growth. These strong results were offset by the continued market challenge in genomics both consumables and instruments.\\nOur NASD portfolio and capacity expansion are continue as planned. We're confident in the long-term growth prospects for the markets we serve.\\nBefore I finish covering DGG I want to thank Sam Raha for his contributions over the years have helped us to build a strong foundation for the DGG business. I wish Sam well.\\nIn addition to these business group highlights, during the quarter, we will recognize for our commitment to sustainability. Agilent's near long-term targets for reaching net zero greenhouse gas emissions have been approved by the highly regarded client-based targets initiative. A year ago, we entered 2023 sharing a view of economic and industry uncertainty as we got it from moderating growth in the second half of 2023. We had not anticipated however, the significance of the market headwinds the industry eventually face particularly in the pharma market and China. Despite the challenging market conditions, we delivered full year revenue of $6.83 billion growing 1.5% core.\\nWhile our full year growth was lower than initially expected, we met or exceeded every quarterly guidance range we provided, a solid testament to the team's execution ability, including FY '23 results, our 4-year compound annual growth rate is 7%. This is at the high end of our long-term growth guidance. In FY '23, we delivered operating margins of 27.4%. This is up 30 basis points this year and up more than 400 basis points in the last 4 years. Earnings per share of $5.44 were up 4%, delivering leverage earnings growth for the year.\\nOur 4-year compound annual growth rate for EPS is 15%.\\nLooking back, 2023 was a challenging year. What I'm particularly proud of is the Agilent team's ability to quickly pivot and take action to adjust these challenges while staying relentlessly focused on our customers.\\nWhile we work to significantly reduce expenses, Agilent's customer satisfaction ratings remain at all-time highs. At the same time, our employee engagement continues to be excellent, as we achieved a number of best employer awards over the last year. All this helped us deliver another year of leverage earnings in an extremely difficult market environment.\\nBefore turning it over to Bob for more detail, I want to provide some high-level perspective on FY '24 and beyond.\\nFor 2024, we anticipate a slow but steady recovery throughout the year. In our initial outlook at the high of our guidance, we expect revenue to return to growth. At the same time, our range for EPS in the year ahead has us again delivering leveraged EPS growth.\\nAs we look ahead, we remain convinced that market challenges being faced by the industry today are transient.\\nOur end markets are powered by investments in improving the human condition. The pace of science, innovation and discovery continues to increase, which will fuel further growth. We remain focused on winning in the marketplace, our differentiated products, services and most importantly, our One Agilent team are all essential to the success of our customers.\\nWe are well positioned for long-term growth.\\nBob will now share more detail on the quarter and the year. along with more specifics on our initial view for fiscal 2024 and Q1. Thank you for joining us today. And now, Bob, over to you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Mike, and good afternoon, everyone. In my remarks today, I'll provide some additional details on revenue in the quarter and the year as well as take you through the income statement and other key financial metrics. I'll then finish up with our guidance for fiscal year 2024 and the first quarter. Unless otherwise noted, my remarks will focus on non-GAAP results. Agilent finished the fourth quarter with core growth at the top end of guidance and EPS exceeding our expectations as we executed well against challenging macroeconomic conditions.\\nQ4 revenue was $1.69 billion, down 9.7% core and 8.7% on a reported basis. This is after growing 17.5% in Q4 of last year when we benefited from the recovery from the Shanghai shutdown in Q2 of last year. This created an estimated 1 point of headwind in the year-on-year results this quarter.\\nAs expected, we saw weakness in capital purchases in LSAG with the biggest impact in our China business.\\nNow I'd like to share additional detail on our end markets for the quarter. Revenue in our largest market, pharma declined 14% versus 20% growth in Q4 of last year. Biopharma declined 2%, while small molecule was down 23%.\\nHowever, Biopharma ex China was up 7% in the quarter and grew solidly for the year. And while small molecule was down, the decline was most pronounced in China. On outside China, small molecule was up sequentially in the quarter. Chemicals and Advanced Materials declined 11% versus growth of 27% last year, while flat sequentially.\\nOur Chemicals and Energy subsegments were down 15%, while Advanced Materials were down roughly 2% globally and up 4% in the Americas and Europe combined. The food market was down low double digits against a tough 20% growth comparison last year. High single-digit growth in the Americas was offset by declines in all other regions.\\nIn the Americas, PFAS testing is emerging as an important growth area in food testing, helping drive the high single-digit growth.\\nWe expect testing for PFAS chemicals will continue to be a growth driver across multiple end markets over time. The environmental and forensics market declined 3% versus 18% growth last year. Similar to the food market, the Americas region continues to experience strong growth, up double digits driven by PFAS. This strong performance was primarily offset by softness in China, which was down year-on-year but up slightly on a sequential basis.\\nOur business in the diagnostics and clinical market declined 4%.\\nWhile we delivered low double-digit growth at our pathology-related businesses, it was more than offset by continued weakness in genomics.\\nThe academia and government market was down low single digits with strength in the Americas, driven by government funding, offset by weakness in China and Europe. Results were pressured across all geographies in the quarter.\\nAs Mike mentioned, China was down 31% year-on-year after growing 44% in Q4 of last year, in line with our expectations coming into the quarter. The rest of Asia was down mid-single digits in both Americas and Europe declined low single digits in the quarter.\\nBefore turning to the rest of the P&L, I'd like to quickly summarize some\\nfull year highlights by end market and geography. From an end market perspective, all markets grew low to mid-single digits for the year, except for pharma, which was down 2% globally. And in addition, all geographies grew except China, which was down 5%.\\nNow back to the P&L for the quarter. Despite the revenue declines, our team continues to execute at a very high level. Fourth quarter gross margin was 55.8% and our operating margin was a healthy 27.8% in Q4, which was slightly better than our internal expectations. Below the line, we benefited from stronger-than-expected cash flow generating incremental interest income in the quarter.\\nOur tax rate was 13.75% and we had 293 million diluted shares outstanding, both as expected.\\nPutting it all together, earnings per share were $1.38 for the quarter, exceeding our expectations, albeit down 10% from a year ago when EPS grew 26%.\\nAs Mike mentioned, our Q4 results capped a year where we grew 1.5% or on the top line, increased operating margins by 30 basis points and grew EPS by 4% while overcoming a couple of points of currency headwinds. This is a real statement on the team's ability to quickly adapt to market changes while still delivering leveraged earnings growth.\\nTurning to cash flow and the balance sheet. I'm incredibly proud of the Agilent team as Q4 continued the strength of very strong quarterly cash flow results. In Q4, we generated operating cash flow of $516 million, well over 100% of adjusted net income and invested $84 million in capital expenditures. CapEx spending is driven by our ongoing NASD capacity expansion, which remains on track.\\nFor the year, we delivered $1.5 billion in free cash flow, an increase of 44% over last year.\\nOur balance sheet continues to remain healthy as we end the fiscal year with a net leverage ratio of 0.6x.\\nWith the current challenges in the market, it is great to be a company with a fortress balance sheet and strong cash flow. In the quarter, we paid out $66 million in dividends and spent $80 million to repurchase shares. And for the year, we returned $840 million to shareholders through $265 million in dividends and $575 million in share repurchases.\\nLooking forward, you may have also seen that we recently announced a 5% increase in our quarterly dividend, providing another source of value to our shareholders. It's worth noting that we've increased our dividend every year since we first began issuing them in 2012.\\nNow let's move on to our outlook for the upcoming fiscal year and first quarter.\\nAs Mike stated, we expect to see a slow but steady recovery throughout fiscal 2024.\\nHowever, we also acknowledge the continued market uncertainty, high interest rates, volatile exchange rates and depressed capital spending. Like several of our peers, we expect the markets to be down slightly for the year, while we expect to perform better.\\nGiven the expected slower market conditions, we've taken additional steps to adjust our cost structure. Incorporated into our guidance is roughly $175 million of cost savings.\\nGiven the significance, I want to provide a little more detail on these actions.\\nRoughly 30% of the savings or related to portfolio optimization decisions we've taken in DGG, the [ loss ] of which was the exit of the Resolution Biosciences business.\\nAnother 25% is related to material and logistics cost savings as well as optimizing our real estate footprint with the remaining savings tied to continued reductions in discretionary spend and optimizing our workforce. Along with these actions, we've taken a $46 million charge for restructuring and other related costs in our Q4 GAAP results. These reductions, while difficult, are necessary to ensure we continue to fund our most critical investments as well as fund the variable compensation resets from this year. These actions help ensure the company delivers leveraged earnings growth in FY '24 and will enable us to emerge even stronger when our markets inevitably return to their long-term growth rates.\\nAs Mike noted earlier, we exited Q4 with some potential signs of stabilization with a book-to-bill ratio of 1 for the company and greater than 1 for LSAG instruments.\\nWhile this is positive, we're going to be prudent in our initial guidance.\\nFor the full year guide, we expect revenue in the range of $6.71 billion to $6.81 billion. This represents a core growth range from a slight decline of 0.5% at the low end to 1 point of growth at the high end. Currency is a headwind of 1.2 points, while M&A is also a slight headwind of 10 basis points related to Resolution Bioscience. On a reported basis, we are expecting a decline in the range of 1.8% to 0.3% year-on-year. From a geographic perspective, we expect modest growth in the Americas and Europe. And while we expect to see recovery during the year in China, our initial view is it will still decline for the full year.\\nFrom a business group perspective, we expect growth in both DGG and ACG while LSAG instruments will still be pressured. And in terms of phasing, we expect the first half of FY '24 to look similar to the second half of FY '23 with growth in the second half of next year.\\nWe are projecting modest operating margin expansion for the year. And below the line, we expect interest income and expense to offset each other, a tax rate of 13.5% and 293 million shares outstanding. Fiscal 2024 non-GAAP EPS is expected to be in a range of $5.44 to $5.55. This range represents flat to 2% growth versus FY '23. From a cash flow perspective, we expect another robust year.\\nWe are expecting roughly $1.6 billion in operating cash flow at $400 million in CapEx as spending increases on NASD's trained C&D expansions.\\nLooking to Q1 2024, we expect revenue in the range of $1.555 billion to $1.605 billion. This represents a core decline of 11.3% to 8.5%, with currency and M&A having a minimal impact. At the midpoint, we are expecting growth that resembles what we just delivered in Q4 and assumes no significant budget flush during the end of this calendar year. This is against another difficult comp of 10% growth in Q1 of last year.\\nFirst quarter 2024 non-GAAP earnings per share are expected to be between $1.20 and $1.23 as the cost savings fully ramped through the quarter.\\nAs Mike indicated, while we are expecting low growth in 2024, we remain optimistic about the future of our markets and our long-term growth prospects.\\nOur business remains very profitable and healthy and I know we will come out stronger as a company when market growth returns.\\nAnd now I will turn the floor back over to Parmet for your questions. Parmeet?\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Bob. Bo, if you could please provide instructions for the Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] We'll go first this afternoon to Vijay Kumar at Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"And some helpful comments here. Mike, maybe starting with those book-to-bill comments here. Overall company [ 1 turn ] LSAG instrumentation looks like it's [ turned ]. Curious what those book-to-bill numbers for ex China? And if instrumentation has turned, that Q1 guidance, comps get easier. Why is Q1 assuming no benefit from this turn in instrumentation?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Vijay.\\nLet me take that.\\nI think if you look at the book-to-bill ratio, it's -- for LSAG instruments, it's actually very similar to both including China and excluding China. China was actually slightly positive as well.\\nSo that's a good sign. And as we mentioned in the prepared remarks, we're taking a prudent approach to our first quarter. And certainly, we see this as a positive. We did have some -- we typically do have seasonality from our Q4 to Q1, but we're taking it kind of one quarter at a time.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, I think part of the big story, too, Vijay, is the 10% comp from last year as well. But as we [indiscernible] in the call, we were -- it was encouraging to see some initial signs of stabilization with that kind of book-to-bill on the instrument side.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Understood. I'm glad to hear prudency and right off the [ batch ] here.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"We got that into the script, Vijay.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"On -- just one more related on guidance here. What are you assuming for NASD in China for [ raw ] fiscal '24?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo for China, we are thinking mid-single-digit decline for the full year.\\nSo very similar to this year. And then for NASD, right now, we're expecting low single-digit -- mid-single-digit growth.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Mid-single digit. Yes.\"}, {\"speaker\": \"Operator\", \"content\": \"We go next now to Patrick Donnelly at Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Maybe kind of a follow-up on the 1Q guide. It seems like, again, the order's encouraging. Maybe a little bit prudent on the guide, as you said, I guess when you think about just the implication for the ramp 2Q to 4Q, is it optimism in the market based on some of those order trends is that obviously the comps get easier in the second half as you work through it. And can you just talk about the visibility into the recovery and kind of what gives you the confidence in the ramp as the year progresses here?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, sure, Patrick. I want in lead off, Bob, and then you can add any additional comments you'd like to make here. But when we think about these comps around what we described as a gradual recovery and grow.\\nI think is, first of all, important to remind the audience that we do expect the first half of the year to be very much like what we saw in the second half of '23. But looking forward, why do we think that things are going to be different in the second half which is though it's initial and still early, there are some early signs of potential stabilization that you see in our order book. The fact that book-to-bill for the company was above 1, the fact that we had the same result in our instrument business, which has been the most pressured part of the company. And listen, while it's too early for customers to be confirming their 2024 budgets with us, let's go back to the sales phone, which is a predictor of potential growth, right? So our sales funnels continue to show a lot of interest from customers. And we know that at some point in time of things will start to release. The funnels remain healthy.\\nAnd listen, an environment like this, we've seen these things before, which was healthy capital spending has been constrained.\\nSo some release can be expected. And we hear -- I don't want to get too down my skies on this, but we hear customers talk about some new focused investments. And I think we're not calling for a big broad-based market recovery, but certain segments of the market are going to be better. We're talking about some investments in R&D tools, what's going to PFAS testing capacity expansion plan we're hearing from our customers, Advanced Materials. And then as you mentioned earlier, Patrick, there's an easier compare in second half '24 as well.\\nSo we do expect this return to growth. And I think as -- it's not simply a hope. We've got some information to be kind of back up our thinking there. Again, we'll know a lot better about how things look when we get to the budgeting phase of our customers in early 2024. Again, right now, the markets for capital [indiscernible] still remain quite challenged. And as I mentioned, we are seeing encouraging signs of potential stabilization, but it's going to be a journey for our return into growth. And I think our guide reflects that. And again, I think we're -- we've got a high degree of confident this is what the back half of the year will look like.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And Patrick, you asked about Q1, as I mentioned in the prepared remarks, I think we're taking a prudent approach here. but we're also going up against last year where we did have a budget flush and happened earlier in the year but for delivery in November and December, and we're assuming that we're not seeing that or building that into our into our estimates.\\nSo that happens, then it would be -- that would be a nice thing for all of us.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, absolutely, Bob.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"That's helpful. Bob. And maybe, Bob, just on the margin side, helpful to hear you talk through a few of the different moving pieces. It sounds like some cost savings in DGG, among others. I guess can you just give a bit more color on kind of the moving pieces, where you're pulling levers, the ability to take out some additional costs to hit these margin numbers. Obviously, you talked about margins being up a bit.\\nI think there are some headwinds like incentive comp, things like that.\\nSo maybe just talk about the gives and takes there and confidence in terms of some of the cost outs.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, that's a great insight there, Patrick. Yes, because we do have some add backs, I would say that -- so don't take that $175 million and drop it to the bottom line because we have some resets, I would say roughly half of that is kind of a reset between our sales comp and variable pay. If we think about it is really across the P&L, the biggest piece actually is in DGG with the exit of the ResBiobusiness, but we've also taken some tough decisions in other product lines to streamline the portfolio there. And I would say roughly a little over 30% of that is associated with that.\\nThe other 25% is really within our COGS.\\nOur OFS team has done a phenomenal job of really kind of leaning into reducing our costs around logistics and material costs. And then I talked about the site consolidation as well, which will show up and down the P&L.\\nSo we've taken a look at our real estate footprint and have actually closed several smaller sites between -- around the world really. And then the final piece is really kind of infrastructure optimization, which would be discretionary spend but then also head count reductions that would be focused on areas where we've rightsized it to the demand.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And Patrick, this is Mike, [indiscernible] about the covenants about the growth recovery I think when it comes to hitting the $175 million, high degree of confidence, we control this 100%, and we'll deliver on this.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Matthew -- Matt Sykes at Goldman Sachs.\"}, {\"speaker\": \"Matthew Sykes\", \"content\": \"Maybe just on NASD, I noticed just over the past, call it 1.5 years, we've kind of gone from high double digits, low double digits next year, mid-single digits, which it's probably just some level of normalization as you ramp capacity. But just given the step up in CapEx you're guiding to next year, is there some wiggle room in terms of how you guys lay that capacity out? Or is the confidence in that market growth enough to keep investing in that area next year?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I'll jump right into that one.\\nSo I tried to make that come out in the script. But our plans to continue to invest for the future long-term growth this business remains high. We're going full steam ahead on the capital expansion and they're tracking according to plan.\\nIn fact, I think we'll probably do a little bit better on the cost side when all said and done relative to the CapEx that's involved. And Bob, maybe you can talk a little bit about some of the things we're seeing relative -- I think we commented on this before, but what have we seen in the marketplace relative to 2024 relative to NASD.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think, Matt, it's a great question.\\nAnd so if we look at the details of kind of the mix, actually, I would say we have the most healthy mix of portfolio in NASD and '24 than we've had.\\nSo a significant increase in the number of programs that we are going to have been going through.\\nNow it's a bigger component of clinical volume versus commercial volume, which I actually think bodes very well for the future going forward.\\nWe have seen some, I would say, some pausing of certain customers as associated with IRA but we think that, that's transitory.\\nSo as Mike said, we're not at all concerned about the long-term growth prospects of this market. And in fact, many of the programs that we're seeing come into our portfolio are actually as what we had talked about in previous calls, much larger targeted patient populations, which really speaks well to the volume. And then as Mike mentioned, we're actually expanding our portfolio, our technologies.\\nAnd so it's not just siRNA, but we're having the ability to continue to grow our CRISPR GMP great CRISPR business as well as antisense.\\nSo we're continuing to do that as well.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Sam, I know this will be your last call, would have thought it might be interesting for you to jump in here for a second.\\nAs part of your transition, you've been talking to a lot of our key customers. And I think we're hearing the same story from them about long-term growth continued investment here.\"}, {\"speaker\": \"Samraat Raha\", \"content\": \"Yes. Absolutely, Mike. I'll just add a couple of things to your and Bob's comments. One, we are now on contract with more major pharma than we ever have been. And it's very promising.\\nIf you look at publicly the percentage of their overall R&D budgets that they're now spending on therapeutic oligos, and we are in the driver's seat to win those opportunities. And just in the last couple of weeks alone, I've spoken with a number of our lead pharma partners, and they've reaffirmed.\\nSo there is a slight navigation through the IRA, as Bob mentioned, the conviction on their end of the market potential remains unchanged and in the leadership position to pursue that.\"}, {\"speaker\": \"Matthew Sykes\", \"content\": \"Got it. That's a great amount of detail. Maybe just, Bob, for you, just on pricing. Kind of what's embedded for next year as you think about pricing? And how has pricing kind of trended over the course of this year? Are we back to sort of normalized levels of pricing that you guys have historically achieved? Or is there still some pricing gains to see sort of as we move into next year in certain areas of your business?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Matt, that's a great question. And we ended the Q4 at just a little under 3% and actually for the full year was greater than that.\\nSo it actually continues to be hold up very well. What we're building into our plan for next year is roughly 2 percentage points of price, which, as you know, is greater than our historical kind of pre-COVID levels.\\nAnd so what we've been able to do, I think, is -- really speaks to the value proposition that we have as well as the emerging mix of our businesses as well.\"}, {\"speaker\": \"Operator\", \"content\": \"We go next now to Rachel Vatnsdal at JPMorgan.\"}, {\"speaker\": \"Rachel Vatnsdal Olson\", \"content\": \"So first off, I just want to ask on China.\\nYou mentioned that the region is down 30% this quarter. That was in line with your expectations.\\nYou're expecting it to decline [indiscernible] again next year.\\nSo I guess, just how much of a function is that really due to some of the comps and starting to lap the easier comp late into next year versus is there anything structurally wrong with that market? And how do you expect China to continue to grow on that medium to long term?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Do you want to take the first part, Bob, I think it's...\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, yes.\\nSo well, I think from the standpoint of the comps, what we would see is, obviously, if you looked at what we did in the first half of this year, we had very strong growth, and then we're going up against, extremely difficult comparisons this year. I mean, as I mentioned, we were down -- up 44% in Q4 of last year, so down 31% this year, we're still up over the 2 years. And as we think about this similar to the rest of the kind of the guide, we're expecting kind of declines in the mid-20s in Q1 and getting better from there.\\nAnd some of that, it will be an easier comp. And I'm sure Mike will talk a little bit more about this, but we don't see anything structurally changing in the Chinese marketplace for life science tools.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Absolutely, Bob. Why don't pick up from there.\\nSo I made a few comments about this in the prepared remarks, but I may first trip to China since October 2019 when we're there for the BCIA show. And what did I see, first of all, I'll just remind how quickly things can happen in China. Electric vehicles everywhere, a lot more green, digital adoption was just amazing. I don't think anybody uses cash there anymore. And then you also remind as you travel around the country, just how big a country is, how big the economy is and how big the markets are for Life Sciences. But to your specific question, here's what I was hearing from customers and my team when I have seen as well, which was why do we think this market eventually will return to growth. all the things that have been driving this market over the years, which is primarily the Chinese government's 14 5-year plan. They're still on it. They're pointing to long-term growth. improving the quality of life in China.\\nWe're hearing stories of new environmental regs coming from PFAS. The anticorruption impacts that we've seen in the health and the pharma space look to may have peaked, with a lot of the actions occurring, which could ultimately long term, lead to more R&D investments because there'll be less money being spent in the SG&A area. But I don't want to be too short-term optimistic about this expansion of growth because the business is bouncing along at a certain level. And that's why we call it stabilization in our prepared remarks.