# call

companyname: Agilent Technologies Inc.
symbol: A
date: 2021-05-26
year: 2021
quarter: Q2
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon, and welcome to the Agilent Technologies Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] And now I'd like to introduce you to the host for today's conference, Ruben DiRado, Director of Investor Relations. Please go ahead, sir.\"}, {\"speaker\": \"Ruben DiRado\", \"content\": \"Thank you, [Gabriel], and welcome, everyone, to Agilent's second quarter conference call for fiscal year 2021. With me are Mike McMullen, Agilent\\u2019s President and CEO; and Bob McMahon, Agilent\\u2019s Senior Vice President and CFO.\\nJoining in the Q&A after Bob and Mike\\u2019s comments will be Jacob Thaysen, President of Agilent\\u2019s Life Science and Applied Markets Group; Sam Raha, President of Agilent\\u2019s Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news release, investor presentation, and information to supplement today\\u2019s discussion, along with a recording of this webcast, are made available on our website at www.investor.agilent.com. Today\\u2019s comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency, and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of April 30.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. And now, I\\u2019d like to turn the call over to Mike. Mike?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Ruben, and thanks to everyone for joining our call today.\\nBefore I get into the quarterly details, I want to start by recognizing our Agilent India team. Despite the challenging COVID-19 situation, our India team is working closely with our customers to do what we can to help in this time of extreme need.\\nIn addition, our Agilent India customer support, finance, and IT teams have worked tirelessly to help us close out the second quarter and keep us moving forward. I could not be more proud of how the team has worked together in true \\u2018One Agilent\\u2019 fashion.\\nOur thoughts go out to the entire Agilent India team and their families during this difficult time. In Q2, the strong momentum in our business continues against the backdrop of a recovering market. The Agilent team delivered another outstanding quarter exceeding our expectations. Both revenue and earnings are up sharply versus a solid Q2 last year, when revenues and earnings per share were relatively flat.\\nOur growth is broad-based across all business groups, markets, and geographies.\\nWe also expanded margins, driving faster earnings per share growth. Revenues for the quarter are $1.525 billion. This is up 23% on a reported basis and up 19% core. COVID-19 related revenues accounted for roughly 2% of overall revenues as expected and contributed about a point to our overall growth.\\nOur revenue growth is not a one quarter or easy compare story, but one of sustained above market growth.\\nFor example, our Q2 revenues are up more than 17% core from two years ago. Q2 operating margins are 23.9%. This is up 150 basis points. EPS of $0.97 is up 37% year-over-year. Late in the quarter, we also welcomed the Resolution Bioscience team to Agilent, continuing our investments in high-growth markets and bringing outstanding talent into Agilent. Like our recent acquisitions in cell analysis, Resolution Bioscience is an example of our build and buy growth strategy in action. The Agilent story remains the same. It is a story of one team outpacing the market to deliver strong, broad based growth in an environment of a continuing market recovery.\\nMoving on to our end-market highlights, we grew strongly in all markets.\\nOur growth is led by 29% growth in pharma and 22% in food.\\nWe are seeing improving growth in the chemical and energy market with 14% growth.\\nWe also posted low teens growth in diagnostics and over 20% growth in academia and government.\\nLastly, environmental and forensics grew 8%. Bob will provide more end-market detail later in his comments. Geographically, the Americas led the way with 27% growth. Strength in China, Europe and the rest of Asia continues with all growing in the mid-teens. The 13% growth in China is on top of 4% growth last year when the business started to recover from the pandemic.\\nAs we look at our performance by business group, the Life Sciences and Applied Markets Group generated revenue of $674 million during the quarter. LSAG is up 28% on a reported basis and up 25% core, off a 7% decline last year. LSAG\\u2019s growth is broad-based, across all end-markets and geographies.\\nOur focus and investments in fast growing end markets continues to pay off. The LSAG pharma business is very strong, growing 41% with strength in both biopharma and small molecule. From a product perspective, we saw strength in liquid chromatography and LCMS along with continued growth in cell analysis.\\nDuring the quarter, cell analysis grew 34%, with our BioTek business growing close to 40%.\\nDuring the quarter, the LSAG team also contributed to our long-term company-wide focus on sustainability in advancing important ESG initiatives. LSAG announced several new products that have earned the highly respected Accountability, Consistency, and Transparency, ACT Label from My Green Lab. My Green Lab is a non-profit organization dedicated to improving the sustainability of scientific research. LSAG products also received two Scientists' Choice Awards announced at the SelectScience Virtual Analytical Summit. In our cell analysis business during the quarter, we launched our Cytation 10 Confocal Imaging Reader, a multi-functional automated system focused on research labs and core facilities looking for increased productivity. This product builds on the BioTek cell imaging leadership with the Cytation multi-mode reader and expands our reach in this strategic business.