\\nSo what we're seeing, what we're forecasting, what we're hearing is from our teams and our customers don't expect any significant near-term improvements but don't expect any significant near-term deterioration either. And I think that's why when you look at the year-to-year numbers in terms of growth rate, Bob, was probably a comp -- payer issue. But we've had a couple of months now just run at a certain level, and that gives us the sense that what -- I think we used were potential signs of stabilization.\\nSo I hope that helps.\"}, {\"speaker\": \"Rachel Vatnsdal Olson\", \"content\": \"Yes. No, that's helpful color. And then I just want to dig a little bit more on your comments around next year.\\nSo you mentioned that you expect the first half to be similar to what you're seeing in the back half of this year.\\nSo I guess, can you just walk us through in a little bit more detail what exactly you mean by that? Should we be expecting similarities from an organic growth perspective? Or are you really talking about more from a revenue dollar standpoint. And then same type of question on the trajectory of the rebound on margins and EPS next year. Should we expect kind of that similar ramp given the cost dynamic as well?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think if -- I'll try to answer all that in short order, Rachel.\\nAs we think about the first half of the year, yes, we think that we -- as we look at our business and look at that kind of book-to-bill, we've kind of troughed in Q2. Q3, I think we mentioned actually was a little better. It was less than -- still less than 1 and then Q4 continue to improve. And our expectation is that, that kind of performance will continue.\\nNow we're going up against difficult comps when we were actually bleeding down our inventory. And that particularly happened in Q1 and Q2 of last year as we were talking about it.\\nAnd so I would expect us to have the trough of '24 be in Q1, Q2 being a little better and then growing out of that as we benefit from the easier compares. And I would expect our P&L and the EPS to look very similar to that. Q1, we are -- we've taken most of the actions they will have all been taken in the first quarter, but they won't have a full quarter.\\nAnd so we'll have full quarters of the cost savings in Q2 through Q4.\\nAnd so as that business kind of improves as the business improves, we'll get more and more leverage on the bottom line.\"}, {\"speaker\": \"Operator\", \"content\": \"Moving on now to Derik De Bruin at Bank of America.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"So can we talk a little bit about pharma. Tha market was up and down all year, not a lot of visibility. Are you seeing some of the orders that were sort of stuck in the funnel starting to come loose right? I mean, how are you sort of looking at the pharma market going forward?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, I think the answer is the deal funnel still remain elongated.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"So yes, I think what we see from our funnels is that they're growing, but the velocity in closing deals from the point of funnel to order is still static on that side -- elongated.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And Derik, I think if we think about the pharma end market, we're assuming very low single-digit growth for next year.\\nAnd some of that is actually getting past the tougher comps in China. If we looked at actually our pharma business ex China, we grew in FY '23. And actually, our biopharma business grew in total. And we think about small molecule was the area that was dragging the pharma business down as you know very well, that typically has a replacement cycle.\\nWe are well into that replacement cycle. We were up very high. We kept calling it. And we've seen that be very depressed, and our expectation is that will start coming back in earnest in '24, but probably in the back half of '24.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"So this goes -- sorry to beat this up, but your China got going down. Pharma, you just basically said you've got -- not -- you don't have a ton of visibility, hope things have come back. I'm just not -- I'm curious why you can put a little bit more cushion in the guide, like that. It just seems like -- it still feels like it's a little bit -- it still feels like it's a little back end. Well, it's not a little a lot back-end heavy, given [indiscernible] cycle.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nI think as we said earlier, Derik, there's reason to believe that [indiscernible] you have the comps working in our favor for the second half [indiscernible] and we know that customers want there's interest in the products. And I think they've got a step -- and by the way, we're not calling for this miracle snapback in 2024. But we're also saying that small markets continue to decline 20%, 30% on the numbers we're seeing this year. particularly, that's where the pressure has been. But we know that biopharma, they need some tools for R&D. We know that those replacement cycles only last -- can only be held up for so long.\\nSo there's confidence relative to what we see in the funnel. Deals aren't coming out of the funnel. And then although we are focusing here on pharma right now in his commentary, there's a lot of other strength in some of the other secular markets and applied markets, in particular, which is a nice diversification we have on the instrument side as well. And Bob, I don't know if there's any additional thoughts on the pharma story.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"No.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"And just one final one.\\nJust what were bookings. I mean, I know you said the book-to-bill was greater than 1, but I'm just curious in terms of bookings. And do you often see a spike in bookings in Q4 Basically, I'm just trying to get the sense of like what you saw as a head fake or you've got -- where you think you've got real demand here?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo we don't give the absolute dollars rather than to say it was greater than 1. It was -- roughly 1 for the total company and then instruments were higher. Typically, we do see a where it is higher.\\nSo this kind of goes back to kind of our historical performance where orders are a little higher, particularly because we have October in our results.\\nAnd so last year was actually an aberration, so to speak, as we're working down the backlog and this kind of gets back to our normal process.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. And through the quarter, Derik, we saw a normal seasonality.\\nSo there wasn't anything unusual about the order pattern to kind of say, is this a head fake or not.\\nSo I think that also is one of the reasons why we say, okay, early signs of some stabilization here. Again, not huge growth. We're seeing stabilization.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Jack Meehan at Nephron Research.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"So I wanted to dig a little bit more into LSAG in the quarter. Can you break down the growth between instruments and consumables and just any commentary across product lines.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Everything I would say for the quarter was pressured, although consumables performed better than the instrumentation.\\nOur consumables business was down kind of low single digits and against a very tough comp of almost 9%, 10%. And if you looked at it ex China, that was largely influenced by China, we grew low single digits in consumables.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Okay.\\nAnd so does that imply instruments may be down over 20% in the quarter?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"They were down, yes.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Okay. Yes. And I guess maybe just a follow up on Derik's question.\\nI think everybody is trying to think about the right way to interpret this book-to-bill commentary, but just is there any additional color you can share on the magnitude were orders down in the quarter? Or I guess, just trying to understand because there was an easy or a difficult comp on revenue like are orders kind of more -- don't have a similar level of volatility. It should have mathematically been over 1, right?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo the orders were down year-on-year, but obviously down not as much as revenue down year-on-year.\\nAnd so when we look at it, I think that kind of shows though, the stabilization because we had some pretty significant revenue last year because of the recovery in the first thing Shanghai shutdown.\\nSo I don't think that, that -- we actually think that this is the best way to kind of look at it on a go-forward basis because we don't have the play of the backlog happening much anymore.\\nAnd so actually, as we look at it on a quarterly basis, we've seen a nice, steady progression up back to historical numbers.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And Jack, I think it's fair to say, Bob, that one of the things we were conscious was a lot of commentary about how significantly things we're getting in terms of being worse. And as you know, we've been out for some time, calling for no year-end budget flush, constrained capital environment. We came into the year actually guiding for a slower growth in the second half.\\nSo what we're trying to intimate in the call today is what we've been saying for the last several quarters is exactly what we're seeing right now. And I thought we thought a proof point was the book-to-bill, [indiscernible] listen, listen, it's not great out there in terms of robust growth, but the sky is also not falling either.\"}, {\"speaker\": \"Operator\", \"content\": \"The next now to Puneet Souda at Leerink Partners.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"First one on [ CrossLab ]. Bob, with 65% of your business being a service contracts, could you elaborate on what sort of growth contribution we should expect here for full year? And also, I don't know if you provided the LSAG expectation contribution for 2024 as well?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nFor ACG, we're expecting kind of mid-single-digit growth as we are -- with the contracted services piece being double digit, but then being pressured by the instrumentation.\\nSo that will be moderated. And for the LSAG business, right now, we're looking at kind of low single-digit decline. Again, with a greater decline in the first half of the year and the return to better performance in the second half of the year.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it.\\nOkay. And then on -- if I could ask a little bit on am I onshoring that's point that you're pointing -- that's not something we are focused on in prior calls. And I hear you that you're growing on the PFAS side, but just wondered -- could you elaborate a little bit on both some onshoring as well as the environmental gains that you're having? And why shouldn't that contribute more to your instrumentation growth in 2024.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. It has the potential to do that. And as we talked about it, we're at the beginning of the year, and so we want to be prudent there. But there's nothing out there that doesn't say that, that should continue given the macro economic environment and the incentives that governments are providing to continue to invest. And actually, what we're seeing is nice business in Southeast Asia as well as India. And I would expect that to continue. That's where we're placing incremental investments to continue to drive and capture that demand. I would expect the same thing in the environmental area as well. But we're not going to build all of that in right now at the beginning of the year.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"But I think we saw some trends too that we're starting to see, which was pretty fast is also now driving some testing in the food marketplace as well as every country that we talk to is in the process of further enhancing their own reg.\\nSo we wanted to have some other areas of potential growth for the company beyond the story around pharma.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Josh Waldman at Cleveland Research.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Maybe one for Bob and then one for Mike. Bob, maybe circling back on Derik's question, I wondered if you could provide more context on the forecasting process this round or the puts and takes that went into the organic guide. Could you take a step back, were there segments in the business that were like decelerating or slowing as you went into the guide or maybe areas where you're still trying to find bottom? And if so, how did you expect that in the guide?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Obviously, this year has been one for the ages in terms of being able to try to manage the forecasting.\\nAnd so we've taken a number of different angles at it to look at it.\\nSo not only growth rates, which I think is the focus here, but also actually if you looked at it on a sequential basis and look at the actual dollars, I think that that's probably more instructive, particularly as we were looking at the bleeding of the inventory. I would say what we've seen over the last couple of quarters is that signs of stabilization. There are always puts and takes across the various businesses. And we think that we've tried to do that. We've built in feedback based on the field's projections, the funnel that Mike and Padraig talked about and then an assumption around the conversion of those funnels. And we haven't seen the funnels slow down. There's still modest growth, and we're starting to see the slowing of the elongation. I'm not saying that it's stopped or accelerated in terms of the purchase but we are starting to see that slowing and you're actually seeing that in that book to bill. And when we look at the orders on a sequential basis, we're starting to see that kind of stabilization as well.\\nAnd so that's kind of how we're looking at continuing to go forward. if you kind of just built that going into next year, you would start seeing a challenging first half and then better performance in the second half. Hopefully, that gives you some flavor.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Yes, that's helpful. And that was actually going to be my follow-up. And maybe I don't know, Bob or Mike, if you want to take it. I was curious if you could maybe quantify where the funnel stands entering '24 versus maybe where it typically is entering the year? And just how correlative or how much do you think it is a predictor of near-term demand? I mean is that -- is better funnel conversion at all kind of part of what drives the improvement as you progress through the year?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I think [ Versum ] Padraig and Bob kind of the same rates, right, no significant improvement.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Correct. We're going up against -- the first half of this year, actually, what you saw was the elongation of those cycle times.\\nAnd so what we're seeing right now is kind of -- like I said, it's not necessarily fully stable, but it's not decline -- or increasing at the rate that we saw in the first and second quarters of last year.\\nAnd so you're starting to see that.\\nAnd so all things being equal, that conversion is actually improving slightly versus a year ago. It's still not back to historical numbers. And that's what we're trying to handicap here as we look at our forecast going forward.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Daniel Brennan at Cowen.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Great. Maybe just on China. I know you mentioned, I think, in the prepared remarks like month-to-month pacing had improved in the quarter.\\nJust any more color or anything on exit rates in China. And if you could, I'd be entered to get like some more color on the end market trends in China. I know you gave some color on biopharma, but could you discuss pharma overall and any other interesting color from an end market basis?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Sure. Bob, maybe we'll tag team on this, which was I think the -- relative to the order book, I think we were slightly above revenue for the quarter. no really unusual pacing through the quarter from China. We've been calling -- I know a lot of our conversation today has been about pharma, but we've been saying for some quarters overall for China, it's been a broad-based slowdown. And that's what the business has been, and that's how we ended the year in terms of the end market performance. I will say that we were pleased that we were in line with our expectations for the business.\\nSo again, we described earlier that the business was moving along at a certain overall level.\\nI think we do have a view of China that we will still be down in terms of the revenue for the year. but reflective of where we are, where we're seeing the business right now.\\nSo.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Dan, and to build on Mike's point, just a couple of other additional data points. we were down pretty significantly in all end markets in Q4, as you would expect because we were up 44% in Q4 of '22.\\nAnd so that's probably not as relevant because we were catching up relative to some of the catch-up of the Shanghai shutdown.\\nAnother data point, though, is if we looked at kind of year-on-year growth actually, we exited October, the year-on-year performance. It was still a decline, but it was much better than what we saw at the beginning of the quarter.\\nAnd so we actually saw a sequential improvement.\\nI think Mike mentioned that in his prepared remarks. And then if we looked at kind of absolute dollars, they've been pretty steady monthly.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Got it. And then Chemical and Advanced Material was like a tale of 2 cities. It looks like C&E was down 15% in the quarter, you said and you talked a lot about PFAS.\\nAnd so is there any more color like what you're seeing on kind of both sides of main there? What's kind of baked in on the core chemical and energy side for the year and just anything on trends there? And then obviously, it sounds like you guys still remain really constructive on the Applied Materials side or [indiscernible]\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"So how about Bob lead here a few comments. And then I've been dying to pull fill in on here as well. And maybe talk about some of the things he's seen on the Advanced Materials side, which is a real area of expertise for himself. But I think you were of tail 2 cities is really quite appropriate, both in terms of breakout by segment also by geography.\\nI think we posted 70% growth, if I remember correctly, in China last year.\\nSo I mean that's a tough comp. I don't care who you are. But we're seeing continued slowness on the C&E side.\\nOur major customers here are really conservative in terms of their deployment of capital. Many of our largest customers are on cost control.\\nSo that's been -- that's what you're seeing reflected in the numbers, and that's why we expect a constrained outlook on that side. of the business for a while. The different story on the Advanced Materials, and I think Bob, you pointed to good growth geographically globally outside of China.\\nAnd then Phil, I know you and the team got a whole bunch of initiatives around the applied markets, particularly [indiscernible] PFAS but Advanced Materials. And I thought a good opportunity for me to introduce you to the audience and have you share your perspective on what we're doing on the applied on the Advanced Materials side.\"}, {\"speaker\": \"Philip Binns\", \"content\": \"Yes. Thanks, Mike. Yes, certainly, we've mentioned you've talked around the activity within labs being ex China, at least being reasonably robust. But on the applied market side and certainly around Advanced Materials. We're certainly relatively strong in those markets, and we're seeing good really good generation around the batteries market. And of course, we've spoken about the onshoring process around there in the Advanced Materials area.\\nSo globally, that obviously comes into the into the onshoring. And globally, we're in strong positions in those markets and have been historically and continue to innovate strongly around those markets and stay close to those customers.\"}, {\"speaker\": \"Operator\", \"content\": \"We go next now to Dan Leonard at UBS.\"}, {\"speaker\": \"Daniel Leonard\", \"content\": \"I wanted to circle back for a moment on the Q1 guide.\\nYou spoke about a challenging year-on-year comp a couple of times. But as you're thinking about the Q4 to Q1 sequential ramp in dollars, how much of that decline forecasted is what you chalk up to seasonality versus prudent if you could give us a flavor.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Great question, Bob.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Dan, that's a great question.\\nIf you look at last year and our revenue went down roughly $90 million, $90 million, $95 million from an extremely strong Q4 to also a very strong -- if you look at the midpoint of the guide, it's a little over $105 million, $110 million.\\nSo there is an element of looking at what we did last year, again, not assuming a strong budget. I don't want to kind of parse it out to give you a percent, but that kind of at least gives you kind of how we were thinking about the Q1 guide relative to what we saw in Q1 of last year.\"}, {\"speaker\": \"Daniel Leonard\", \"content\": \"Appreciate that. And then as a follow-up, can you remind me in 2024, when do we lap the headwinds on the genomics side? And what is your appetite continued investment in genomics as part of the DGG portfolio.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I would expect us to -- we will have a difficult Q1 and then starting to get better from Q2 and beyond, not dissimilar from the rest of some of the businesses. And then I'll let Mike talk about the kind of the investment.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, I think first of all, just to remind the audience, when we talk about the genomics mix business, what are we talking about? We got a $500 million business, probably 50% of it is in QA/QC instrumentation, where we are the undisputed leader here, a lot of appetite to invest here.\\nOur [ tape ] Station product, particularly the consumables business is on fire right now. Capital side is constrained as we've seen across the marketplace. And then I think we all believe in the view that NGS will continue to be a growth market for us. and for the industry, I think that people are dying on back their expectations about how robust it is for a period of time. And I think we're seeing that in our business.\\nSo why do we make some of the structure changes we made in the portfolio because we want to ensure that we've got the ability to have a healthy P&L while at the same point in time investing in growth.\\nSo there's a reallocation of R&D dollars happening as a result of some of the changes we made that we talked about over the call.\\nSo answer the story is we have a lot of appetite for focused investments in areas where we think we can win in genomics.\"}, {\"speaker\": \"Operator\", \"content\": \"And ladies and gentlemen, that is all the time we have for questions this afternoon. I'd like to turn things back to you Mr. Ahuja for any closing comments.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Bob, and thanks, everyone, for joining the call today. With that, we would like to end the call. Have a good day, everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. Again, ladies and gentlemen, that will conclude the Agilent Technologies Q4 2023 Earnings Call. Again, thanks for joining us, and we wish you all a great evening. Goodbye.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2024-02-27
year: 2024
quarter: Q1
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, welcome to the Agilent Technologies Q1 2024 Earnings Call. My name is Regina, and I will be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Parmeet Ahuja, to begin. Please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Regina, and welcome, everyone, to Agilent's conference call for the first quarter of fiscal year 2024. With me are Mike McMullen, Agilent's President and CEO; Padraig McConnell McDonald, Agilent Chief Operating Officer and CEO elect; and Bob McMahon, Agilent's Senior Vice President and CFO and acting President of the Diagnostics and Genomics Group.\\nJoining in the Q&A will be Phil Binns, President of the Agilent Life Science and Applied Markets Group; and Angelica Riemann, our newly named President of the Agilent CrossLab Group.\\nThis presentation is being webcast live. The news release for our first quarter financial results, investor presentation and information to supplement today's discussion along with the recording of this webcast are available on our website at www.investor.agilent.com. Today's comments will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates.\\nAs previously announced, beginning in the first quarter of fiscal 2024, we implemented certain changes to our segment reporting structure related to the move of our cell analysis business from LSAG into DGG.\\nWe have recast our historical segment information to reflect these changes. These changes have no impact on our company's consolidated financial statements.\\nDuring this call, we 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'd like to turn the call over to Mike.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Parmeet, and thanks, everyone, for joining our call.\\nBefore I review our first quarter results, I want to first acknowledge our news last week that I will be retiring at the end of the fiscal year, and that Padraig McDonnell is Agile's new Chief Operating Officer and will become CEO on May 1. It was a difficult decision to retire after almost 40 great years with this special company and in the role that I love, I will miss working with the One Agilent team.\\nHowever, I must say it's a great feeling and quite gratifying to be handing over the CEO reins to a tremendously capable successor in [ Padraig ]. With Agilent operating from a position of strength and with a very promising long-term outlook. I have known [ Padraig ] for more than 20 years. I've worked closely with him during that time. He has always been completely committed to our customers and Agilent's success. He is a product of our culture, knows our company, team and markets, and those have developed compelling business strategies, build winning teams and deliver exceptional results. [ Padraig ] has a strong track record result at every position he has held during his 26-year career at Agilent. I know he has the knowledge, leadership skills and customer focus that will be key to Agilent's success moving forward. I look forward to all of you seeing firsthand what a capable result driven leader we have in [ Padraig ]. [ Padraig ] would you like to say a few words?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Thank you, Mike. I'm honored to be able to follow you as Agilent's next CEO, and I'm grateful for your support throughout my career and during this transition.\\nYou have made a significant impact on Agilent, our customers and our team. I'd also like to welcome Angelica Riemann to this call. After leading our services division for the last 2.5 years, I can tell you she has the experience and the skill set to continue evolving ACG to align with the growing opportunities that the business has demonstrated in supporting the broad installed base and our enterprise customers. Expect to see continued great things ahead from Angelica and ACG.\\nI've had the pleasure of meeting some of you on this call, and I look forward to meeting and working with you all in the future. Agilent has a compelling story to tell, and I'm excited by the possibilities that lie in front of us as we help our customers bring great signs to life.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, [ Padraig ].\\nFor today's call, I will take [ lead ] covering the overview of our financial results, while next quarter, [ Padraig ] will take on these duties as the new CEO.\\nNow on to the Q1 results.\\nWe are pleased with the start of the year. The Agilent team continues its strong execution in a challenging market environment.\\nThe first quarter provided further evidence of our team's capabilities with revenue coming in better than expected at $1.66 billion. This represents a decline of 6.4% against a tough compare of 10% growth in Q1 of last year. The better-than-expected top line results and disciplined cost management drove higher-than-expected earnings per share of $1.29 down 6% from Q1 last year.