\\nWhile still early, customer feedback has been extremely positive.\\nWe are also very pleased with the progress and trajectory of our cell analysis business overall and see a very positive future for this space. The Agilent CrossLab Group posted revenues of $536 million. This is up a reported 19% and up 15% on a core basis versus a 1% increase last year. ACG\\u2019s growth is driven by demand for consumables and services across the portfolio as lab activity continues to increase for our customers. This is leading to more on-demand services and parts consumption. Revenues from our contract business continue to drive strong growth due to the high level of contract renewals seen in the previous quarter.\\nOur strong instrument placements and the increasing installed base will benefit the ACG business going forward. At the same time, our digital investments continue to pay off with continued strong customer uptake in consumables and our digitally enabled service offerings.\\nOur LSAG and ACG business come together in the analytical lab. This is where we believe we are well-positioned to continue driving above market growth as we build on our market leading portfolio, strong service organization, and outstanding customer service.\\nFor the Diagnostics and Genomics Group, revenues were $315 million, up 20% reported and up 16% core versus a 5% increase last year. Growth is broad-based, led by our NASD oligo and genomics businesses. Demand for our NASD offerings remains strong and our capacity expansion plans for our high-growth NASD business remain on-track.\\nWe\\u2019re very pleased with our acquisition of Resolution Bioscience during the quarter.\\nWith their liquid biopsy technology, Resolution Bioscience is a key player in a very exciting area of cancer diagnostics.\\nWe are very glad to have them on the Agilent team. I\\u2019m confident that as time goes on, you will be hearing more and more from us on this business and its contributions. I would now like to recap the second quarter and take a look forward. The strong momentum in our business continues. This is being driven by our relentless customer focus, the strength of our portfolio and the execution capability of the One Agilent team.\\nOur build and buy growth strategy is delivering, as intended, with above-market growth.\\nOver the last year, I have often said that Agilent is focused on coming out of the pandemic even stronger as a company. I believe you\\u2019re seeing the impact of this approach in our current results.\\nAs we look ahead, we do so with a sense of both optimism and confidence.\\nWe are optimistic because of the continued market recovery and the strength of our portfolio.\\nWe are confident because we have the right team, customer focused, operationally excellent and driven to win.\\nAs a result, we are once again raising our full-year revenue and earnings guidance. Bob will share more details, but we are expecting a continuation of our excellent top line growth.\\nWe also expect to convert this strong top line into excellent earnings growth and cash generation.\\nDuring our investor event in December, we discussed our shareholder value creation model and our goals for increasing long-term growth and expanding margins. Six months into fiscal 2021, we are well on our way to achieving those objectives.\\nOur build and buy growth strategy is delivering. The One Agilent team continues to demonstrate its execution prowess and strong drive to win. We\\u2019ve raised the bar on customer service and continue to exceed customer expectations in providing industry-leading products and services.\\nWhile we have yet to fully emerge from the global pandemic, we are looking forward to the future with both optimism and confidence. Thank you for being on the call today and I look forward to your questions. I will now hand the call off to Bob. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thanks Mike and good afternoon everyone. In my remarks today, I\\u2019ll provide some additional details on Q2 revenue and take you through the income statement and some other key financial metrics. I\\u2019ll then finish up with our updated outlook for 2021 and the third quarter. Unless otherwise noted, my remarks will focus on non-GAAP results. Revenue for the second quarter was $1.525 billion, reflecting reported growth of 23%. Core revenue growth was 19%, while currency contributed just under 4 points of growth.\\nWe are very pleased with our second quarter results as we saw strong, broad based growth with all three business groups posting mid-teens growth or higher, and all end markets growing strongly. From an end-market perspective, our focus on fast growing markets is paying off. Pharma, our largest market, again led the way, delivering 29% growth. This is on top of growing 5% last year. Growth was led by cell analysis, LC, and Mass Spec. These tools are delivering critical capabilities to our Bio-Pharma customers as they continue to make investments to develop new therapies and vaccines.\\nOur biopharma business grew roughly 40% and represented over 35% of our pharma business in the quarter.\\nOur small molecule segment also has momentum, growing in the mid-20s in the quarter. Overall, we are well-positioned within pharma and expect the pharma market to continue being the strongest end-market as we enter the second half of the year. The food market continued its strong performance, growing 22%. We experienced strong growth across all regions and segments as we continue to see global investments across the entire food supply-chain. We were very pleased to see the non-COVID diagnostics businesses continue to improve throughout the quarter growing 13% as routine doctor visits returned closer to pre-pandemic levels. We posted a very strong month in the diagnostics and clinical market as we came to anniversary the weak April we experienced in our large markets at the onset of the pandemic last year. And we exited the quarter with testing volumes at a run rate slightly higher than pre-pandemic levels. The chemical and energy end-market continues to recover as we grew 14% off a decline of 10% last year.\\nOur results were primarily driven by continued strength in the chemicals and materials markets. And in a positive sign, our order growth rates were ahead of revenues and finished the quarter strong, leading us to believe this trend will continue.\\nWe also saw a nice recovery in the academia and government market as non-COVID-related labs resume operations in a strong funding environment.\\nWith the increase in activity, our business grew 21% against the weakest comparison of the year. We would expect the academia and government market to continue to recover throughout the rest of the year.\\nLastly, the environmental and forensics market saw high single-digit growth driven by the Americas, services and consumables, and atomic spectroscopy. On a geographic basis, all regions grew, led by the Americas at 27%. The pharma and academia and government markets in Americas grew in the low 30% range and all markets grew at least 20%. Europe experienced 16% growth led by food, academia, and government, and C&E. Those three markets all grew more than 20%. And as Mike noted, China grew 13% after growing 4% last year. This was driven by pharma growth in the high 30s.\\nOur growth in orders outpaced revenue growth by mid-single digits during the quarter.\\nNow turning to the rest of the P&L, second quarter gross margin was 55.4%, flat year-on-year despite a headwind of more than 30 basis points from currency.\\nOur operating margin for the second quarter came in at 23.9%. Driven by volume, this is up a solid 150 basis points from last year even as we saw increased spending as activity ramped and we invest in the future. Strong top line growth coupled with our operating leverage helped deliver EPS of $0.97, up 37% versus last year.\\nOur tax rate was 14.75% and share count was 307 million shares.\\nNow, on to cash flow and the balance sheet.\\nOur performance translated into very strong cash flows. We delivered $472 million in operating cash flow during the quarter, up more than 50% from last year. This strong cash flow has continued to help drive our balanced capital deployment strategy.\\nDuring the quarter, we retuned $254 million to our shareholders, paying out $59 million in dividends, and repurchasing 1.55 million shares for $195 million. And as Mike mentioned, we also continue to strategically invest in the business. We spent a net of $547 million to purchase Resolution Bioscience and invested $31 million in capital expenditures. Year to-date, we\\u2019ve returned $657 million to shareholders in the form of dividends and share repurchases, while re-investing in the business by spending $619 million on M&A and capital expenditures. We ended the quarter with a strong balance sheet, which enables us to enjoy financial flexibility going forward.\\nDuring the quarter, we raised $850 million in long term debt at very favorable terms, redeemed $300 million that was maturing next year and reduced our ongoing interest expense. We ended the quarter with $1.4 billion in cash, $2.9 billion in outstanding debt and a net leverage ratio of 1X.\\nNow, turning to the outlook for the full-year and the third quarter, we see great opportunity to build on our strong first half results.\\nLooking forward, while the pandemic is still with us, we continue to see recovery in our end-markets and have solid momentum in all our businesses.\\nAs a result, we\\u2019re again increasing our full-year projections for both revenue and earnings per share. This reflects our strong Q2 results and increasing expectations for the second half of the year.\\nWe are also incorporating the Resolution Bioscience into our new guidance.\\nFor revenue, we are increasing our full-year to a range of $6.15 billion to $6.21 billion, up nearly $320 million at the midpoint and representing reported growth of 15% to 16% and core growth of 12% to 13%. Included is roughly 3 points of currency and about a half-point attributable to M&A. This increased outlook also reflects continued growth in our end-markets. We see sustained momentum in the second half of the year in the pharma, food, and environmental and forensic markets. End markets that we expect will continue to recover in the second half include diagnostics and clinical, academic and government, and C&E.