\\nGiven the solid Q1 results and our continued view is slow but steady recovery throughout the year, we are maintaining our full year outlook that we shared with you in November.\\nKey to our Q1 performance was the ongoing sequential stabilization we experienced in China and secular growth drivers in applied markets globally. From an end market perspective, our total pharma business is down 12% which was in line with our expectations. This falls 11% increase in the first quarter last year.\\nWhile declining overall against a very strong Q1 of last year, our applied end markets were more resilient than expected and show sequential growth from the fourth quarter. In these markets, PFAS Solutions and Advanced Materials, including batteries and semiconductors were [ high bits ] for us. Geographically, both China and Europe finished Q1 better than expected, while revenue for the Americas was in line with expectations.\\nLooking at performance by business unit, the Life Sciences and Applied Markets Group delivered revenues of $846 million and down 11%. This is against a difficult compare of 10% growth last year.\\nWhile still too early to call an overall market recovery, results were better than expected.\\nOur diversified portfolio and broad end market coverage helped drive the performance.\\nWe continue to experience a conservative environment for capital spending. But are better than expected, Q1 results were driven by consumables, which grew mid-single digits, China and a better-than-expected performance in applied markets.\\nDuring the quarter, we also completed the expansion of our Shanghai manufacturing facility as we continue to take steps to ensure our long-term leadership in China.\\nWe also made our first customer shipments for Agilent's newly released LC/MS offerings.\\nOur latest highest sensitivity triple quad, the [ 6495d ] enables expanded and enhanced workflows, including for PFAS. This, in addition to Revident, the first of a new generation of LC/Q-TOF systems that combine a new architecture with enhanced instrument intelligence for maximize operation time and productivity.\\nThe Agilent CrossLab Group posted revenue of $405 million. This is up 5% with growth across all regions except China.\\nOur contracts business led the way with double-digit growth overall, led by strength in enterprise service contracts. This performance highlights the continued strength and resiliency of our business. Connect rates for both services and consumables continue to improve. This is a result of our focused strategy to deliver end-to-end customer value while also building a larger recurring revenue business.\\nThe Diagnostics and Genomics Group delivered revenue of $407 million, down 6% core.\\nOur pathology-related businesses and our NGS QC portfolio grew mid-single digits which was more than offset by declines in NGS chemistries and NASD. NASD declined low double digits as expected. This is because a very tough compare of 22% growth driven by significant volume last year from a single commercial program.\\nWe continue to be encouraged with our long-term prospects due to the increasing programs across a range of indications many of them target large patient populations. The DGG team continues to innovate and deliver differentiated solutions for our customers. In the quarter, we induced a new [ Proteo ] analyzer system. The new platform simplifies and improves the efficiency of analyzing complex protein mixtures. We [ process ] [indiscernible] to enter the workflows across the pharma, biotech, food analysis and academia sectors.\\nFrom an overall Agilent perspective, we recently achieved world economic forum recognition for operations of Vauban, Germany. This site was named a Global Lighthouse for implementing innovation that boost productivity, output and quality. This marks the second Global Lighthouse award for us after seeing the recognition for our Singapore facility two years ago. Agilent is the only life science tools company to be recognized as a global lighthouse. Agilent recently achieved a top 5 ranking in the [indiscernible] list of 100 most sustainable companies.\\nIn addition, we are included in the Dow Jones Sustainability Index globally and in North America for the ninth year in a row.\\nLooking ahead, we expect the current market environment to persist through the first half, we expect a slow and steady improvement in the second half of the year.\\nWe will continue taking actions that will make us stronger and position us well for the future.\\nWe will maintain our approach to prioritize investing for growth with a focus on execution and driving productivity.\\nOur better-than-expected Q1 results and my confidence the Agilent team reinforced our view for the full year. Tom will now provide the details on our results as well as our outlook for Q2. After Bob's comments, I will be joined for some closing remarks. And now, Bob, over to you.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Mike, and good afternoon, everyone. In my remarks today, I'll provide some additional details on revenue in the quarter. as well as take you through the income statement and other key financial metrics. I'll then finish up with our second quarter guidance.\\nQ1 revenue was $1.66 billion, a decline of 6.4% core. On a reported basis, currency added 0.9 percentage points, while M&A had a negative impact of 0.1%, resulting in a reported decline of 5.6%. And overall, orders were greater than revenue in Q1 as expected.\\nAs Mike mentioned, Pharma, our largest end market declined 12%. Within pharma, biopharma declined low single digits but grew low single digits outside China, bolstered by strength in services and consumables. Small molecule was down high teens in the quarter with softness globally.\\nThe Chemical and Advanced Materials market was down 4% off a very tough comparison of 14% growth last year. We saw broad resilience in Advanced Materials with a low single-digit increase year-on-year as well as growth sequentially.\\nGiven the extremely tough compare of high 20s growth last year, these are impressive results.\\nAs expected, the chemical side saw a decline.\\nThe Academia and Government market was up 2%. The growth in this market reflects the stability of academic funding and lab activity.\\nOur business in the Diagnostics and Clinical market declined 5%, mid-single-digit growth in Pathology was more than offset by continued headwinds in genomics, cell analysis and LC and LC/MS. The environmental and forensics market declined 1% after growing 12% in Q1 of last year.\\nWe continue to see new regulations around the world driving PFAS testing. Europe grew mid-single digits, while China and the Americas were down low single digits. Americas faced a difficult compare of low 30s growth last year.\\nThe Food market declined 3% but was up low single digits, excluding China. On a geographic basis, as Mike mentioned, both China and Europe exceeded our expectations while the Americas were in line with our expectations. China was down 9% and showed a sequential increase over last quarter, which was much better than expectations. China benefited from continued stabilization and a bigger-than-expected Lunar New Year impact as some customers pulled forward incremental demand from Q2. We estimate the pull-forward impact to be roughly $15 million or 5% of China's revenue in the quarter. Even adjusting for this impact, China outperformed.\\nEurope was down 4% year-on-year after growing 10% last year and was up mid-single digits sequentially. This was driven by continued strong demand for our ACG services, offset by muted demand in pharma and expected softness in chemicals. In the Americas, revenue was down 8% due to declines in pharma and the softness in NASD and NGS chemistries.\\nMoving down the P&L.\\nFirst quarter gross margin was 56.0% down 50 basis points from a year ago as productivity and cost savings were offset by lower demand and mix.\\nOur operating margin of 25.8% was down year-over-year as expected.\\nOur ongoing cost savings initiatives are delivering as planned. Below the line, we benefited from greater-than-expected interest income in the quarter, driven by nice work from our treasury team, coupled with very strong cash flow.\\nOur tax rate was 13.5% and we had 294 million diluted shares outstanding. Putting it all together, Q1 earnings per share were $1.29, down 6% from a year ago and ahead of our expectations.\\nNow let me turn to cash flow and the balance sheet. I continue to be very pleased with our cash flow generation. Operating cash flow was $485 million in the quarter, significantly above last year. In Q1, we invested $90 million in capital expenditures as we continue our planned NASD expansion. And during the quarter, we returned $69 million to shareholders through dividends.\\nAlthough no shares were repurchased during the quarter, we expect to catch up on our anti-dilutive share repurchasing for the remainder of the year. In Q2, we expect a minimum of $180 million to be repurchased. All in all, we had a good start to the year. And as Mike mentioned, it reinforces our confidence in the full year guide we provided in November.\\nNow to our guidance for the second quarter.\\nWe expect Q2 revenue will be in the range of $1.56 billion to $1.59 billion. This represents a decline of 9.1% to 7.4% on a reported basis and a decline of 8.4% to 6.7% on a core basis against 9% growth last year. Currency and M&A combined are a headwind of 70 basis points.\\nOur Q2 guidance also reflects the $15 million impact of the Q1 pull forward in China I mentioned earlier.\\nSecond quarter non-GAAP earnings per share expected to be between $1.17 and $1.20.\\nBefore turning back over to Mike, I just want to express my thanks to Mike and to congratulate [ Padraig ]. Mike, it has been a real pleasure to work with you.\\nWhile there have been many ups and downs in the markets these past few years, one thing I knew I could always count on is your steady leadership and strong partnership. And [ Padraig ], congratulations again. I'm really looking forward to working with you. And now I'll turn things back over to Mike. Mike?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Bob. Today marks my 37th and final earnings call with all of you. Time does truly fly by. I want to first thank you for your support and engagement over the years. I have to say it has been a tremendous honor serving as Agilent's CEO and represent the achievements of the One Agilent team to all of you and the broader investor community. In 2015, we launched the then new Agilent with a goal to transform Agilent into a leading life science and diagnostics company. We had ambitious goals to drive long-term shareholder value creation with significantly stepped up financial results delivered by an unmatched One Agilent team working together in a truly differentiated and compelling company culture. I couldn't be proud of the Agilent team and what we've accomplished together over the last 9 years.\\nWhile current market conditions remain challenging, the long-term promise of growth remains with end markets power buying investments to improve the human condition.\\nOn the Agilent front, we've never been in a stronger position to continue to capitalize on opportunities to serve our customers within the market and deliver differentiated financial results. It's been a pleasure to work with all of you over the years. I will miss it. while at the same time, I know that you will enjoy working with [ Padraig ] in the years ahead. Like me, I know you'll be impressed with [ Padraig's ] knowledge of our industry and our business.\\nAs I noted earlier, he knows how to develop compelling business strategies, build winning teams and deliver exceptional results. His track record of success during his Agilent leadership journey speaks for itself and have no doubt, it will continue in his new role.\\nWhile this is my last earnings call with you, I'm certain that the best is yet to come for Agilent. Thank you, and now over to you, Parmeet for the Q&A.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Mike. Regina, if you could please provide instructions for Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] Our first question comes from the line of Derik De Bruin with Bank of America.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"So first question, we've been getting a lot of incoming on the NASD business. And just because the growth trajectory is not doing what I think what people had thought it was going to do this year. I [ assume there's ] a couple of questions. It's like, look, there's been some pushouts in some clinical readouts from like [indiscernible] with their [ HELIOS-B ] trial, there's been some other sort of like developments in the market. I guess the question is like, are you still confident that, that segment can grow this year, NASD can grow this year? And I just -- is there any risk at all that there's like an overcapacity situation because as the market -- is it just taking longer for things to catch up? Just sort of your thoughts on that, please?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I'll tag team with Bob on this.\\nSo as you saw in our prepared remarks, Q1 came in as expected for the NASD business. And we are in a situation where we've had, I think, the broadest number of clinical programs and such.\\nSo we're very active the volume is less commercial this year as we pointed out in the script as well versus clinical. And Bob, I know we've been talking a lot with the team about the outlook for the year, particularly with some of our customers who are resequencing some of the clinical programs into '25.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Derik. And as you're talking about, we remain very optimistic about the future of our forecast for [ Train C and D ] remains intact in terms of building out the expansion. I would say that as we're talking about things, you mentioned one of the clinical trials. That's an important element of one of our customers.\\nWe are seeing some potential pushouts into FY '25. And as they are looking at revisiting the clinical trial programs and time lines and it's probably closer to flat this year based on that, although we're not giving up hope, but that's built into kind of keeping our guide the way it is. But I think if you look at the number of commercial programs -- or excuse me, clinical programs that we have, we're very excited about the future.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And Bob, I think it's also fair to say that this is not a byproduct of overcapacity in the industry or a significant change in in-sourcing. It's really how some of our customers are reacting to really the IRAC.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That's right.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Well, that takes me -- that's a great segue into my next question, which is what's sort of the latest on Pharma? It doesn't sound like you're ready to call an inflection point, but it does sound like things sounded a little bit better. Can you just sort of give your thoughts on what budget releases are sort of timing around that? Any sort of like notable developments? I mean, when do you -- are you seeing any sort of like signs of life that -- or the signs of budgets could start to be released in the second quarter?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Great question, Derik. Obviously, top of mind within Agilent, as we mentioned, Q1 came in where we thought it would. But what's the outlook? And [ Padraig ], I know you've just spending a lot of time with your team and customers talking about this exact question.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Thanks, Mike. And I think customers continue to be cautious globally.\\nI think as we're stable -- what we're seeing stability, but no material improvement versus what we saw in the last half of last year. And in terms of the capital budget cycle in '24, this is the time we see it. It's pretty early in that cycle. But we've heard [ move in ] both directions, positive and negative, but fewer customers expecting negative budgets.\\nSo we're watching and seeing how that goes.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nI think what you shared with me earlier, [ Padraig ], was the tone was more negative at this time last year. It's still not super positive yet and still a lot of caution, but we're not seeing anything to cause us to change our outlook for the year.\\nI think Bob -- thank you very much.\\nI think, Bob, you had one.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I was just going to say one of the things that we see is very strong performance in our services and our consumables business in the pharma sector. which actually speaks to lab activity.\\nAnd so while we've seen a depressed capital cycle here, and we're optimistic about that turning around in the second half of the year.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Matt Sykes with Goldman Sachs.\"}, {\"speaker\": \"Matthew Sykes\", \"content\": \"Maybe just to start out, maybe bigger picture in China. It sounded like you made some comments about sequential improvement. It sounds like it's informing some of your confidence for back half. What are the risks that China just simply doesn't get worse and just kind of bounce along the bottom. And what kind of catalysts are you looking for in China for the back half for some level of improvement? I know it's not necessarily baked in your guide, but you did make some comments about some sort of nascent optimism there potentially?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, sure. Thanks for the question, Matt. And as we had a really, I think, a nice print to start off the year. A big part of that was the performance in China. Yes, we had a bit of a pull-in from Q2 from Lunar New Year, but the business overall was better than expected. And to answer your question, we now have several quarters real orders, real revenue and the sequential growth, the numbers are real.\\nSo -- we're not seeing anything on the macro world that would also dramatically change what has continued to be a very challenging economic market in China.\\nSo  what gives us confidence is the fact that we've had a number of quarters now predictability in the business. The numbers are coming in slightly better than we had anticipated. But again, I think it's more just the fact that there's ongoing run rate of business that gives us confidence on the outlook. And Bob, I know that -- oh you want to jump in on this one [ Padraig ]?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. And I think if, Matt, as you just mentioned, we aren't assuming any inflection in our guide. That's been consistent. Actually, Q1 ended up being a little better than we anticipated. We kind of putting that money in the bank, so to speak. And if you look at it, we'll have now four quarters of numbers that are relatively stable, which is a very positive sign. And I think when we look at our funnel, it's also stable as well as the order forecast is what Mike just talked about as well.\"}, {\"speaker\": \"Matthew Sykes\", \"content\": \"And then maybe just on ACG, which had a good quarter.\\nYou talked about the contract revenue and specifically Enterprise Services. With that growth, maybe could you just help kind of size that contract business within ACG? And then maybe talk about what is driving that growth? And what kind of contribution can that make to the ACG segment over the course of this year?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Matt, thanks for your support of the ACG business over the years. And I want to use this opportunity to introduce our new ACG Group President. But first, I'd like to maybe have a 2-part response probably and Bob, I think it's roughly about 65% just to make sure.\\nSo roughly about 65% of our total services business is in the contracts arena. And Angelica, maybe you could share your thoughts on really what's been driving the growth we're seeing in that contract business.\"}, {\"speaker\": \"Angelica Riemann\", \"content\": \"Yes. Thanks, Mike.\\nAs you mentioned, it's about 65% of the total business. And a part of that demand has really been driven by the lab-wide enterprise services offerings, where we're able to help customers as they're navigating their own economic situation really helping them optimize their entire lab operation. And our portfolio offerings in this page have allowed us to really facilitate that improvement in lab operations, lab efficiency, and that's particularly important to those enterprise customers.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And in times of tough economic times, the market times, the productivity help and driving productivity in the labs as a well-received offering we have.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Matt, just one other quick thing on that.\\nOne of the great things that Angelica and team have been doing, and you heard us talk about this a lot is about the increasing of the attach rate and that continues to grow at roughly one point again year-on-year this year. And that kind of locks in that resiliency of that stability in that business. And if you think about a [ 2 /3 ] of that business growing double digits, it really helped power the business and when we see the inevitable turnaround of the instrument business, that will be a nice tailwind as well.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Brandon Couillard with Jefferies.\"}, {\"speaker\": \"S. Brandon Couillard\", \"content\": \"So the chemical and Advanced Materials business, we actually performed a little better than we were expecting. Obviously, you're still seeing some headwinds in the chemical side.\\nJust give us your state of the union there, what you're seeing from a macro perspective and kind of outlook for that business moving into the second half look like?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nSo I'll do a tag team on this with [ Padraig ].\\nSo as you may recall, we've talked earlier this year about these secular growth drivers in the applied markets. And we saw that pretty much across the globe. And I think what we're seeing again is the investments being made in Advanced Materials relative to the semiconductor supply chain and also the [ fab ] is driving productivity. We're seeing continued investment relative to battery, battery development, QA/QC. And I think we continue to see some real nice growth in the PFAS side of our environmental business started in the U.S.\\nI think all those applied market secular drivers that we've been pointing to for  some time, delivered in Q1. And I think our outlook remains the same that we're expecting there'll be a source of positivity for us in the overall can market space, albeit the chemical market is expected to remain subdued.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. That's right, Mike.\\nI think it's really a tale of two submarkets. We saw broad resilience in the Advanced Materials with sequential growth. And given the extremely tough compare and high 20s we had last year, it was truly a very impressive result from the teams. The chemical energy side was -- we saw a decline, but on a very tough compare of 10% but we did see a sequential improvement versus Q4 '23. Overall, I think our portfolio is extremely strong in this area.\\nWe have ability to cross and upsell across that. And of course, our strong services offerings have that value proposition.\"}, {\"speaker\": \"S. Brandon Couillard\", \"content\": \"And then, Bob, in terms of the guide for the year, I mean, you're sticking with the organic growth range for the year, you beat the first quarter. This [indiscernible] explain all of the upside in the first quarter what the NASD outlook is lower, what other moving parts by end market or geography kind of gets you to the same midpoint?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. That's a great question, Brandon. And you talked about a couple of them. We feel really good about where we started the year. It's still at the beginning of the year, though, so we're kind of banking some of that. What I would say is if you looked across the moving pieces, with the NASD being slightly lower, that would be offset by a little better results in the LSAG side of the business. And really, that chemical and Advanced Materials and Academia are two areas that are probably slightly better than what we had forecasted. But overall, we're maintaining the guide and as we are looking here felt good about really at the start to the year.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Puneet Souda with Leerink Partners.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"So my first question is really around maybe, I think Bob, you talked a little bit about the book-to-bill orders growing faster than revenue. But maybe could you elaborate a bit on more on the instrumentation side, what you're seeing and what you're seeing with the respect to book-to-bill in China? And a quick question, a clarifying question on the 2Q guide. It does look a slight step down versus Q1. And I just want to make sure beyond the Lunar New Year? What else are you baking in there?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I'll take that. There are a lot of questions in that one question. But so true to form, [indiscernible], One of the things -- I'll start with the last one. I mean, we typically do have seasonality. There is that $15 million that gets pushed from one quarter to another. That's strictly timing in China because of the Lunar New Year. But Q2 is typically a lower  revenue number.\\nSo we're building in that normal seasonality.\\nIn terms of book-to-bill in China, actually book-to-bill was greater than one in China.\\nSo continued stabilization. And in terms of book-to-bill for our instruments, it was below one, kind of expected.\\nNow some of that was a result of the China pull forward where the orders came in, and we were expecting that revenue to be shipped in Q2.\\nSo there's some element of timing there. But all in all, a positive start to the year.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Bob, if I cover headline on that, too, I'd just say that Q2 seasonality is as normal and the Q1 book-to-bill results are as our normal pattern.\\nSo again, we've been talking a lot about normalization of business flow. And I think we're seeing it in terms of the seasonal [indiscernible] patterns and book-to-revenue situations.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"And then just a high-level question, a simple question. Could you maybe elaborate a bit on the pharma side, where you're seeing more traction, more growth? Is it the large pharma, small biotechs, CROs, CDMOs. Maybe just talk a little bit about that.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I'll take that, Puneet. If we look at across our business, the relative strength was actually in our biopharma.\\nSo a large molecule. And our business is skewed to the larger midsize and large cap companies. The standout has been the ACG business and our consumables on that.\\nSo it actually speaks to activity in the labs.\\nWe are starting to see -- I don't want to call it a trend, but certainly a stabilization on the emerging biotech side of it. The instruments were still down but that is where we're starting to see the relative strength in the pharma business. And that speaks to kind of the long-term growth drivers, I think, in that market. And I would expect that to continue throughout the course of the year as our  business gets stronger and the markets get stronger and [indiscernible] we have more favorable comps.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Bob, I think I recall correctly, outside of China, our biopharma business actually grew in the quarter.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That's right.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Rachel Vatnsdal with JPMorgan.\"}, {\"speaker\": \"Rachel Vatnsdal Olson\", \"content\": \"So first up, I just want to follow up there on a comment around book-to-bill.\\nSo you mentioned the book-to-bill for instrumentation was below one for the quarter, and some of that was really timing related.\\nSo I guess, can you just break that down for us a little bit further. What trends are you seeing in liquid [ curmatography ] versus [indiscernible] for example? And then is there any dynamics or trends to call out from geography on the instrumentation business as well?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I don't think there's any new trends here.\\nI think without going into the details of our product line, the small molecule side has really been in an area where we've talked about the year-on-year challenges there from the LC side. But Phil, I don't know if you want to jump in with any thoughts here, but I don't think there's any real outstanding new trends here with perhaps the better-than-expected trends we saw in applied markets, particularly on Advanced Materials, but maybe you have something else you want to add?\"}, {\"speaker\": \"Philip Binns\", \"content\": \"Yes, sure, Mike.\\nI think that's pretty much the case similar to Q1 around how the markets are performing. We're seeing some bright spots around some of the secular areas in the tired markets in the instrumentation, which is driving the business forward, but just support your comments there.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Rachel, just one other thing to build on what Mike and Phil were just talking about. When we look at our LSAG business, it was down 11%, which was better than what we expected. The piece that's really been driving that down is the pharma market which is what we've been expecting. If we looked at the rest of the markets, they were much better than the down 11% with the exception of the diagnostics and clinical, which is a small number.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Right. And to your question, Rachel, that dynamic in the pharma really speaks to pressure on the LC business.\"}, {\"speaker\": \"Rachel Vatnsdal Olson\", \"content\": \"And then I just wanted to ask about monthly trends.\\nSome of your peers have talked about how spending a bit, a little bit slow out of the gate in January and then into early February.\\nSo I guess, since you guys have a few more weeks of visibility here. Can you walk us through where you seeing similar trends on just slower spending to start the year? And has any of that started to come back? Any color there as we enter fiscal 2Q would be helpful.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Well, I've been in this business for a while, and it's always slow in January. And that's why we have the seasonality we talked about relative to Q2.\\nSo I don't think we're seeing any significantly different trends that we've seen historically. [ Padraig ], I know that you're closer than I am, but [indiscernible].\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. No, I think that's right, Mike.\\nI think on the ACG side, we see a number of service -- our service contract business comes in strong under the ACG side, but on the capital side, we're not seeing much.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And Bill just a final -- put a finer point on that, January came in as we expected.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Vijay Kumar with Evercore ISI.\"}, {\"speaker\": \"Unknown Analyst\", \"content\": \"This is Jordan on for Vijay. Maybe one follow-up on the China side. Have you seen any hints of stimulus to start the year? And if we do see a stimulus, do you have any foresight to what implications that will have on Agilent?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Both [ Padraig ] and I are in the conference and we're shaking our head, no. We've not heard anything about any potential stimulus. And what I can tell you is if it does happen, it's upside to our outlook.\"}, {\"speaker\": \"Unknown Analyst\", \"content\": \"Understood. And then maybe one more for me. Can you talk about how pricing has trended in the quarter? And any updates to your expectations for the remainder of the year?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Bob, do you want to take that one?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. We were pleased with the results. It was between 1% and 2%.\\nSo but in line with kind of the seasonality and the mix that we saw, we would expect to see in Q1.\\nSo right now, it's on track.\\nAs we've talked about, our consumables business and ACG business have the greatest price realization followed by generally speaking, actually, we had a very good result in diagnostics and genomics in the quarter. And then we did see some mix, but not anything out of the ordinary instrumentation side.\\nSo all in, we're on track for what we expected for the full year.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Patrick Donnelly with Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Bob, maybe one for you first.\\nJust in terms of the EPS guide. It looks like you guys got an additional $20 million on the kind of net interest other income. Can you just kind of flag if that's rolling through, did that core earnings number move a little lower? Is any moving pieces there? And then secondarily, just on the margin piece, you guys have that cost savings plan. Can you just talk about how that paces as the year goes, would be helpful.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Thanks, Patrick. Great question. And what I would say is a couple of things.\\nWe are on track to have more interest income than what we anticipated at the beginning of the year that $20 million and some of that in the first quarter as well, and that's really a result of actually having better-than-expected cash flow in the first quarter and great work by the treasury team. I would say that the savings -- we're on track for the savings targets for the full year. And as I think about the year, it's still very early in the year, and this provides us what I would say is more confidence in the guide.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"And then maybe just on kind of the book-to-bill. How are you guys thinking about -- I think last quarter, you said the book-to-bill for the year would be above one, but you'd have quarters kind of in and out on the instrument side, which obviously we're seeing this quarter. How are you thinking about just the order trends and the book-to-bill trends on the instrument side as we work our way through the year given what you're seeing [indiscernible].\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, no change to what we said back in November. Q1 is a proof point for what we said.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Brennan with TD Cowen.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Maybe just going to beat the dead horse, but just for the instruments, did you guys say -- I know in the queue, you usually put out what the instrument number actually was.\\nSo what did actually instruments do in the quarter? And then given how much easier comps go as we get through the year, can you just kind of give us a sense of pacing like what should we expect on Q2 in instruments and then we can kind of have at the back half of the year?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I know the team did a calculation on that because LSAG was down  11%, but that includes our consumables business, which was up.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I would say we typically don't give all that information, but it was down -- we were down 11%. It was down in the quarter but that was better than expected, offset by 6% growth in our consumables business. If we look at the LSAG thinking for Q2, it's down low teens.\\nSo -- and a lot of that has to do with some of the timing associated with that $15 million shift. That's almost all capital equipment from  Q2 back into Q1.\\nSo if you look at it, it is in line with where we expect it to be.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And then we go into more favorable compares in Q3 and Q4, right?\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Got it.\\nOkay. And then I know there's been a handful of questions running in China. But can you just -- would you mind spending a bit more color on kind of what maybe by segment, pharma applied? Any color you can give us kind of what you're seeing within the different businesses in China? And is down mid-single still the expectation for China for the full year? Or is there a chance you can kind of see some upside to that number.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I think we've have raised it up a bit. It's still down [indiscernible].\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, yes.\\nI think we're cautiously optimistic there. I'd say it's still within a range that we had before, so I don't want to call an inflection. But if you looked at the markets we were down that 9% was roughly down 20-ish percent in pharma.\\nSo that continues to be the area of really around the globe, but China is no different.\\nThe great thing is many of the other markets performed much better.\\nSo even when you think about like academia and government, that grew, so did our [ Chemin ] Advanced Material business now grew very low single digits. And then our forensics in Environmental was down low single digits.\\nSo you're actually starting to see the continued stabilization and then you'll get into very much easier compares in the back half of the year in China because that down 22% was down compared to up 12% last year. We had another strong compare in Q2, and then we actually started seeing the pretty significant declines year-on-year.\\nAnd so there's reasons to be optimistic about that continued stabilization that Mike talked about, but we're not ready yet to call an inflection. But when it happens, we'll take it.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And Padraig, I know you want to jump in this as well.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. And I think what we see is as also consumables and services continue to outperform expectations so that kind of [indiscernible] expect that to continue.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, I think the story is a great [indiscernible] I think the story really was in pharma, Q1 , the instrument and the CapEx side of things. But we're pleased with the start there.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Catherine Schulte with Baird.\"}, {\"speaker\": \"Catherine Ramsey\", \"content\": \"Maybe first, when pharma was down 12% in the quarter.\\nI think you said biopharma was up 2% ex China. What was small molecule performance ex China and maybe the outlook for biopharma versus a small molecule for the rest of the year?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"So small molecule on a global basis was down roughly 18% and it was ex China, it was down 20% and down roughly 14% for China.\\nSo pretty consistent across the globe, I would say, in China. The big area in China that has been impacted is on the small molecule side, where we'll start to see better comps going forward after Q2.\"}, {\"speaker\": \"Catherine Ramsey\", \"content\": \"And then maybe on consumables, it's great to see a return to growth there this quarter. Can you talk through what you saw outside of China on the consumables side?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Our consumables business was pretty consistent across the globe in terms of growth.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"So I don't know if you have anything you want to add to that on the -- or [ we've seen the consumables ], I think we're really pleased to see that because it really speaks to the lab activity being robust.\\nSo anything else you want to jump in on with?\"}, {\"speaker\": \"Philip Binns\", \"content\": \"Yes. Probably just one item there, Mike.\\nI think we are seeing really good traction around our workflow development.\\nSo end-to-end solutions which obviously is also drives our services business as well. But around the consumables, the -- in most of our end markets, we've been pretty heavily focused on developing workflows and making our customers' lives easier and more integrated in our labs, and that's showing some really good traction, and that's reflected in solid connected attach rates in the consumable space.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Phil. I'm really glad to close with the comments about connect rates. We talked about that relative to our services business, we're also seeing a very strong positive trend on consumables as well, which bodes well to our future in terms of recurring revenue business growth.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Jack Meehan with Nephron Research.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Just had a couple of follow-ups.\\nThe first one was, could you just talk about what you're seeing in the genomics business within DGG. I know it's still been a bit of a drag.\\nJust when do you think that's going to start to turn?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"I think I'll invite Bob in on this one, but I think it's been sort of a tale of two cities. When we talk about our genomics business, there's really two pieces to it. The half of it's in QA/QC activities for NGS workflows, and we're seeing really solid growth in the consumables on that side of things as well as you're starting to see signs of life on the CapEx, not the current [ cause call churn there ] yet, but that's in a reasonably good shape.\\nI think we've seen really in our U.S.-based genomics business, some really market challenges have been in this. And Bob, maybe you can elaborate on that?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That's right. Thanks, Mike. And as you said, our NGS QC portfolio from an instrument and consumable side actually grew mid-single digits in the quarter, which was very nice. The genomics chemistry side that we referenced in the prepared remarks was down. We faced some very difficult comps. We had a couple of companies that reorganized and exited some businesses. They had some lifetime buys at the end of Q1. I would expect that the performance of that to improve starting in the second half of the year.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. And I also wanted to ask about the academic end market. I know that's been very stable for you guys. But just what you're seeing in the U.S. here with the continuing resolution for the NIH just thoughts on the durability moving forward.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes, Jack, thanks for noticing that. That was a real bright spot for us. We actually grew, I think, 2% in the quarter. And this is -- we've been working on this thing for some time to really build out our portfolio and really change our market position in academia research, and I think it's starting to show up in the numbers.\\nI think stabilization really is what we're seeing, which is the funding is there. And NIH is a relatively really small part of Agile's business, so really is immaterial. But we're seeing universities have increasingly been funded through private sector.\\nSo the money is there. And even so, we saw money in China as well.\\nSo it was really a nice global story for us, and we're fairly optimistic that, that kind of stabilization can be there for us for the rest of the year.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question will come from the line of Doug Schenkel with Wolfe Research.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"I want to ask a question on guidance and then a question on capital deployment. And surely [indiscernible].\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Absolutely. Go ahead, Doug.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"So for the year, on one hand, around 48% of sales is in the first half, at least that's how you've guided, I believe. Yes, that's lower than last year, but it's not outside the norm for the last several years.\\nOn the other hand, just given some math, your guidance for the first half embeds the assumption that revenue declines around 7% organically and then improves 7% to 9% positive organic in the second half. And you could do that just as a function of the comps? Or do you actually really need to see improvement in certain geographies or certain end markets or categories? And then again, just a math question. Does guidance assume Q4 revenue kind of exiting around like $1.8 billion?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Doug, this is Bob. I'll take that last one. we'll tell you when we get to Q4 and what I would say, but your math is -- in all seriousness, your math is spot on as usual.\\nI think one of the things that we look at is -- we look at it a couple of different ways.\\nI think the way to look at it is that first half, second half kind of looking at seasonality, that's probably more instructive given kind of the changes in the growth rates. And when you look at it, as you noticed -- as you mentioned, it is in line with our historical seasonality. And when you look at the growth rates, you're right, we are expecting growth in the back half of the year. A lot of that is, in fact, the easier the compares. And when we actually look at -- what I would ask you to take a look at also is a 2-year stack basis relative to implied Q1 and first half and second half. In what you would see there is a much more smooth number that we also looked at as well.\\nSo as usual, you're spot on there.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"And Bob, I think that's why we really emphasized in the script, the word stabilization because as you have kind of a of stabilization, we're going to get a lift in the growth rate just by the comps as they go.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Yes, I know there's a lot of focus on how much improvement is necessary to get there.\\nSo if a lot of this is stability is just math that I think obviously makes people more comfortable. I know I've taken up a lot of air time already. Real quick. Capital deployment, the cash flow remains robust. The balance sheet is super clean. Can you just talk about your thinking right now on capital deployment and what the environment looks like right now?\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nI think we remain very interested in deploying capital in a balanced way, which is inclusive of investing for in the business. And that speaks directly to who are interested in M&A. It's our build and buy growth strategy. I just have to say that the funnel pipeline is more robust than I've seen in a number of years and nothing to obviously announce, but we're very much engaged.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Josh Waldman with Cleveland Research.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Yes.\\nJust a couple on my end and maybe Bob, starting with you first, a follow-up on the guide. Can you comment a bit more on how Q2 guide moved versus the framework and the initial outlook? I assume core outlook came down a bit, but just wanted to confirm the moving pieces there. And then does the core guide reflect any changes in Q3 or Q4? Or is it really just reflecting an update on H1?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, that's a good question. It's a little of both, Josh.\\nSo Q2 is relatively intact for what we had originally thought with the exception of that small movement of the China business, that's roughly a point of core growth from Q1 and Q2 switching. What I would say is Q1 also had a beat into it and what we're taking is some of that out of the second half of the year.\\nAnd so the takeaway is Q2 is spot on from where we expected it to be, absent that kind of shifting the timing shift of China and then the Q2 or the rest of Q1 kind of the beat really helps us in the second half of the year.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"And then, Mike, can you talk about how visibility in the business [ as you've all covered ] the last three months? Has there been any improvement in the ability of the funnel to predict near-term sales or still seeing an elongation of kind of opportunity in quoting, flipping to orders. [ Curious ] total company and then also what you're seeing in pharma specifically.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. No, I'll have [ Padraig ] jump in as well.\\nI think the business remains the same. I don't think it's any better or any worse.\\nAnd so I think it's the normal kind of cadence of business. And that's why, as Bob just mentioned, when we're talking about the second half, we bank some of the beat to put again the second half because we've yet to see the second half materialize in terms of the order book, which is typical at this time of the year.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"I think that's right, Mike. And I think as far as the quality of orders that remain in our backlog, nothing has changed. We've not seen any increase in cancellations and ex China [ the fund ] continues to grow, and that's led by the aftermarket business. I will say as a continuing theme, the deal closure times remain at an elevated level. but it's definitely stable and deal win rates have been consistent.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes.\\nI think there's been an important point made here, elevated, but we're not seeing a elongation.\\nSo they're stable, but they're longer than they have been in the past.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Dan Leonard with UBS.\"}, {\"speaker\": \"Daniel Leonard\", \"content\": \"My first question, just a bit more on China. Are you expecting sequential growth in Q2 in China similar to Q1?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"No, if you looked at the sequential number, it's going to be roughly the same as what we had in Q1.\"}, {\"speaker\": \"Daniel Leonard\", \"content\": \"And mike, congrats on your retirement. I was wondering if you could elaborate on timing. I was surprised, others were surprised. I've gotten the question a number of times, and I would just love to hear your thoughts.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Yes. Thanks for that.\\nSo while it's maybe a surprise to many on the call, and it was a surprise when I shared the news across the company because the Agilent team just knows how much I love working for this company and work with them. And it really was a hard-wall, really difficult decision for me, but not been contemplating this for a while. And I pulled the Board into the discussion sort of communicating with them because we really wanted to make sure that they had enough time to really run a thorough and thoughtful selection process in which they were able to do. And in my mind, they came out with the best possible choice in selecting Padraig. But yes, but this is something that I've been contemplating for a while and then try to engage in the Board about my timing and then I really want to make sure they had enough time to really pick the right successor, and that's what they did.\"}, {\"speaker\": \"Daniel Leonard\", \"content\": \"You always seem to be having a lot of fun.\\nSo congrats again it's been good.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thank you. It's going to be hard to step away. But I have to say, the [indiscernible] family was just too strong.\\nWe have a 6-month old -- 18-month old grand son and he will soon have a brother and sister so there's a lot going on, on the family side. And there's only one way I could make more time.\\nSo again, it's been a real pleasure to work with all of you on the call.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question comes from the line of Luke Sergott with Barclays.\"}, {\"speaker\": \"Luke Sergott\", \"content\": \"I just want to talk about the margins on the quarter and kind of the step down in DGG and LSAG and I assume, obviously, it's probably driven by the volume declines there on the instrument side. But how do you guys view the recovery in the margins between DGG and LSAG throughout the year to hit your guide?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Luke, this is Bob.\\nJust real quick.\\nYou're right. If I look at DGG, it actually was improvement year-over-year, but it was down and it was really a result of that margin or the volume. I would say also there was an element of mix in LSAG, and I would expect that to continue to improve. The cost actions that we took weren't fully actualized all and as expected in Q1.\\nSo we'll have the full impact of those as well in Q2 throughout.\\nSo I would expect an improvement over the course of the year as volumes grow up in both LSAG and DGG.\"}, {\"speaker\": \"Luke Sergott\", \"content\": \"And then just a follow-up here from the 2Q guide. Can you just help frame what you guys are embedded there by the different segments?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, if I look at Q2 guide, we're still expecting, if I looked at the end market pharma down double-digits Academian government down low single digits really as a result of some of that timing shift, diagnostics and clinical down mid-singles and chemical and Advanced Materials, down high single digits, and food about the same. Both of those are as a result of some of the shift also in the China business from Q2 back into Q1 and the environmental and forensics kind of mid-single-digit decline.\"}, {\"speaker\": \"Operator\", \"content\": \"Our final question will come from the line of Paul Knight with KeyBanc.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Mike, really super to see you love doing what you're doing, and I knew you, I don't know, 15 years before you became CEO.\\nSo I guess, concluding question I would have, at least professionally, would be what do you see in terms of two things. Number one, why do you think the kind of market growth rate is for the markets that Agilent participates in? And then geographically, where do you see the surprise over the next 5 years? Like will Japan reinvigorate its growth? Will Europe see more in-sourcing. I would love to have your perspective on those things.\"}, {\"speaker\": \"Michael McMullen\", \"content\": \"Thanks, Paul. Yes, we do go way back to don't we and it's been great to work with you over those years, going way back to the [ CAG ] days in my prior role, I think we think this is a 4% to 6% kind of growth market, mid-singles.\\nSo we think that the kind of market growth that we're not experienced in the industry right now is the anomaly, and this will be back to that 4% to 6% kind of long-term growth rate. Obviously, certain segments within that overall macro number, that big TAM will be growing faster than that, and that's always a challenge to make sure that you pick those segments so you can actually beat that number.\\nI think there's going to be some geographic mix. I mean, we've evolved our view of long-term growth into China because we actually expect some of the supply chain moves and other things that have been going on that you'll see more growth in Europe, which has been more of a slower grower for us geographically. But we've been -- continue to be surprised how well we do.\\nOur team does in Europe.\\nI think you're going to expect to see Japan rejuvenate it, particularly, I think you can make the case to the [ semi ] industry, which is going to return to some strength in Japan. But that's the beauty of this business is just the diversified nature of both the end markets and geographies.\\nSo that would be my last -- I guess, my final projection of long-term growth for the market in this role. But thanks, Paul. I appreciate the comments, and looking forward to staying in touch.\"}, {\"speaker\": \"Operator\", \"content\": \"I will now turn the call back over to Parmeet Ahuja for closing remarks.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Regina, and thanks, everyone, for being on the call today. With that, we'd like to close the call. Have a good day, everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today's call. Thank you all for joining.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2024-05-29
year: 2024
quarter: Q2