\\nAs Mike mentioned during our investor event in December, we provided a long-range plan of annual margin expansion in the range of 50 basis points to 100 basis points.\\nOur updated guidance for the year exceeds the top end of that range.\\nIn addition, we are increasing our fiscal 2021 non-GAAP EPS to a range of $4.09 to $4.14 per share. This is growth of 25% to 26% for the year.\\nNow for the third fiscal quarter, we are expecting revenue to range from $1.51 million to $1.54 billion, representing reported growth of 20% to 22% and core growth of 15% to 17.5%. And we expect third quarter non-GAAP EPS to be in the range of $0.97 to $0.99 per share with growth of 24% to 27%.\\nNow, before opening the call for questions, I want to say, we\\u2019re extremely pleased with how we\\u2019ve started the first half of the year. We believe our strategies and our execution are driving the strong results we\\u2019ve achieved and put us in a great position to continue to drive strong results for the remainder of the year. With that, Ruben back to you for Q&A.\"}, {\"speaker\": \"Ruben DiRado\", \"content\": \"Thanks Bob. Gabriel, if you could please provide instruction for the Q&A.\"}, {\"speaker\": \"Operator\", \"content\": \"Absolutely. [Operator Instructions] Our first question will come from Vijay Kumar of Evercore ISI. Please go ahead.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hey guys, thanks for taking my question and congrats on a pretty impressive [half year]. I did want to start on pharma BioTek. It accelerated sequentially the number, it's really impressive, 35 on large molecule plus 28 in small molecule, so maybe talk about what is driving this maybe at a high level, if you can talk about what is your end-market growing? Is this a market acceleration? Are you guys gaining share and how much of this is incremental contribution for NASD? I think the prior assumption was $200 million in the fiscal coming in about?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, there was a lot to unpack there Vijay. I'll take the congratulations Vijay and I'll pass the [indiscernible] to Bob. No. Yes, we're extremely pleased with the results that we've seen in the pharma business really across all three of our end business groups.\\nI think it shows the investments in the great execution by the team that has been paying off over the last several years and I think what you're seeing is not only a market recovery for sure, but I think the relevance of our portfolio across all three of our business groups in that business, and certainly we are benefiting from the investments to expand capacity and new therapeutics across various end markets. But I also think the number of new products that we have launched in this space are really seeing a nice uptake. And on NASD to your point, I mean, we saw nice growth in NASD was in the high 30s and we are still on track for that $200 million that you talked about. And feel very good about that business going forward.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And my perspective, I think we're capturing share in a faster growing market.\\nSo, I think there is a combination of both above expectations on market growth, but we're also getting more than our fair share of that market.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That's helpful comments there Mike. One question on perhaps a more medium-term question and I'm not asking for guidance, but I think the question on the Group has been, the comps are going to be pretty hard for some of these companies. Certainly COVID diagnostics has been [Technical Difficulty] I think you guys are one of the cleanest stories here in the group. But again, if I'm looking at this guide of high teens, perhaps talk about maybe broad strokes what is sustainable, it looks like some of these trends, Biopharma share gains etcetera should be sustainable? Maybe some product line on that, how to think about the plus and the minuses?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey Bob, maybe if I can start with some comments? So, I think if there has been a positive on COVID, I think it's actually stimulating to some increased levels of investments in some of these end markets.\\nSo, we think that that some of these growth rates we've seen from the markets perspective are sustainable for a while. And we mentioned earlier, our story is a core business story. We've been very pleased that our team has been able to participate and have a role here to play in the fight against COVID-19, but our story really is all about what we're doing in terms of driving the core business.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Understood. Thanks guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question will come from Tycho Peterson of JPMorgan. Please go ahead.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hey, good afternoon. I wanted to actually start with the M&A question just on resolution. Their obviously a CLIA lab, but have a distributed model as well. Can you just talk about those two businesses? I know the overall revenue contribution this year is like $50 million, $55 million, but how do you think about leveraging both the CLIA lab and the distributed model across your portfolio going forward?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Tycho thanks for the question and good afternoon. I'll make a few comments here and I'll pass it over to Sam.