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, welcome to the Agilent Technologies Q2 2024 Earnings Call. My name is Regina, and I will be coordinating your call today. [Operator Instructions]\\nI will now hand you over to your host, Parmeet Ahuja, to begin. Please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, and welcome, everyone, to Agilent's conference call for the second quarter of fiscal year 2024. With me are Padraig McDonnell, Agilent President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A will be Phil Binns, President of the Agilent Life Sciences and Applied Markets Group; Simon May, our newly named President of the Agilent Diagnostics and Genomics Group; and Angelica Riemann. President of the Agilent CrossLab Group. \\nThis presentation is being webcast live. The news release for our second quarter financial results, investor presentation and information to supplement today's discussion along with the recording of this webcast are available on our website at www.investor.agilent.com.\\nToday's comments will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis.\\nCore revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates.\\nAs previously announced, beginning in the first quarter of fiscal 2024, we implemented certain changes to our segment reporting structure related to the move of our cell analysis business from LSAG into DGG.\\nWe have recast our historical segment information to reflect these changes. These changes have no impact on our company's consolidated financial statements.\\nDuring this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now I'd like to turn the call over to Padraig.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Thanks, Parmeet. Good afternoon, everyone, and thank you for joining today's call. I want to begin by saying I'm incredibly honored to serve as CEO of this great company, and I'm thankful for the opportunity to lead such a talented team. I truly believe the Agilent team is second to none and I'm energized about the future possibilities that lie ahead of us. I also want to take this time to welcome our new DGG President, Simon May to the Agilent team. Simon's diversified experience, strong technical skills and growth mindset will be a key asset in this role. \\nSince starting earlier this month, Simon has hit the ground running, and I am really looking forward to him helping move DGG and Agilent forward.\\nBefore I talk about the quarterly results, I'd like to tell you how I spent my time since the announcement in February that I will become Agilent's CEO. I've been meeting and connecting with employees, customers and shareholders around the world to listen to their perspectives and how we should build on our strengths and evolve Agilent. \\nWhat they have told me is clear, Agilent must become even more customer focused and even more nimble to continue to win in the marketplace and add value customers and shareholders. This has really resonated with our employees and customers.\\nAs an energized Agilent team, we will evolve our strategy, adapting quickly to market trends and changes while accelerating our pace of innovation in areas of greatest return for long-term growth.\\nWe will double down on our customer first culture, deepening our relationship to further enhance our market-leading customer experience that is already the best in the industry. \\nNow let's talk about the Q2 results and outlook moving forward. In a challenging market environment, the Agilent team delivered on expectations. In the second quarter, we reported revenue of $1.573 billion, a 7.4% decline. This was against a tough compare of 9.5% growth in Q2 of last year.\\nWhile revenues declined in the quarter, our book-to-bill was greater than 1, and orders grew year-over-year for the first time in 7 quarters. Earnings per share of $1.22 beat our expectations and represented a 4% decline from the second quarter of 2023. \\nNow looking forward, the market environment continues to be challenging, but we are seeing early signs of recovery.\\nHowever, as we announced in our press release, this market recovery is not at the pace we anticipated when we provided guidance earlier in the year.\\nAs a result, we are reducing our market growth expectations and revising our full year core revenue to be in the range of $6.42 billion to $6.5 billion and growth to decline between 4.3% and 5.4%. We now expect earnings per share to be between $5.15 and $5.25 for the year.\\nWe have responded quickly to the lower market growth expectations and are taking difficult, but necessary actions to streamline our cost structure. \\nThese actions will allow us to invest in our most promising growth opportunities while also delivering incremental annualized savings of $100 million by the end of fiscal year.\\nWe are sharpening our focus on key growth vectors such as biopharma, PFAS and advanced materials, while also investing in our digital ecosystem, and accelerating our innovation to drive even faster execution.\\nAnd we are leveraging our strong balance sheet and plan to repurchase $750 million of our common stock across the third and 4 quarters, over and above our normal anti-dilutive repurchases. Bob will provide more details on our results and latest outlook in his remarks. \\nGetting back to Q2 results.\\nAs expected, all end markets saw a declining revenue in Q2. Geographically, the Americas and Europe came in slightly ahead of expectations, while China lagged. Despite the challenging market conditions, our Agilent team stay close to our customers and continue to leverage our strong relationships with them to execute remarkably well while maintaining strong cost discipline.\\nWhen we look at our performance by business unit, the Life Sciences and Applied Markets Group reported $754 million in revenue, down 13%. The group saw a decline across all end markets and regions, with consumables being a bright spot. Consumables grew in the low single digits, driven by Chemical and Advanced Materials, food, and environmental and forensics. Also while relatively small, we continue to see strong growth in our pre-owned instrument business.\\nThe LSAG team continues to innovate, introducing 2 new instruments this quarter that extend our applied markets leadership.\\nFirst, our 7010D GC triple quad instrument delivers exceptional sensitivity for customers in the environmental PFAS and advanced materials markets. Designed for analysis that demand the lowest limit of detection. And second is our 8850 GC, a distinguished new member of our market-leading GC portfolio. The 8850 is ultrafast in separation and cooldown speeds with design innovations that enable customers to run tests up to twice as fast as regular benchtop GC. And it's the smallest high-performance benchtop GC on the market. plus it's sustainable, using up to 30% less electricity power compared with a traditional benchtop GC. \\nNow moving on to the Agilent CrossLab Group, which delivered revenue of $402 million for the quarter, up 5%. ACG grew across all end markets in every region except China. The business delivered double-digit growth in services contracts, which now represent almost 70% of the total business, offset by declines in new instrument installation revenues. The ongoing strength in our contracted business speaks to our strategy of increasing the connect rates on our instruments and the ongoing value we are providing to our customers.\\nThe Diagnostics and Genomics Group posted $417 million in revenue, representing an 8% decline. \\nPathology was up mid-single digits globally and was more than offset by declines in the mid-20s in cell analysis due to the constrained capital environment for instrumentation. NASD declined low teens as expected, driven by more clinical products being produced this year versus Q2 of last year.\\nEurope was a bright spot for DGG, growing low single digits in the quarter, while Americas and China declined. Despite the subdued market environment, we continue to innovate in our cell analysis business. We recently introduced the Agilent spectral flow cytometer, which allows our customers to perform sophisticated experiments that expand the range of the research on the same easy-to-use NovoCyte platform. \\nBob will now provide details on our results as well as our outlook for the remainder of the year. After Bob delivers his comments, I will be back for some closing remarks. Over to you, Bob.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Padraig, and good afternoon, everyone. In my remarks today, I will provide some additional details on revenue in the quarter as well as take you through the income statement and other key financial metrics. I'll then cover our updated full year and third quarter guidance.\\nQ2 revenue was $1.573 billion, a decline of 7.4% core. On a reported basis, currency had a negative impact of 0.8 percentage points, while M&A had a negative impact of 0.2%, resulting in a reported decline of 8.4%.\\nAs Padraig mentioned, pharma, our largest end market, declined 11%, with both biopharma and small molecule declining roughly the same percentage.\\nInstrument demand continues to be constrained, while services delivered mid-single-digit growth.\\nLooking forward, while we have seen sentiment improve, instrument purchases are still constrained and we are expecting that to continue for the rest of the year.\\nIn addition, we have reduced our expectations for NASD as several clinical programs have pushed out into next year and some commercial products have not ramped at the pace as expected.\\nAs a result, we have reduced our full year growth outlook for the pharma end market from roughly flat to down low double digits, similar to our Q2 performance. \\nOur revised expectation for the pharma end market is the largest change in our outlook. The chemical and advanced materials market was better than expected, declining 3% after coming off a very tough comparison of 16% growth last year. The academia and government market declined 12% against a tough compare of 11% growth last year.\\nWhile soft globally, the decline was driven by China, which down mid-30s.\\nOur business in the diagnostics and clinical market declined 2%.\\nOur pathology business continues to show resilience in this market, growing mid-single digits, while our NGS QC instrumentation business also grew slightly. These were offset by softness in our NGS chemistries business. \\nThe environmental and forensics market declined 2%. The business grew mid-single digits ex China, highlighted by continued strength in serving the rapidly expanding PFAS opportunity. The food market declined 13% on a very tough compare of 21% growth last year, heavily impacted by the low 30s decline in China.\\nOn a geographic basis, all regions declined. The Americas region was down 5%, Europe was down 3%, while Asia Pacific ex China was down slightly. China was down 21%, missing our expectations of a mid-teens decline. We saw demand weakness expand beyond pharma.\\nAs a result, we have revised our full year expectations for China for a mid-single-digit decline to a double-digit decline.\\nWe have seen funnel activity increase because of the recently announced stimulus program, but we are not assuming any revenue impact in our fiscal year.\\nMoving down to P&L.\\nOur second quarter gross margin was 55.6%, up 30 basis points from a year ago as productivity and cost savings were offset by lower demand and mix.\\nOur operating margin of 25.1% was down year-over-year as expected. Below the line, we benefited from greater-than-expected interest income and a lower tax rate.\\nOur tax rate was 12.5%, and we had 293 million diluted shares outstanding.\\nPutting it all together, Q2 earnings per share were $1.22, down 4% from a year ago, less than the decline in revenue and ahead of our expectations.\\nNow let me turn to cash flow and the balance sheet. Operating cash flow was $333 million in the quarter and we invested $103 million in capital expenditures as we continue our planned NASD expansion. We returned $299 million to shareholders in the quarter. $69 million through dividends and $230 million through repurchase shares, catching up on our anti-dilutive buying year-to-date.\\nIn summary, we met our expectations for the quarter and our markets are recovering but at a slower pace than we anticipated.\\nWe are directing our energy towards high-growth opportunities and are committed to delivering value to our customers and shareholders.\\nNow on to our revised outlook for the year and our third quarter guidance. We now expect full year revenue to be in the range of $6.42 billion to $6.50 billion. This represents a decline of 6.0% to 4.9% on a reported basis and a decline of 5.4% to 4.3% on a core basis. Currency and M&A combined are a headwind of 60 basis points. \\nThis is a $300 million reduction at the midpoint and is primarily related to changes in 2 areas, China overall in the pharma end market outside of China.\\nFor China, we have reduced our expectations to a double-digit decline from mid-single digits with all end markets being reduced. This represents roughly $70 million of the guidance reduction. The remainder of the change in the pharma end market globally outside of China is due to 2 factors.\\nThe first and largest factor is continued caution in budget releases and extended approval times for instrumentation purchases in both small and large molecules. This is roughly $175 million of the change.\\nThe second factor is related to NASD due to the reasons I mentioned earlier, and represents the remaining $55 million reduction.\\nWhile down from our previous guidance, we are expecting growth in the second half of the year to be roughly 400 basis points better than the first half of the year and plan to exit the year roughly flat year-on-year at the midpoint of the new guidance. \\nFull year non-GAAP earnings per share are now expected to be between $5.15 and $5.25, representing a decline of 5.3% to 3.5%. This incorporates a roughly $35 million expense reduction due to the actions Padraig mentioned, the majority hit in Q4 in order to help mitigate the bottom line impact of the change to our revenue guidance. It also assumes a 13% tax rate and 292 million fully diluted shares outstanding.\\nWe will leverage our strong balance sheet and plan to repurchase $750 million of our shares in the second half of the year in addition to our anti-dilutive repurchases.\\nWe expect these repurchases to be weighted towards Q3. All told, we expect to return roughly $1.4 billion to shareholders this year between dividends and share repurchases.\\nIn addition, the Board authorized a new $2 billion share repurchase program that will go into effect August 1 and replace the existing authorization.\\nNow for our Q3 guidance, we expect revenue will be in the range of $1.535 billion to $1.575 billion. This represents a decline of 8.2% to 5.8% on reported basis and a decline of 6.9% to 4.5% on a core basis. Currency and M&A combined were a headwind of 130 basis points.\\nThird quarter non-GAAP earnings per share are expected to be between $1.25 and $1.28, representing a decline of 12.6% to 10.5%.\\nLooking forward, we remain disciplined. We're focusing on what we can control and driving strong execution in a challenging market, and we are optimistic about the long-term future.\\nNow back to Padraig.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"When I joined you last quarter as CEO elect, I said Agilent has a compelling story to tell, and I was excited by the possibilities that lie before us as we help our customers bring great signs to life. That excitement has only grown. I spent 26 years at Agilent, first starting as a field employee before moving to sales and then leading some of our businesses. I know Agilent's strengths and its opportunities very well.\\nWe are in great long-term growth markets. And while the markets are recovering slower than anticipated, they are recovering.\\nThis company is a leader across key platforms, making us uniquely qualified to support our customers and their missions to solve some of the world's most important problems. And our customers value their relationships with us because we offer them an unparalleled experience. And as I said earlier, that is a competitive differentiator in the market.\\nThe actions we are now taking, while difficult, will enable us to quickly capitalize on growth opportunities as the markets fully recover. I know the future is bright, and we will forge an enduring company that sets the standard for excellence with our customers and create value for shareholders.\\nThank you again for joining today's call. I look forward to continued dialogue with all of you. Parmeet, over to you for Q&A.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Padraig. Regina, if you could please provide instructions for the Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] Our first question will come from the line of Matt Sykes with Goldman Sachs.\"}, {\"speaker\": \"Matthew Sykes\", \"content\": \"Maybe just the first one is more of a timing question on China. I mean we've been through a lot of quarterly results this season and the stabilization theme in China has been pretty consistent and you guys have talked about sequential stabilization over the last number of quarters.\\nSo was this really an April impact that you saw in China? And if so, what was sort of the deceleration that you saw there? And what were some of the causes of it?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Thanks, Matt.\\nI think while Q2 was relatively soft to guidance, we adjusted the H2 outlook, what we're seeing in China is we saw a -- stability over a number of quarters. What we really believe is that this is not a material deterioration from that. But what we've seen is that we've seen the stimulus have some effect and the stimulus has been much larger than previous stimulus. It's over multi years. And of course, customers are looking about what are the components of that and they're looking at some of the areas and where it's going to help them.\\nSo that has had a material effect. \\nWe don't see the stimulus having an impact in H2, but we do think it's going to have an impact in '25.\\nI think there's kind of a direct and indirect side of the stimulus.\\nI think on the direct side, you see this delay, which is normal, but you see also the indirect side where, government is investing in technology and sciences going forward, which creates a lot of, I would say, future momentum.\"}, {\"speaker\": \"Matthew Sykes\", \"content\": \"Got it. And then just for my follow-up, you guys have often talked about sort of 18- to 24-month down cycle in the LC replacement cycle. And I'm just wondering just given some of the comments you made around biopharma, given that's an important customer segment for that, have you kind of changed those views in terms of what the LC replacement cycle will look like and what the potential recovery in the replacement cycle will look like? I think some were thinking sort of towards the end of this year, but is this more now into 2025, is that replacement cycle been extended in terms of recovery?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes, we don't see any material change. But Bob, I don't know if you want to add some color on that.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think, Matt, as you said, we're still expecting improvement in the back half of this year, just not at the pace that we had expected.\\nAnd so we're not seeing any material extension of kind of the use case for LC or an LC/MS in the marketplace and are still expecting recovery in '25.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will from the line of Jack Meehan with Nephron Research.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I was wondering if you could share what's the new sales outlook for NASD this year? And can you talk about like bridging from kind of the second half to some of the longer-term targets you've had previously. Like what are you assuming in terms of kind progression after this year?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. I mean the NASD business, we talked before about the business being about 50% commercial and 50% clinical that's changed a bit to be more like 75% clinical and 25% commercial. We've seen the IRA, Inflation Reduction Act having an impact on the price provisioning.\\nSo what you see with pharma partners, they are looking for larger indications instead of smaller indications.\\nSo what we've seen is, I would call it, an air pocket in Q3. And our clinical business is actually growing. Orders are growing about 50%.\\nSo we're -- we have a good order book on that side.\\nSo it's a readjustment and we see that readjustment go through H2 and beyond.\\nI don't know if you want to add anything to that, Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I think Jack to add some numbers to what Padraig was saying here. Originally, we were expecting it to be roughly flat, which would have said roughly a $350 million business. We're now saying roughly $300 million this year.\\nAs Padraig is mentioning, we're expecting to build back from there as these clinical programs move through the clinical pathway and are expecting to have more volume in '25. And I would say our long-term perspective on NASD remains unchanged. We're still very excited about that opportunity and are still building out the capacity in our Colorado site.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Second question -- I think the second part of question was about '25. We'll grow next year. And as you can see in our guidance that we -- we really are anticipating improving conditions across the second half, but it's too early to talk about specific ranges for next year. We want to wait to see how pacing an improvement plans out in the second half.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"And then on the cost savings program, I think I heard you talk about $100 million. I just wanted to clarify, is that incremental to the $175 million you previously talked about? And where are those -- any color on where the savings is coming from?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, it is incremental to the savings that we've already built into the plan, and we're expecting to get that annualized savings by the end of the year. It's primarily headcount-related, Jack.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Patrick Donnelly with Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Maybe 1 on the instrument side, I guess it will be China and then just broadly, I know a few quarters ago, you guys felt like orders were picking up, the funnel looked okay, but it was really that I think, Bob, you said it was the velocity of conversion of those orders in that funnel to revenue. Is that what you're seeing is just that continues to stretch out the visibility into that normalizing. It's just proving to be a little trickier. I just want to talk through, I guess, that instrument piece because again, you sound okay on the orders in the funnel and the conversation, but that converting over [indiscernible], I guess that I just want to talk through again, the conversion piece and the velocity of the conversion.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Yes. No, I think at [indiscernible] level, as we talked about, our book-to-bill was greater than 1, which is a positive sign and where orders grew year-over-year.\\nOn the instrument side, the orders grew low single digits, excluding China, but declined low single digits overall.\\nSo what we're really seeing is that our -- our funnel is really stable, but we're seeing those extended purchasing decisions being continuing to extend out through the second half.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think, Patrick, to build on what Padraig is saying at the beginning of the year, we were expecting when talking primarily to our pharma customers, budgets weren't being materially cut outside of a specific number of well-publicized customers. And we were expecting to see by our second quarter, some of these budgets being released. And what we're seeing now is still a very cautious environment.\\nAnd so the funnel is still there.\\nWe are seeing our book-to-bill as Padraig mentioned, to be greater than 1. We just haven't seen that inflection, which we would have expected to see at least in our order book. \\nOne of the things that we do see and it primarily happened late in the quarter is our teams are paid on first half versus second half quota.\\nAnd so our April numbers are usually quite large, which prepares us for the -- for Q3  and we just didn't see that inflection in late April, which we normally would see.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. That's helpful color. And then maybe to follow up on Jack's question on NASD there. I understand the revenue change. How are you guys thinking about the capital investment on that front? Obviously, it's been sizable in the past years, you've often talked about the continued expansion of the trains. How do you think about the CapEx devoted to this over the next few years? Has there been any change in terms of push out of that capital? Or how you're thinking about the potential investment and the expansion on this front just given the shift in revenue here?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. No, absolutely not.\\nI think despite some near-term headwinds that we have, the medium, long-term story for NASD is -- really holds firm. And as I said before, we're seeing our clinical business grow more than 50% this year, and we really remain excited about the expansion of customers. And getting back to the therapeutic class that we're involved in with siRNAs drugs, we're seeing those approvals for drugs increase substantially in 2023. And being an integral part of the manufacturers of several these on market therapeutics, the future is extremely bright in this area.\\nSo no change in our capital investment.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Patrick, just one other thing to add on to that as I'm sure you're aware, as part of expansion, not only are we expanding capacity, we're also expanding our therapeutic options.\\nSo not only siRNA but also anti [indiscernible] and also CRISPR opportunity.\\nSo it also provides us with more capabilities to support our existing and new client base.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Vijay Kumar with Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"I guess Padraig or Bob, thanks for laying out the changes in guidance assumptions here, right.\\nI think part of it was China, part of it was NASD. But more than half, I think, it's coming from pharma cautiousness that's outside of China, ex NASD, which I think that the market -- I thought we were expecting stabilization. Is this a funding environment kind of question or is elections or what changed because second quarter, it feels like revenues were roughly in line. Was it the exit rate? Can you just talk about what the exit rate trends were and what customers are telling you?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. I mean on the pharma instrumentation side, in terms of guidance, we see an impact of about $175 million and it really is simply pharma's willingness to spend in capital equipment remains challenged over time. And again, customers are focusing on lab efficiency and productivity. But based on what we're hearing from customers, these trends will continue to impact the second half. And that's why we're lowering our expectations around that instrument piece. What I will say that the pharmas are holding very strong. The conversations are very robust with customers, so we do expect it to improve going into next year.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Vijay, to build on what Padraig is saying, the guidance that we're building out right now is based on what we're seeing today. It doesn't assume any meaningful inflection. That certainly -- I'd characterize this as a prudent guide given what we know today. Certainly, we're not assuming any of that inflection.\\nYou bring up a number of variables, which are hard to quantify around the upcoming election and so forth. But we don't think it's a funding issue. We do feel like we are seeing biotech funding coming up. Obviously, on the small molecule side, those are -- they're well-capitalized companies. It's just a very -- it's still cautious in terms of them getting through their approval processes.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"And just maybe related to that part again, Bob.\\nI think is this just a few handful of customers or across the board? Because obviously, the next question is, is this a share loss? Or is this more of -- what gives you the confidence that this is just a pushout and [indiscernible] share on the savings or cost savings, Bob, that 35 is in Q4.\\nSo the expectations is the incremental 65 is for fiscal '25?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Let me answer the last question first.\\nSo that is a cumulative number for the second half of the year. We'll see some of that happen here in Q3 and roughly be at that $100 million run rate in Q4.\\nSo roughly about a $25 million run rate and then we'll get the full incremental 65, obviously, next year as we go into the business. Do you want to comment, Padraig?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Yes, look, when we look across our pharma customers, we see generally, it's across the board. We do have some customers that are a little bit more positive than negative this year. But overall, I would say it's a market effect. What I would say -- on the other question, this is definitely a macro story, not a market share story. And in fact, when we look at our objective market share data, we're holding or even gaining in some areas. \\nAnd I will remind you not to comment on our peers in this area, but we have a month ahead in what we're seeing on it, but we're seeing very robust market share numbers coming in.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Dan Brennan with TD Cowen.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Maybe first one, just on China.\\nYou talked about in response to an earlier question about the stimulus is delaying demand this year. Could you just speak through that a little bit? Like what's your visibility on that? Any way to get a sense of how much of [indiscernible] you should be seeing in China's customers waiting to see the final details of the stimulus. And I know you also alluded to like this could be a big impact in '25. Can you just speak through that a little bit?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Look, I think having worked with China for many years. It's a multiyear program as opposed to the last one, which I think was a year program in the shorter term.\\nSo it's very encouraging to see it. We've seen some proposals from customers, but they're still, quite frankly, trying to work out what are the mechanisms for the funding as we go forward.\\nSo we're seeing a lot of activity around that. And I would say in terms of the confidence boost, we do really see that in '25,  we're going to get some benefit from this, but really too early to tell on it.\\nSo we're taking down our guidance in the second half primarily related to this.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Dan, this is Bob. To build on that, I had mentioned in our prepared remarks that bid activity has actually improved.\\nAnd so we're seeing a number of proposals working with our customers to actually get a piece of the stimulus. What's not yet clear is the timing of release of that budget comes from the provincial -- or from the state down to the provincial and then local government.\\nAnd so we've taken a, what I would say, is a conservative approach to assuming none of that stimulus money will actually -- we'll see any of that in the second half the year. But it will come, it will come. \\nAnd so if it comes earlier, that would be a benefit to what we're forecasting right now. But we're -- what we did see, particularly in April is a little slowing down of normal bid process waiting to get access to that money. And  so we think that, that's just a transitory change, not structural change.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Got it. And then -- and maybe just one more on pharma, if you don't mind.\\nSo the instrument growth was so powerful for yourselves and some of your peers coming out of COVID. Is there any chance that like the slowdown you're seeing now maybe just some miscalculation, maybe there was such instrument demand and purchase is done in the last couple of years that customers are working -- just kind of working through that all those purchases versus like an exceptional slowdown right now given the macro? Just maybe speak a little bit to that, if you could about the overhang for maybe the strength in the past couple of years versus what you're seeing real time now?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes, no doubt about it. We've -- tremendous growth rates during the post-COVID period. But we don't see anything fundamentally changing with the cycle on instrument replacement cycles. We don't see it's a kind of rundown of available instruments or anything like that because lab activity is very, very high. We see that across the board. We actually see activity on the sales side, but also on the support side, very, very high.\\nSo we think it's primarily actually on the macro situation.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And Dan, just to kind of build on what Padraig is saying. We looked at ACG and our CSD or our consumables business outside of China, both of those grew mid- to high single digits in the quarter.\\nSo it does speak to lab activity. They're not having instruments just sitting idle. And in ACG, our contracted services business continues to perform extraordinarily well, up double digits.\\nSo the demand is there outside of China right now.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Rachel Vatnsdal with JPMorgan.\"}, {\"speaker\": \"Rachel Vatnsdal Olson\", \"content\": \"So first up, I just wanted to ask on China. We've seen some of the headlines from Bio Secure Act.\\nSo I was wondering if you could break down your exposure to large CDMOs in the region? And if that contributed to any of the weakness there just given me some of the commentary from an RFP standpoint? And then just on China stimulus and some of the dynamics there, how should we think about local competition competing for some of these dollars on the stimulus dynamic? And you talked about some of these proposals that you're working on.\\nSo can you detail what sectors, what types of customers are you really seeing that proposal work be done right now?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Look, I think on the Bio Secure Act, we see normal -- people are looking at their supply chains, and that's positives and negatives around the globe.\\nAs you see that one of the areas that we've seen from that is actually we see a benefit on our service business as we relocate laboratories in some cases and get them up and running quickly with our services on that one.\\nSo definitely some exposure to CDMO, but I would say not the overall macro side on it. And then I think the second part, Bob, I don't know if you want to take that one?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I would say just a building on that point on our questions around CDMO, most of our business in China is local.\\nSo it's not multinational and so wouldn't necessarily fall under the Bio Secure Act. There are certain large companies that are on that that list that are customers of ours, but that is -- that business has been pretty muted for a while, and that's not the cause of incremental weakness here.\\nI would say on the bid activity, it's about -- it's across the board. It's not in one region of the country or one end market or customers. And obviously, Chinese local competitors are going to be buying for that business like we are. But I think we've shown time and time again our ability to provide very strong and robust instrumentation, coupled with very good service.\\nAnd so I don't think that we're in any disadvantage from a local perspective from that standpoint.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"In fact, Bob, I would say our scale and service there really makes it a differentiator where we can scale the customers and get them up and running very, very quickly. We take the competition very seriously. But we've always had competition in China, and we continue to keep a focus on that.\"}, {\"speaker\": \"Rachel Vatnsdal Olson\", \"content\": \"Great. And then for my follow-up, just given some of the moving pieces on this fiscal 3Q guide, could you walk us through your expectations by segment for 3Q?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Sure. I'll take that real quick. By business group, we're expecting LSAG to be down double-digits DGG down mid-single and ACG growing at mid-single digits. If we looked at by end market Pharma, as I mentioned in the prepared remarks, would be down very similar to Q2, so down low double digits. And with academia and diagnostics markets being roughly flat, chemical and advanced materials being very similar to Q2 results. And then food being down roughly the same, maybe a little better than where we saw Q2 as well. And then environmental and forensics similar performance as Q2.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Doug Schenkel with Wolfe Research.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"I want to start by -- I guess, I have 2 high level, but I think important questions. One is -- simply put, I want to get your thoughts as we sit here today about the company's long-term growth outlook. And essentially, to what top line growth rate are you managing the business as you think about next few years? In pharma and biotech, you have less exposure as a percentage of sales to some of the higher growth areas of that end market and the outlook for one of your higher growth areas, NASD within biopharma it's certainly in question amongst investors given how things have been going recently. \\nAnd while there is hope that China stimulus will help across many end markets, as we kind of think past that, ultimately, many believe the durable growth rate in China where you're overexposed will be materially lower than what we've seen in years passed.\\nAnd then as we think of other discrete differentiating growth drivers for the company, when we look at CrossLabs and DGG, the growth rates have moderated there in part because of the market, but also in part because you did have above-average concentration with one high-growth diagnostic companies as an example.\\nSo there's a lot of bad guys here right now. Obviously, in the long term, there's a lot of belief in Agilent in how you run the business. But I think there are a lot of questions when you kind of pull all this together about what is the inherent growth rate of this business. Can you share any thoughts on that?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Maybe I'll kick it off a bit at a high level.\\nI think, first of all, we participate in excellent markets with multiple long-term growth drivers.\\nYou look at the characterization that's going to be needed in biotherapeutics in time, improving human health. Quality of our food is really going to be a continued growth driver for the company. I would say there's a lot of growth factors within the business that in adjacent markets where we continue to invest in those opportunities. \\nYou've seen part of biopharma, PFAS. And I do believe NASD long term is going to continue to grow. In our service business, we expect that to grow high single digits over the long term as we increase our attach rate, which is not a small point because every percentage increase in attach rate is about $30 million incremental on that side.\\nSo -- so overall, I think we're in extremely durable long-term markets.\\nOn the China story, we're going to see probably getting down to more mature level growth rates in China, but I would remind everybody that there are secular drivers in China that continue to come up and the government continues to invest in science and technology, but also the scale of the country being so large, we benefit tremendously from the aftermarket element consumable and service around that and being able to kind of drive attachment to some of the emerging workflows. \\nSo Bob, I don't know if you have anything to add on that?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I would just say, as we think about kind of our long-term algorithm that we've been talking about, that 5% to 7%, we're not ready to walk away from that.\\nI think we still feel good about that. And I think while you talked about some of the bad guys, we still believe in biopharma and are continuing to invest there.\\nIn addition, Padraig mentioned a few things on the applied side where we are the undisputed leader.\\nSo things like PFAS, the electrification, semiconductors, those things weren't there 5 years ago to the extent that they're going to be there in the next 5 years. \\nSo certainly, the markets are a bit challenging right now, but we are seeing them recover, and we would expect to be able to get back to those rates in the near term.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"Okay. And Bob, maybe sticking with you. If we go back to the beginning of the year when you set guidance for the fiscal year.\\nI think it's fair to say there were a number of questions from the investment community about how you were setting guidance for the year.\\nSpecifically, there was concern about the plausibility of what you assumed for the second half. In hindsight, obviously, these questions and concern to be well-founded. What went wrong? Does this tell you something about your visibility for the business. If so, is it a transitory issue? And if that's the case, can you help us explain why? And if it's not visibility, what do you need to do in terms of changing your guidance philosophy moving forward?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Thanks, Doug. And I think it is visibility.\\nI think if you looked across the last 7 years, the 2 most volatile years have been the last 2.\\nAnd so I think we were expecting based on the feedback that we got from our customers that they would be releasing budgets much more quickly than what they have or at least what we're seeing and while we did have an expectation that we were going to see an inflection in the back half of this year, when we're talking to our customers, it just hasn't happened.\\nAnd so I think the visibility is something that I think we will get back, particularly as we have more recurring revenue and continue to have the connect rate on to the services business. \\nAnd we're disappointed as everyone else is, but you can rest assure that we're going to come out of this stronger going forward.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Dan Leonard with UBS. \\nOur next question will come from the line of Michael Ryskin with Bank of America.\"}, {\"speaker\": \"Michael Ryskin\", \"content\": \"I want to pick things up exactly where you just ended on the last answer with Doug on visibility.\\nSo I mean you kind of talked about how you had a certain set of expectations going into the year based on conversations with customers that didn't play out. I mean, is that -- is there any reason to think that visibility is better now, I guess, is my question, if we look at the guide change and specifically focusing on pharma with or without NASD, if you want to just talk about pharma, the CapEx of pharma and NASD, it seems like visibility there is still really, really challenged. \\nSo on the one hand, a lot of your prepared remarks are markets are improving. But on the other hand, you're not expecting in 3Q because you just talked about low double digits. It doesn't seem that you're expecting for the rest of the year.\\nSo just exiting the year, entering next year, how do we know we're not going to be having the same conversation again about another push out and then another push out? Just talk about that visibility going forward.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think if we look at just first half, second half and look at where our core guidances, it's not assuming any inflection in the back half. I mean you could make an argument that typically, we have a higher weighting towards the back half of the year, just part of normal seasonality, and we're not assuming that in our guide.\\nAnd so if you look at also pharma, we're assuming it's down roughly the same as it's been in the first half of the year, but we'll get easier compares.\\nAnd so we're not expecting \\\"a big inflection\\\" in the back half of the year.\\nI would say also on NASD, which we are assuming a reduction in the second half of the year relative to the first half of the year, we have all those orders in-house.\\nAnd so we've got a plan, a production plan and both for Q3 and Q4. And while something could happen, it's not like we're looking for orders to guide us on those. And those are the 2 big areas that made the biggest change when I think about where we were back in November, giving guidance to where we are today.\"}, {\"speaker\": \"Michael Ryskin\", \"content\": \"Okay. And Bob, since you touched on 3Q, 4Q ramp, I'm going to follow up on that as well, actually. I mean, you normally do see some seasonality third quarter, the fourth quarter, depending on the year, depending on the comp, let's call it about $100 million, maybe $100 million plus.\\nYou're [indiscernible] that your guide for 3Q and fiscal year implies about $120 million 3Q to 4Q this year.\\nSo again, not excessive, but still some step-up and it seems like 2Q and 3Q certainly are below trend.\\nSo is there any risk to that 4Q number? I mean is there anything else we should be thinking about in terms of what makes that achievable besides just comp and seasonality?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. The biggest change there is our NASD business, which we will see a low water point here in Q3 if we -- what we ended up seeing is some of these clinical programs getting pushed out. They've got pushed out from Q3 into Q4.\\nAnd so there's a $30 million incremental step-up from Q3 to Q4.\\nSo if you took that out, we did get back to a more historical kind of level.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Dan Arias with Stifel.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Bob or Padraig, on the capital equipment portfolio and the order book and the sales funnel that you have there, maybe just in simplistic terms, how would you describe the average time to deal close that it feels like you're going to be working with in the back half of the year versus what you've seen as a historical average? And embedded in that is just this question on instrument demand that you have a line of sight on via the sales funnel, but that just hasn't been booked yet versus what's not materialized at all yet? And then how the outlook change reflects those 2 things?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Look at it, I think it's hard to put a number on the extended deal time. It depends actually on the platform and portfolio.\\nSo there's quite a big difference between, for example, GC and LC/MS on that. But what I would say, in general, the deal time is prolonged and the win rates, of course, haven't changed. They're still very, very strong, but that deal time is prolonged.\\nAnd I think if you look at it in the second half when we're looking at the visibility of what we're seeing in the funnel, the best thing we're doing is staying close to customers on this one, making sure we're there to help them, of course, with their decisions and help them get up and running when they make the decision to purchase on it.\\nSo we're going to see this continued extended deal time, I think, through the end -- through the second half.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Dan, I wish I could say we have all the orders in-house for the second half for instruments. It just doesn't work that way.\\nSo we have much better visibility into Q3, but we will need continued performance in Q3.\\nNow we've had several quarters here of book-to-bills being greater than 1 in our instrumentation portfolio, which is a positive thing. I would say, hey, we're building some backlog. And as Padraig mentioned earlier in the call, particularly in LSAG. LSAG orders grew ex China. And that is the first time that's happened in several quarters.\\nSo we are seeing some positives and if you look at the second half of the year, our performance relative to last year should improve just because of the benefit of easier compares.\\nAnd so -- we're not, again, looking for that huge inflection. And we're not expecting also as Padraig was saying, a constriction, so to speak, or an acceleration of those deal funnels. We're expecting them to stay very similar to the way they are right now.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nI think just to close off, Bob, I think the deal closure time lines remain at an elevated but very stable level. They're not deteriorating further, which I think is a really good sign. And in terms of the funnel. Funnel is stable, no cancellations within that, which, of course, is very important to see.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Okay. And then maybe on -- as a follow-up on biopharma. I'm just curious about the extent to which the IRA is part of the conversation there these days. It sounded like last year, the industry kind of contemplated an adjustment as the idea was coming into the picture.\\nSo -- do you think spending expectations got rightsized for a period of time? Are you finding that, that's sort of a continual evolving conversation?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes, I would say it's a continuing evolving conversation clearly, on the NASD side, we've seen an impact from the IRA something we're watching closely, but I think this will evolve over time. What we're seeing in terms of programs based around pricing provisions, there definitely has been an impact on that side.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Josh Waldman with Cleveland Research.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"A couple for you. Padraig or Bob, I wondered if you could talk a bit more on how instrument orders progressed sequentially. I mean did orders deteriorate over the last 90 days or really just a function of orders not improving as you expected? And then I wondered if you could comment on what you're seeing from new orders, new order perspective across the key product categories within LSAG categories like LC/MS, GC, ICP. I guess is it fair to assume LC/MS is driving the majority of the softness just given the comments on pharma?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"I don't know if you want to take that one, Bob.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I'll take it.\\nSo I wouldn't characterize it, Josh, as a deterioration. It actually just wasn't the inflection or the acceleration that we were expecting. We did -- as we were saying here, we did have a positive book-to-bill and ex China orders grew. They just didn't grow to the extent that we expected them to, particularly in April, which we would typically have higher acceleration just kind of given the end of the quarter.\\nIn terms of the platform, what you're seeing is the platforms that are more focused on pharma being the areas that are the weakest.\\nSo LC and LC/MS are weaker than the applied markets. And you can kind of see that in our end markets as well.\\nAnd so we were expecting those to kind of perform better this year, and we're just still seeing that, I'd say, lower-than-expected performance from the standpoint of order velocity.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Got it.\\nOkay. Then a follow-up on China. I wondered if you could comment a bit more on where all this...\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"I would say -- sorry, just one quick -- so one thing I would say, though, is if I looked at the performance, the revenue performance versus the order performance, the order performance was significantly better in Q2 on those 2 main platforms than the revenue.\\nSo again, these are points that says we are getting out of it, maybe not at the pace that we were expecting.\\nSo -- and -- so those are some positive points that would suggest that we're going to continue to -- it's not going to deteriorate coming out in Q2 -- or excuse me, in second half.\\nSorry.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Is it -- what were the 2 platforms?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"LC and LC/MS.\\nSo -- yes. Yes.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Okay.\\nOkay. Got it. Got it. And then a follow-up on China. I just wondered if you could comment a bit more on where all you're seeing demand coming softer than expected from a new bookings perspective and then a bit more detail on how you're contemplating the stimulus. I mean, it sounds like you saw improved bidding and funnel activity on the prospects of stimulus, but just wondered if you could provide what's giving you the confidence that, that stimulus-related funnel ends up converting to orders and sales at some point in the future?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Maybe starting on the stimulus. This is an extremely large program, a multiyear program. It's very real. We've seen some of the customers with activity is asking us to bid on some of the things, even though they're not sure exactly yet how the mechanisms would work.\\nSo that gives us great confidence for '25 just from that. But I said earlier, also the indirect impact of confidence in science and technology in China. It's a real [indiscernible] confidence by the government in making sure we -- making sure to get the market going again.\\nSo I think in Q2, we saw meaningful softness extend to all markets because remember, the stimulus is not only academia and government, it's across all markets. And that has really come at once. And we did see at the end of the quarter, we also started to see customers postpone purchasing decisions. They have told us, right, sort of said we're going to postpone and they try to gauge if there's any benefit of the stimulus-related funding, and that's normal.\\nI think that's expected.\\nIf you didn't see that, then the stimulus would have different questions. And why we believe that a stimulus program will ultimately be long-term positive. We really don't see any benefit in H2, and that's why we're roughly reducing by $70 million.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Got it. Did you see stimulus-related postponing and pharma and CDMO as well or more just government accounts?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, it was both government and nongovernment accounts across the board.\\nSo I would say it was pretty broad beyond pharma.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Catherine Schulte with Baird.\"}, {\"speaker\": \"Catherine Ramsey\", \"content\": \"Maybe just sticking on China stimulus to start off. Is there any way to quantify the increase in the funnel activity that you've seen there just as we try to think about potential opportunity in future years?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. What we're seeing is a postponement, and I think it's really too early to tell on the funnel side on -- if the customers are still working out the mechanisms about how it works, we're still waiting to see on the impact on the panel, particularly for '25, it's too early to tell.\"}, {\"speaker\": \"Catherine Ramsey\", \"content\": \"Okay. And then on LSAG, what was performance in the quarter, excluding China? And then any commentary on the pharma end market specifically for that business outside of China in the quarter?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Bob, do you want to take this one?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo our LSAG business declined 13% globally, ex China, it was down 8%.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Paul Knight with KeyBanc.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Within the 34% of business that's pharma, what portion is biopharma or large molecule, Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"It's roughly 45%.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"And what's the overall growth rate of that piece, do you think?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Long term or in the quarter?\"}, {\"speaker\": \"Paul Knight\", \"content\": \"In the quarter and long term.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nSo if we looked at our biopharma business, it was down roughly 12%, small molecule was down roughly 10%. Total pharma was down 11%.\\nSo it kind of gives you a sense.\\nI think...\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes, I would say before we get on to the long term, Bob, for biopharma, really tough compare was mid-teens, plus mid-teens last year on that side. But what we're seeing is the long-term prospect for this market is very strong.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Yes. And then I know that you've got -- you have always been very aggressive and innovative on your M&A for biologics. Are you seeing that market open up on the M&A side of that marketplace?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"You mean in the space itself?\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Is pricing becoming more realistic as you think about your acquisition strategy?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Well, I think there's long memories.\\nSo people don't forget the elevated pricing for assets, but we're going to remain very disciplined. It's going to become an increasingly bigger part of the puzzle for M&A, but we're going to make sure that we do it in a very disciplined way, link to strategy and of course, looking at areas of where we can double down and growth factors.\\nSo we're very focused on that going forward. But I would say, while pricing maybe has come down in little areas across the board, people have long memories.\"}, {\"speaker\": \"Operator\", \"content\": \"I will now turn the call back over to Parmeet Ahuja for closing remarks.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Regina, and thanks, everyone, for joining the call today. With that, we would like to end the call. Have a good rest of the day, everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today's call. Thank you for joining.\\nYou may now disconnect.\"}]"


companyname: Agilent Technologies, Inc.
symbol: A
date: 2024-08-21
year: 2024
quarter: Q3
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, welcome to the Agilent Technologies Q3 2024 Earnings Call. My name is Regina, and I will be coordinating your call today. [Operator Instructions]\\nI now hand you over to your host, Parmeet Ahuja, to begin. Please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, and welcome, everyone, to Agilent's conference call for the third quarter of fiscal year 2024.\\nWith me are Padraig McDonnell, Agilent President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO. Jointing in the Q&A will be Phil Binns, President of the Agilent Life Sciences and Applied Markets Group; Simon May, President of the Agilent Diagnostics and Genomics Group; and Angelica Riemann, President of the Agilent CrossLab Group.\\nThis presentation is being webcast live. The news release for our third quarter financial results, investor presentation,and information to supplement today's discussion along with the recording of this webcast are available on our website at www.investor.agilent.com.\\nToday's comments refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis.\\nCore revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates.\\nAs a reminder, beginning in the first quarter of fiscal 2024, we implemented certain changes to our standard reporting structure related to the move of our cell analysis business from LSAG into DGG.\\nWe have recast our historical segment information to reflect these changes. These changes have no impact on our company's consolidated financial statements.\\nDuring this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.\\nAnd now I'd like to turn the call over to Padraig.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Thanks, Parmeet. Good afternoon, everyone, and thank you for joining today's call. The Agilent team executed well in the third quarter and posted solid results, delivering better-than-expected revenue and earnings. Revenue of $1.578 billion declined 4.4%, an improvement of 300 basis points from Q2, reflecting the steady improvement in the market. Operating margin of 27.4% improved sequentially as the actions we announced last quarter start to deliver, and we remain on track to deliver the incremental annualized savings of $100 million by the end of the fiscal year.\\nEarnings per share of $1.32 is $0.04 above the high end of guidance.\\nAs a result of our strong Q3 performance, we are raising our guidance at the midpoint for both revenue and EPS, and we continue to make investments in our most promising growth opportunities that are referenced in our Q2 call.\\nWe're investing in our digital ecosystem to further enhance our differentiated customer experience plus, we are mobilizing the organization to accelerate value creation through strategic transformation initiatives, driving margin expansion and growth and increasing our execution capabilities. Separately in the quarter, we were excited to announce 2 acquisitions that demonstrate our focus on biopharma and our digital ecosystem, which I'll talk about in a moment.\\nAs you know well, the pace of change is faster than ever.\\nOur markets, customers and competitors are not standing still, neither are we. We're accelerating our pace of innovation and execution, so we can add to and capitalize on opportunities in front of us.\\nWe are sharply focused on key growth vectors, including biopharma, PFAS and Advanced Materials. I continue to meet and connect with employees, customers and shareholders around the globe to listen to their perspectives on how we should build on our strengths and move Agilent forward.\\nThe entire Agilent team is clear on what is vital to the company's future, becoming even more customer focused and even more nimble to continue to win in the marketplace and add value to customers and shareholders.\\nWe are evolving our strategy, adapting quickly to market trends and changes while accelerating our pace of innovation, an area of greatest return for long-term growth. We're excited to announce that you'll hear more about these topics and our transformation at our Investor Day we have planned in New York on December 17.\\nNow let's talk further about our Q3 results. All our end markets except academia and government, which is our smallest, ended the quarter better than expected.\\nOur largest market pharma, declined high single digits, slightly better than our expectations. And while biopharma continues to be pressured, we are seeing relatively better performance in small molecules.\\nOur leadership in providing workflow solutions for PFAS continued to show strong performance in the environmental market. Geographically, Europe exceeded expectations led by small molecule pharma as well as continued strength in environmental.\\nOur other regions performed roughly in line with expectations.\\nWhile capital equipment budgets remain constrained, we continue to see good lab activity in Q3, with services plus consumables growing mid-single digits. When looking at our performance by business unit, the Life Sciences and Applied Markets Group reported $782 million in revenue, down 7%, while the instrument side of the business remains constrained, it was encouraging that our instrument book-to-bill was again greater than 1. The group saw a decline across all regions and most end markets with low single-digit growth in environmental and forensics.\\nConsumers continue to be a bright spot, growing by mid-single digits. The LSAG team also was busy innovating with the introduction of the 8850 GC that helps customers reach their sustainability goals by delivering answers efficiently while using up to 30% less power than other GCs and has a much smaller footprint.\\nMoving on to the Agilent CrossLab Group, the business delivered revenue of $411 million for the quarter, up mid-single digits. ACG grew in every region except China, where we were down modestly year-on-year, but showed meaningful improvement versus last quarter. Once again, we drove double-digit growth in service contracts which represented nearly 70% of the total business. And beyond another quarter of solid revenue growth, ACG also delivered a record operating margin of 34%, demonstrating that the resiliency and strength of the recurring revenue business continues despite the constrained capital equipment environment.\\nThe continued strength of our business is a testament to our strategy of increasing the net rates on our instruments. And the ongoing value we are providing to our customers and having them reached their productivity goals. The Diagnostics and Genomics Group posted $385 million in revenue, representing an 8% decline, but grew mid-single digits ally and was offset by declines in cell analysis, NASD and genomics.\\nNASD stepped down sequentially in Q3 as expected, and we are on track for NASD's revenues to step up sequentially in Q4. In the face of a constrained CapEx environment, the Agilent team has remained consistent in putting our customers first and fostering deeper relationships with them.\\nWe continue to execute well and be disciplined while investing in high-growth opportunities.\\nAs I mentioned earlier, we were thrilled to announce 2 acquisitions that speak to focus on biopharma and increasing recurring revenue, as well as on strengthening the digital ecosystem for Agilent customers. In late July, we signed a definitive agreement to acquire BIOVECTRA, a leading specialized contract development and manufacturing organization. The Canada-based company builds on Agilent capabilities in oligonucleotides and CRISPR therapeutics by expanding our portfolio of services. BIOVECTRA adds rapidly growing modalities microbial fermentation, antibody drug conjugates and high potency active pharmaceutical ingredients.\\nIt also brings world-class capabilities that when combined with NASD enables us to deliver customers a complete gene editing solution. The company delivered more than $110 million in revenue during the calendar year 2023 and expect double-digit revenue growth this year. The BIOVECTRA acquisition remains on track to be closed by the end of the year, and we're looking forward to welcoming the BIOVECTRA team to Agilent.\\nAt the end of the quarter, we also announced the acquisition of California based Sigsense, a startup that uses artificial intelligence and power monitoring to help customers optimize their lab operations. Sigsense Technology already is available to our customers through CrossLab Connect, a suite of digital applications that improve lab performance. A hearty welcome to the Sigsense team who already is part of Agilent.\\nDuring the quarter, we released our annual ESG report, which showcases a large and growing portfolio of products that help our customers reach their sustainability goals. Instruments certified with the My Green Lab ACT label now accounts for 40% of all instrument revenue, and we continue to regularly release products like the new 8850 GC with environmental benefits.\\nWe are also proud that we have recently ranked in the top 20 of Time Magazine's 500 most sustainable companies in the world.\\nBob will now provide the details on our results as well as our outlook for the remainder of the year. After Bob delivers his comments, I will be back for some closing remarks. Over to you, Bob.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Thanks, Padraig, and good afternoon, everyone. In my remarks today, I'll provide some additional details on revenue in the quarter, as well as take you through the statement and other key financial metrics. I'll then cover our updated full year and fourth quarter guidance.\\nQ3 revenue was $1.578 billion, a decline of 4.4% core, but a 300 basis point sequential improvement, as Padraig noted.\\nExcluding China, revenue declined low single digits in the quarter. On a reported basis, currency had a negative impact of 1.1 percentage points, while M&A had a negative impact of 10 basis points, resulting in a reported decline of 5.6%.\\nOur largest end market pharma declined 8%. Biopharma was down low double digits, were down mid-single digits, excluding NASD. Small molecule performed better, down mid-single digits and was led by growth in Europe.\\nServices and Pharma continues to perform well, growing high single digits. In Chemical and Advanced Materials, revenue declined 5%, with growth in Americas offset by softness in China.\\nOur Advanced Materials subsegment performed better driven by our business in the semiconductor market. Academia and government, our smallest market, can be lumpy from quarter-to-quarter. We saw a decline of 11% as Europe and China both saw double-digit decline, partially offset by better performance in the Americas region.\\nOur business in the diagnostics and clinical end market grew 2%, including continued mid-single-digit growth in pathology offset by ongoing softness in genomics. In environmental and forensics, we grew 4%, another great quarter for our PFAS testing business. We saw robust business in Europe led by the new EU Water Directive and in China due to the nationwide emerging pollutants program.\\nNow wrapping up our end markets. Food was down 3% versus last year, but grew sequentially and was led by Asia ex China.\\nMoving on to our regional performance. Europe was flat overall, beating our expectations while we declined 6% in the Americas and declined 1% in Asia, ex China. China revenue declined 11%, with quarterly revenue improving sequentially, driven by growth in services and consumables. This speaks to some increase in lab activity which is encouraging.\\nNow let's move on to the rest of the P&L. Gross margin was 56.0% in the quarter, down slightly versus a year ago, but up 40 basis points sequentially.\\nOur operating margin of 27.4% improved sequentially and was better than expected. Despite the dampened demand, we continue to make good progress in driving our productivity initiatives and continuing to manage the cost structure very well while investing for growth.\\nAs Padraig mentioned, we are on track to deliver the $100 million in incremental annualized cost savings by the end of the fiscal year.\\nBelow the line, our net interest income was in line as was our tax rate of 13%, and we had 291 million diluted shares outstanding in the quarter. Putting it all together, Q3 earnings per share were $1.32. That was ahead of our expectations but down 7.7% from a year ago as we went up against a difficult compare due to the variable pay reset in Q3 of last year.\\nNow let me turn to cash flow and the balance sheet.\\nWe continue to enjoy a very strong balance sheet and healthy cash flows. Operating cash flow was $452 million in the quarter, and we invested $92 million in capital expenditures.\\nAs we committed in Q2, we ramped up our share repurchases starting here in Q3. We purchased $585 million in shares and paid out $68 million through dividends for a total of $653 million returned to shareholders in the quarter. This includes $500 million of the previously announced $750 million opportunistic share repurchase and we expect to complete the additional $250 million repurchase in Q4.\\nWe ended the quarter with a net leverage ratio of 0.6. And even with the upcoming BIOVECTRA acquisition, our balance sheet and leverage ratios will still be in a very strong position.\\nIn summary, we performed well and continue to see a steady improvement in the market and expect that to continue into FY '25. Because of our Q3 results, we are increasing the midpoint of our revenue and earnings per share guidance for the year. We now expect full year revenue to be in the range of $6.450 billion to $6.500 billion. This represents a decline of 5.6% to 4.9% on a reported basis and a decline of 5.0% to 4.3% on a core basis. Currency and M&A combined are a headwind of 60 basis points.\\nFull year non-GAAP earnings per share are now expected to be between $5.21 and $5.25, representing a decline of 4.2% to 3.5%. This assumes net interest income of $38 million, a 13% tax rate and 292 million fully diluted shares outstanding.\\nWe have not included any impact of the BIOVECTRA acquisition in our updated guidance, and Sigsense does not have a material financial impact to the year or Q4.\\nThis full year guidance translates into Q4 revenue in the range of $1.641 billion to $1.691 billion. This represents a decline of 1.9% to 1.1% growth on a core basis and a decline of 2.8% to 0.2% growth on a reported basis.\\nCurrency and M&A or a combined headwind of 90 basis points. Fourth quarter non-GAAP earnings per share are expected to be between $1.38 and $1.42, marking a return to growth at the midpoint.\\nWe expect a 13% tax rate, a decrease in net interest income to $5 million due to the lower cash balance and 287 million diluted shares outstanding for the quarter.\\nNow I'd like to turn the call back to Padraig for some closing comments. Padraig?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"These are exciting times at Agilent. With a team that is second to none, we are doubling down on our customer-first culture and deepening our relationships to further enhance our market-leading customer experience that is already the best in the industry. We're evolving our strategy to aggressively pursue our ambition to grow in markets where we have a right to win to both organic and inorganic growth, and we will continue to accelerate value creation through strategic transformation initiatives.\\nWe remain a leader across key platforms, and we're in great long-term growth markets that are beginning to show evidence of recovery. Best of all, our team is engaged, leading to Newsweek including Agilent on its America's greatest Workplaces 2024 list.\\nAgain, thank you for joining today's call. I'm tied by how we are evolving Agilent. Each data team gains momentum in building an enduring company that sets the standard for excellence with our customers and creates value for our shareholders.\\nWe are fueled by the future profitabilities, and I look forward to continuing to share our progress.\\nParmeet, over to you for Q&A.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Padraig. Regina, if you could please provide instructions for Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] Our first question will come from the line of Matt Sykes with Goldman Sachs.\"}, {\"speaker\": \"Matthew Sykes\", \"content\": \"Maybe the first one, just digging in a little bit on the LSAG where you had a pretty solid beat. It looks like that was driven primarily by consumables and services.\\nSo I'm curious if you can give any more color on what instruments did. I know you had a book-to-bill above 1. But just how does that inform your view as we go into '25 on the replacement cycle, specifically large biopharma demand and how that might impact your view on when that replacement cycle starts kicking in?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Thanks a lot, Matt. Maybe I'll kick it off and give it Bob.\\nI think first of all, you're correct. We saw very promising growth in both consumables and services, which shows lab activity is actually improving is very stable. We're still very challenged on the instrument side. But what we're seeing is we're seeing a lot of activity around conversations with lab managers.\\nOur funnel is extremely stable.\\nWe haven't seen any cancellations. But what I would say is that deal closure times are still elevated.\\nSo we're not at this point seeing any budget towards the end of the year which, of course, for us ends at the end of October, but we're watching that closely. I don't know if anything to add, Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Thanks, Matt, for that question. And maybe just to and add some additional commentary to what Padraig was saying. When we look at the quarter, we were very pleased actually both our consumables business as well as our instrument business performed better than expected in the quarter. We were down 7% in total.\\nOur consumables business was actually up mid-single digits towards the high end there. And our instruments business was down low double digits, but that was better than what we expected. And as Padraig mentioned, we had a book-to-bill that was greater than 1 on the instrument side again this quarter, which was very encouraging.\"}, {\"speaker\": \"Matthew Sykes\", \"content\": \"Got it. Very helpful. And then just on Academic and government. I know you talked about it, you talked about it for a while, how volatile that can be. But just given sort of the 2 quarters in a row of sort of negative performance there, and you called out Europe and China specifically. Are there any kind of durable trends you're seeing either in funding or in demand that you think might be more persistent in that specific end market as we go through Q4 and then as we look 5?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"No, I think, look, we saw a decline of about 11%, and that was really against the comparative feature, the stimulus and EMEA and strong results in APAC and China.\\nSo it was a really tough compare. And I think what we're seeing is funding remains stable in most regions. And except I would say Europe, where we're seeing a reallocation of funding towards defense. But I would say no major changes in that market.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Rachel Vatnsdal Olson with JPMorgan.\"}, {\"speaker\": \"Rachel Vatnsdal Olson\", \"content\": \"To dig into NEC a little bit. Obviously, we had some positive announcements intra-quarter with the HELIOS-B readout.\\nYou mentioned that NASD stepped down sequentially as expected and then you're expecting that to then step up into fiscal 4Q.\\nSo could you unpack that for us a little bit? How should we think about the magnitude of the step-up into 4Q? And then given some of the updated data readout that we got intra-quarter, how does that underpin your assumptions on NASD next year and then also long term?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Look, I'll start off and maybe I'll hand it over to Simon, who's on the call here as well. We've seen with clinical batches, of course, there can be changes with customers progress on those patches. We're not seeing any changes in what we're saying for Q4.\\nSo we're fairly certain of Q4 on that. What we're seeing as well is that we're -- we've grown our clinical business over 50% this year, which is very promising. The long-range view of the market is very strong with the drugs and the modalities that are being used. But I think what you're seeing is a normal kind of up and down between quarters with that business. But I don't know if you want to add any more color, Simon?\"}, {\"speaker\": \"Unknown Executive\", \"content\": \"Yes. I just add what Padraig said, I think the Q3 performance that we saw in NASD was largely in life expectations. And in that business, where we see a natural lag between order booking activity and revenue recognition because of the loan that these programs take. And towards the end of last year, we were really seeing the effects of the IRA impacts, and that's still not completely waned, but what we saw in Q3 was pretty strong bookings activity.\\nSo as we look to Q4 and into 2025, I think we're cautiously optimistic about seeing a return to growth there.\\nSo I'd really just characterize Q3 is in line with expectations and part and parcel of the lumpiness you see in this business.\\nYou also mentioned Helios, I think it's just worth mentioning that we were very happy to see that development, but still very early days in terms of how that's going to ramp up and play out and too soon to say where that's concerned, but certainly no impact in the remainder of '24 and unlikely in '25 as well.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Rachel, this is Bob.\\nJust to add on a little more to answer your last part of your question in terms of the sequential step-up. We had talked, as Simon and Padraig said, we've done a little better actually in Q3 than we expected, and we're expecting a roughly $20 million step-up from Q3 to Q4. Those orders are all in-house, and we're still on track for the long -- the full year estimate for NASD, and that's incorporated into our guidance.\"}, {\"speaker\": \"Rachel Vatnsdal Olson\", \"content\": \"Great. That's helpful. And then for my follow-up, I just wanted to dig a little bit more into 4Q guidance and what that means in terms of an exit rate into 2025.\\nSo I appreciate some of your comments earlier.\\nYou highlighted in that question that you're not really assuming a budget flush for your fiscal year-end in October. But I guess how should investors look at this 4Q number on an organic growth basis of that down 2% to up 1% on the range, and how that translating into 2025? If I look at consensus right now, consensus is just shy of 5% organic on 2025. Street is also nearing that double-digit EPS growth.\\nSo I appreciate it's still a little bit early for you guys to formally give us 2025 expectations. But what do you think about exit rate and where sell-side numbers are right now?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, you were reading my mind, Rachel. This is Bob. And it is a little too early to talk about FY '25. But I think what it does show is our expectation of this continued steady improvement. We improved here in Q3 300 basis points sequentially. We're expecting another improvement here going into Q4. And I would expect that improvement to continue into FY '25.\\nSo -- and we do expect -- while it's too early to give you a specific number, we do expect to grow next year. These markets will return. And we've been below the long-term trend, but there's nothing to suggest that the -- or the long-term growth rates of these markets is nothing to suggest that these markets have changed.\\nAnd so we're optimistic about continued recovery going into FY '25.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Patrick Donnelly with Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Yes. Bob, maybe one for you. But just on China, how you guys are thinking about the region there? It sounds like it was down 11%. It got a little bit better on the revenue side sequentially. It sounds like you got lab activity maybe look a little bit better. Can you just talk about expectations into year-end? Some of your peers have suggested that you could see a bit of a pause on the capital side into calendar year-end as we wait for more clarity on the stimulus.\\nJust how you guys are thinking about China again, not only into your fiscal year, but just into the year-end on the calendar side? And what's your view in terms of do we see a little bit of an air pocket here until the US dollars get firmed up?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Patrick, it's a great question. And we had actually a little of that in our Q2 of last -- just a quarter ago here, really on the bid activity, primarily for instrumentation.\\nWe are optimistic about the midterm here in terms of the stimulus, That's probably more an FY '25 event probably. What we are seeing is more activity there. And I think what's encouraging, and maybe I can turn it over to Angelica as well.\\nOur services business has seen an increase in a pickup in activity and certainly a consumables as well.\\nSo it's still dampened demand. And we did see that impact in Academia and government. That was the biggest impact in China, but we are seeing some pockets of green shoot in terms of recovery.\"}, {\"speaker\": \"Angelica Riemann\", \"content\": \"Yes, Bob, I'll just add. In China, we are encouraged from a services perspective on the nice sequential growth that we saw from Q2 to Q3, which is indicative of continued and somewhat increasing lab activity in China.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. That's encouraging. And then maybe another one for you, Bob.\\nJust as we think about the margin construct as we work away into year-end in '25. Maybe just remind us some of the moving pieces to think about LEVEL as we look ahead to next year. Obviously, the cost out program seems to be progressing multi point. The margins came in nicely here in 3Q. But yes, maybe just the moving pieces as we go ahead to next year, how -- talking too much about the top line, obviously, the volume matters there. But just kind of down the P&L, how to think about some of the margin Algifor next year would be helpful.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nI think as we talked about -- Patrick, it's a great question, and we're committed to continuing to drive efficiencies across all of the P&L line items. And I think you've seen that across the actions that we've taken. We're on track to delivering that $100 million of incremental annualized savings by the end of '24.\\nSo there will still be a tailwind, obviously, going into '25 for that benefit. Offsetting that will be some resets of our variable pay and activities like that, but we are committed to covering that.\\nIf I think about it at the highest level, what I would expect us to continue to be able to do is drive leveraged earnings next year. And I think you're seeing that the scale benefit that we're seeing, and certainly, our ACG business here this last quarter, just phenomenal profit contribution. And I think with volume coming back into the instrument business as well that will set us up nicely for next year.\\nSo think about a nice incremental tailwind associated with the continued actions or the annualization of that actions that come in FY '25, partially offset by merit and some of the activities and then we'll have our ongoing productivity measures.\\nAnd so we'll actually share some of the more detail around this probably in our Analyst Day in December.\\nSo stay tuned on that as well.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Jack Meehan with Nephron Research.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I wanted to dig into some of these instrument trends a little bit more. I was wondering if you could talk about just what you're seeing across some of the big categories like LC, LC/MS, GC, SPECTRA. Any color on how those performed?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. I mean in general terms, Jack, I think customers are very, very cautious. But what I will say is that lab manager remain very engaged with our sales teams about future projects, that is true. We see a lot of stability in that.\\nSo it's still very challenging. And I would say that our deal close rate is still elevated, but our funnels are very stable with low cancellations.\\nSo I think that goes across most of the markets. And as you see going forward, our results, CST and service is growing mid-single digits and bodes very, very well in terms of lab activity increasing.\\nSo we're seeing slow but steady improvement.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Jack, just to follow on to that.\\nI think one of the things, as we mentioned in the call, the book-to-bill being at 1 for instruments is a positive sign. It was slightly better than what we expected overall LSAG instruments were down lower digit.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Yes. Where all of the categories kind of right around there?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"I would say if you looked at the LC and LC/MS business, they were in the mid-teens.\\nOur spectroscopy business better than that.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Okay. And then just as one end market follow-up. I was curious, in TAM in the third quarter, so it was down 5%. It was a little bit below what I was thinking. Is there anything just within the different categories within that end market that softened a little bit relative to what you were thinking a few months ago?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nSo you're correct, it was declined by 5%, and it was really due to the impact of overproduction in China, which negatively impacted market investments globally. But we did see increases in service and consumables, both combined at 7% increase, but there was a decrease of about 14% in instruments. And I think CapEx spending remains slightly challenged there.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Vijay Kumar with Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"One, I guess, for Bob, if you look at the guidance change over the last 3 months, NASD, China, biopharma in the big categories, right? I think the guide assumes NASD down double digits in fiscal '24, China down high singles double digits, biopharma down. Which of these is expected to get better next year? What is it getting better or worse? And is there a first half versus second half dynamics that we should be aware of?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes, Vijay, thanks for the question.\\nI think in terms of what we expect getting better, we expect all of them to improve next year. We raised the midpoint of guidance, $15 million on revenue and $0.03 in EPS. And we see across all those areas, markets improving slowly, and that's reflected in the sequential increase that we're guiding in Q4.\\nSo while we had a kind of a solid Q3, the end market environment for capital remains constrained and visibility, while improving is still difficult.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Understood. And maybe on that Q4 commentary for guidance implying up 6% or 7%, which seems generally in line with your historical sequential step-up from 3Q. And is the booking trends that we saw and NASD trends we saw, does it support the historical, I guess, seasonality? Because I think were discrete is debating upon that historical seasonality doesn't bake in some year-end budget flush or what is baked into that sequential step-up?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nSo I think what we're seeing is that it's -- we normally see the step up. That's what we're expecting this time. We're not including the budget flush in that. We see a budget flush it's on top, and that would be in our Q1 numbers as we go forward.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Vijay, this is Bob. And just to build on what Padraig is saying, I mean, you're absolutely right. When we look at the sequential, it is in line with our historical and our order book based on what we've seen today. Obviously, we have to book orders in Q4, but our order book trends would support that.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Tycho Peterson with Jefferies.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Question on BIOVECTRA and maybe just synergies with the rest of the NASD business. How do you think about -- does that change views on capacity? And -- maybe just talk a little bit about how much BIOVECTRA business is clinical versus social and any kind of emerging modalities that you're adding here?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes, I'll start, Tycho, and I'll bring in Simon in a minute.\\nSo we are absolutely delighted by our factory. We think it's a great state that enhances our offerings. And it really allows us to deepen our relationships with our key pharma customers. And what we're really excited about is that it builds on our capabilities on current NAVs around antisense and particularly gene editing with microbiotation and ADC capability.\\nSo we're very happy with.\\nSo there's a lot of synergies as we bring that forward.\\nSo I'll hand over to Simon to talk maybe about capacity in the main business.\"}, {\"speaker\": \"Unknown Executive\", \"content\": \"And I think Padraig, I note already in terms of the synergies. We already mentioned the complete solution offering in gene editing, which we see a really significant competitive advantage going forward. Sterile fill finish is another synergy that we're excited about. We've had a lot of requests from our customers over the past few years for that capability from the diligence we're doing with BIOVECTRA, we think they've got truly world-class capabilities there. And as Padraig also mentioned with microbial fermentation high potent APIs. There's an existing footprint there in GLP-1 manufacturing.\\nSo I think we've got a slightly higher clinicals in BIOVECTRA than we have in NASD.\\nSo I think we're just killing several birds with one stone with this acquisition. From a capacity perspective, I'd say BIOVECTRA has been ahead of the curve with capacity CapEx, and we've got some skin to grow into there over the next few years.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. That's helpful. And then a follow-up on China.\\nYou had the pull-forward dynamic in the first quarter, $15 million that were back in 2Q.\\nI think you were effectively flat maybe down a little bit.\\nFirst, is that the right assumption? What are you actually embedding in 4Q for China and guidance? And then how do you think about the return to growth in '25? Could you see that in the first half of the year?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Tycho, that's -- your recollection is correct. And as we think about implied fourth quarter now mid-single digits in China. We're going up, quite honestly, against some easier compares in full dozer. And we would expect a slight sequential step-up from a revenue perspective as well.\\nAnd so that reflects the steady improvement. We do expect, again, not a lot of that stimulus to come in our Q4, basically none, but more into Q5, but the bidding activity that we're seeing has ramped up. And then I think the activity that we're seeing in services and consumables, we're expecting that to continue. It's probably too early to tell next year for China. But I would expect it to continue to improve and not be down the way it is. We're expecting a low double-digit decline this year. We would expect to improve from that. It will probably be improvement throughout the year as opposed to an immediate improvement. Certainly, the stimulus will help us with that. Again, that will be in our first and second quarters, most likely. But we're not expecting a huge step up right there. It will be over time because this stimulus is over a 3-year period.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Puneet Souda with Leerink Partners.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Instrumentation growth, obviously, an important question. Last quarter, you lowered expectations meaningfully. But again, book-to-bill was strong, more than one, again, this quarter, it is more than one. And I think you said that last quarter was the first time you saw growth in the market after 7 quarters.\\nSo that looks like it's continued again into the quarter.\\nSo just maybe help us understand instrument -- where we sit on instrumentation? And what sort of recovery are you seeing here in August? And what gives you sort of confidence that instrumentation should bounce -- continue to bounce back into 2025 as well?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Look, at the indications from the team, we have a strategic account team that does a lot of citations with our major accounts. There's -- we're seeing that more positive than negative in terms of customer sentiment, which is a very good sign. We see a lot of activity in our testing labs as well as focusing on PFAS and so on.\\nSo there is drivers within the markets that are that are positive. But overall, I would say it's slow and steady, and we're treating it as that. And the teams have really good visibility.\\nOur commercial teams which we've transformed in the last few years are really, really close to our customers.\\nWe have really good visibility into that.\\nSo it's slow but steady. I don't know if you want to add anything, Bob, to that.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. No, I think you're spot on. And we're not building any budget flush into our Q4, Puneet.\\nSo if that does in fact happen, that would be a benefit to our current estimates.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay. And the recent drug pricing negotiation with Medicare on the first drugs are out. Obviously, RA is having an impact. But over the next 3 years, annually, 15 drugs will be negotiated and that probably leads to another set of impacts.\\nSo what are you hearing from your large pharma customers? And overall, how are they thinking about the R&D spend and the spend that they currently have on Agilent?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Look, I think in general, they're very cautious, of course, with some of the impacts, the macro impacts that are facing. They're not -- there's a lot of M&A activity going on within pharma, a lot of consolidation, which, of course, takes time and energy for these companies to focus on. And I think what you're going to see over time is it probably even out in terms of impact. What isn't going down, by the way, is the number of R&D programs. We see that increasing in a number of key modality areas, particularly around GLP-1, et cetera.\\nSo we need to wait and see. But having said that, people kind of forget in the last few years, the enormous amount of spend that has happened, and we're seeing that normalize now, of course, in the installed base and coming out of that in '25.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Michael Ryskin with Bank of America.\"}, {\"speaker\": \"Michael Ryskin\", \"content\": \"I want to follow up on -- maybe this is what any was just getting at, but you called out in your prepared remarks at times that with biopharma, a small molecule held up a little bit better or small molecule did a little bit better. tha large molecule, I assume.\\nJust wondering if you could delve into that a little bit more. Was that a particular instrument class or modality that drove that? Was that -- does that have to do with budget cycles.\\nJust what you're seeing there and why there's such a difference in molecule side?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Mike, this is Bob.\\nYou're right. I mean our small molecule business was down mid-single digits in the quarter, which was better than expected. And in Europe, a group, which was a very positive sign. And this does speak to -- you can only hold on to your old instruments for so long before the replacement need happen. We're not calling a replacement cycle inflection just yet. But every quarter, these instruments get older. And one of the things that I think is important here is pill counts and volumes continue to grow. And back to the question around the IRA and the pricing, I think it was generally not the worst-case scenario, maybe a little better than people expected. And where our strength is, is in the development moving into production, and that continues to be long-term positive trends.\\nSo that would be our core LC franchise. And then the biopharma, some of that was impacted by our NASD business, which was kind of the air pocket. Actually, if you take our biopharma business, which was down double digits, and then you take NASD out, we're at mid-single digits as well. Not as -- it was down a little more than small molecule, but generally still in that same range.\\nSo both of them are actually when you take out the kind of onetime unique aspect of NASD performing better quarter-on-quarter, which is a positive sign.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"So also, I would say, just adding to that, Bob, we saw services going double digits in biopharma and mid-single digits and small molecules.\\nSo that's a big component of what we see in those different modalities.\"}, {\"speaker\": \"Michael Ryskin\", \"content\": \"Okay. Both of those answer are really helpful. And then for my follow-up, I want to lean in a little bit more on BIOVECTRA, I mean everything you kind of laid out there for the rationale and the financials of the deal certainly makes sense. I'm just curious you've had a presence in some CDMO type capabilities in the past.\\nJust wondering how hard are you going to lean into this. And what I'm alluding to is obviously one of your large traditional tools vendors has a CDMO business has been in that business for a number of years now, and there's a lot of talk of the benefits of having both the instrument, the consumables and the services business on the tail end. Is this something you're going to continue to grow over time? Is it buyback like a Chat acquisition, and we should expect more investment down the road?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes, I'll start and maybe hand it over to Simon. When we look at our M&A ambition, first of all, we're -- it's going to be really centered around where our strategy is, what's the strategic fit in faster-growing markets and of course, value creation BIOVECTRA ticks all of those boxes. And it's an area where we're building out more capabilities for customers.\\nSo we see that continuing.\\nAnd so we're really excited about it, but we do see that this business has a lot of runway. It's a business that's growing well, very well run, of course, and has had a lot of capital investment over a number of years. And I think this is only the start of our ambition in continuing to grow BIOVECTRA and NASD. But Simon?\"}, {\"speaker\": \"Unknown Executive\", \"content\": \"Not much to add really, only beyond that. We've got a very strong existing position in the RNA modality. I'd say, up until this point, it's been a relatively narrow capability position and BIOVECTRA builds on that quite nicely.\\nAs we look at future optionality around complementary capabilities and modalities, we think is a rich space. And that's probably all we can say at this point.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from the line of Dan Brennan with TD Cowen.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Maybe just back to China, the down 11% was a bit better than we were looking for. Can you just unpack what specifically got better in the quarter, given the guidance cut that you made last quarter, maybe either by customer type or by product type? And then just to clear up, like, so your guidance for China, I know it was down double digits. Has that changed at all? Have you improved that? So that's my first question.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Dan, thanks for the question. China is still in line with our full year end guidance down low double digits. If I look at where we actually performed slightly better than what we anticipated was actually in pharma. And it gets back to what we were talking about before, the activity both on the services side performing sequentially better as well as our consumables business actually growing.\\nAnd so we were down close to 30% in Q2 of last year, we were down low double digits in pharma year-on-year.\\nAnd so that was the big sequential improvement in Q3. And I would expect the -- that to continue into Q4.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Okay. And then starting with NASD, but there's just been a lot of questions from investors after the turns year-to-date in terms of that business really slowing a lot. Can you -- did you say what it did actually in the quarter? I didn't hear the number kind of year-over-year during the quarter? And then kind of if we take in the full year, I know you said step up. Could you just give us some clarity on the fourth quarter? And then any additional color on clinical versus commercial? It sounds like your bookings are improving so that portends well for the outlook, but just trying to act like what's going on right now in the quarter?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Dan, what I would say is we typically don't give a specific number for NASD, but it actually performed in line or slightly better than what we expected.\\nSo we had been signaling a step down in Q3, and we actually did better than what we were expecting there. The full year is still in line with where we were, which is roughly a $300 million business.\\nAs Simon was saying, the bookings continue to be positive in terms of activity. And we're starting to see some of our customers the readouts of some of activities, which is more a harbinger of long-term opportunity versus short term. But if anything, it was a little better than we expected.\\nSo I don't want anyone to take away that it wasn't even though it was down in the quarter, we expected that and communicated that as part of our guidance, and we're still on track for the full year estimate that we had coming into the quarter.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the line of Catherine Schulte with Baird.\"}, {\"speaker\": \"Catherine Ramsey\", \"content\": \"Maybe first, just could you talk about growth rates by segment for the fiscal fourth quarter and maybe your assumptions for instrumentation versus consumables and services in the fourth quarter?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Catherine, this is Bob. What I would say is if I look at our Q4, all groups, we would expect to do better. And if I went by group LSAG would be -- we're expecting kind of low single digits off of a down 7% this year. Consumables being better than that overall. And with the instrument side still probably down slightly or would be down slightly. DGD down mid-single digits and ACG up mid-single digits towards the high end, that's what we've embedded in our guidance.\\nSo all in all, three of those actually performing better than where we were in Q3.\"}, {\"speaker\": \"Catherine Ramsey\", \"content\": \"Perfect. And then maybe going back to small molecule, Nice to see the improvement there. What was just small molecule performance excluding China? I know you said Europe grew, but just curious to get more color on what you're seeing elsewhere?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nI think what we're seeing is Europe was a standout and small molecule, a lot of activity there, but probably stable across the different markets on us. And what we did see from the small molecule side, we did see pretty good growth in services that as well as has had that number. But I think overall, Europe ahead but everywhere else stable.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes.\\nAnd so we were down mid-single digits. And as Padraig said, if you took China out, we were down low single digits everywhere else.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question will come from the of Joshua Waldman with Cleveland Research.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"A couple for you. Padraig or Bob, maybe first a follow-up. On your assumption for no budget flushing impact on pharma instrumentation, is that just a function of the timing of your quarter relative to calendar year-end buying from these customers? Or are there other things you're seeing that are leaving you on the sidelines as it relates to end of year pharma spending?\\nAnd then a related question, was curious any high-level thoughts you had on '25 based on planning conversations you're having with pharma accounts? Are you thinking next year should be a return to normal growth type year in pharma instrument budgets as budgets are reset? Or is it more of a gradual recovery or return to normal for a couple of year period? Any feedback you're getting from accounts on that?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. I'll take the first one and maybe hand off to Bob for the second one.\\nI think it's a year ago when we were -- people were talking about budget flushes. We didn't expect it, and we didn't see it. We saw a little bit, but not much. We're expecting the same this time, of course, our year-end at the end of October.\\nSo if we do see any activity, we'll be in Q1 '25.\\nWhy do we see this is? Because we're very close to our customers. We know exactly when, where the funnel is where the deals are and we're install base.\\nWe have a lot of installed base information.\\nSo we're not expecting it anything substantial at the end of the year. But what we are seeing is a lot more conversations about next year, a slow, steady recovery and we're hearing that across the board. I don't know if you want to take the second question, Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Josh, on Padraig was saying, it's probably too early to say. But what I our current indication is that it's not going to snap back November 1 to be back to normal. I do think that you'll continue to see a recovery throughout FY '25. And get back to that long-term growth rate sometime in '25. That's the way we kind of think about it. But I don't think it's another 2- to 3-year estimate either based on our conversation with customers right now.\\nSo it's probably in between.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Got it.\\nOkay. And then just had a follow-up on ACG. I was curious if you could provide a bit more context on the dynamics you're seeing there, especially interested in what you're seeing from an RFP and win rate dynamic in the contracted business. And then you mentioned, I think, in the slide decks benefiting from mix. I was wondering if you could flesh that out a bit.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes, I'll take the first part of that question and hand it over to Angelica. Extremely pleased with ACG's performance, and that's years of investment in a broad product offerings in key markets that are really being received customers in this environment where they want to get more productivity out of their systems. They want to use their assets in different ways. And we've seen the flow through to our results in spite of the CapEx challenges all year.\\nSo the business performs extremely well and the margins are extremely good.\\nSo I'll ask Angelica to provide more color on the contract business. But I think what's really interesting is our enterprise service business as well. Angelica?\"}, {\"speaker\": \"Angelica Riemann\", \"content\": \"Yes.\\nSo to really dive in on the contracts, right, it's nearly 70% of our business in Q3, and it's continuing to grow double digits.\\nAs we continue to see that strong demand in our enterprise service offerings, which are in the mid-teens, it's really about being there to help customers optimize their lab operations, improve their productivity and our offers really facilitate our customers improving the lab operations, the efficiencies and their waste reduction.\\nSo we're continuing to see some very strong and sticky behavior within our contract franchise.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And Josh, just on the comment on mix is when we have business on contract, that generally is good for us and good for our customers as well.\"}, {\"speaker\": \"Operator\", \"content\": \"Our final question will come from the line of Doug Schenkel with Wolfe Research.\"}, {\"speaker\": \"Douglas Schenkel\", \"content\": \"I know it's late in the call. That being said, I got three lightning round questions which I'm going to rattle through and then listen to the answers.\\nThe first is on MAP. Recurring revenue growth was up mid-single digits in the quarter. It seems like instruments have to be down around 20% more base numbers you reported in the 10-Q and Q3 of last year. Bob, I think you said in response to Matt Sykes question, it was down low double digits. What are we missing? It's just not trying to be too picky here, but it just seems important in the context of assessing trends and what way to put on your book-to-bill commentary? So that's the first question.\\nThe second is on China stimulus. Any change in dynamics regarding stalling either in terms of conversions or even cancellations. There's some skeletal that there's been some recent changes as the shape of stimulus becomes a bit more clear. And then the third question is on 2025.\\nIf you exit 2024 with flat or growth in Q4 that would obviously  be positive trend relative to what we've seen over the last few quarters. That said, it would seem like if you draw a straight line that you'd be on track to exit 2025 at around, call it, 5%, maybe 6% growth rather than growing single digits for the year.\\nSo I think you need a fundamental improvement in overall market conditions and/or a real impact from China stimulus to get to mid-singles for the year. I just want to see if any of my logic is flawed there.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"That's certainly a light and round dog, but we'll try and we'll answer it.\\nI think, Bob, you can take the for as 1 I'll take China.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. The comment that I had on instruments was specifically related to LSAG instruments, and they were down low double digits. Consumables was up mid-single digits for the total being down minus 7%.\\nSo that is -- we do have some instrumentation in DGG as well that was down, roughly the same as where LSAG was.\\nSo down 20 is way too negative. I'll turn it over to Padraig for the second 1 and then I can jump back for the last.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Look, I think we're very close to our China team and the local team has seen an increased activity. We're seeing that improve from last quarter. And for clarity, of course, not building any benefit from the stainless into our Q4 guide. But what we're seeing is we're seeing in early days, we're hearing that the stimulus is broader in terms of its reach over a 3-year period. Having said that, we are hearing the performance tranche will likely be focused on academic and government accounts. But again, it's early days.\\nAs it trickles down through provinces as the mechanism of the funding goes, we'll be sure to update as we know that.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And I think just the last one real quick. It's too early. We're not going to get into what we're looking at for FY '25 other than to say that we expect improvement throughout the year.\"}, {\"speaker\": \"Operator\", \"content\": \"And I'll now turn the call back over to Parmeet Ahuja for any closing remarks.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Regina, and thanks, everyone, for joining the call today. With that, we would like to end the call. Have a good rest of the day, everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today's call. Thank you for joining.\\nYou may now disconnect.\"}]"