\\nSo, my comments are going to be, we're very excited about having Resolution Bioscience team as part of Agilent. And Sam, I think we were even becoming even more excited now that we've had even a deeper look about what's been going on with the company and I think you've just come back from a visit from with the team.\\nSo you've had a chance of our \\u2013 because maybe perhaps your first face to face business trip in well over a year, but with that lead in, why don't I pass over to you and answer Tycho's question.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Thanks Mike. Thanks for the question, Tycho. Yes, it was very exciting to finally get out and see real human beings again and very exciting to see the enthusiasm of the team there. And first-hand what is now part of our company. And Tycho the specific answer is, both parts are important. The primary business today that we have in Resolution Bio is related to pharma services, very much akin to what we do in our traditional CDx business here at Agilent, it's working with pharma to better understand biomarkers and then to develop companion diagnostics, which will [ultimately block] the market. There is some testing that's done in the CLIA lab as you mentioned, there is a relationship with LabCorp, and that is something that we expect over time to ramp, both because of the testing for LabCorp and also testing that will result from actual companion diagnostics that are approved as part of the former work that we're doing, but both are important, but the substantial part of our revenue today in this year, and even in the coming 18 months, 24 months will continue to be some pharma services revenue.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. That's the focus.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. And then on the quarter \\u2013 two quick follow-ups, Mike, food up 22%. I know you talked about all regions and segments strong and sustained momentum. But we don't think about that market being 20% plus growth sustainably.\\nSo, can you just talk about whether there is stockpiling? How much of this is China coming out of the overhaul there? And then totally unrelated question on ACG operating margins, they were down about 90 bps. I'm just curious is that reinvestment there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure.\\nYou're close study on the numbers, I can see it Tycho, so thanks for two good questions.\\nSo, while we're super pleased with the overall growth rate of food, it's been a story here for a number of quarters. We don't expect it to be a 20% growth rate in 2022 and years beyond, but we are expecting continued strength throughout this year, probably not at that same level. And Bob, I think it's really a \\u2013 clinically China is part of that story, but in fact, when we look across the globe, it's been a \\u2013 we also saw strength in other geographies as well. And I don't have exact...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, that's right.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Geographic split, but it was a broad-based kind of story, with China leading the way, being the key part but not the only part of the story.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, absolutely, Tycho to Mike's point I think we see this kind of reverting back over time, but certainly what we're seeing is increased investment and increased testing here really around the globe. And China was actually slightly lower than the overall core business, you saw a strong recovery both in Americas and Europe and the Rest of Asia. And I think we're seeing some halo effect of COVID testing kind of a surveillance testing in various aspects of China or of food testing.\\nAnd so, I think we feel very good about the business there. And then I think on your question...\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob I just want to add one thing.\\nAdditional thought in the Americas, historically that's been a lower growth rate for us in food. But with the inclusion of the cannabis testing market we're getting a bit of a bump there as well.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, thanks. Thanks Mike. And I think what you're seeing in the ACG business Tycho, is a combination of two things. One is some reinvestment, we continue to double down in areas like the digital investments to continue to increase our capabilities there and then you did see some increased activity, and so as we actually see this is a good thing.\\nOur sales and field service engineers are traveling to more customers.\\nAnd so, we're seeing some increases there associated with just increased activity, which we saw on the on-demand side, but it also comes with some incremental cost. But long-term, we feel very good about our ACG business and continued ability to scale that business going forward.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay, thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"And your next question will come from Doug Schenkel with Cowen. Please go ahead.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Good afternoon, guys. Thanks for taking my questions. I'm just doing some math here, and Bob I'm trying to make us a little more sense of your guidance. On one hand, you guided fiscal Q3 revenue expectations well above consensus.\\nOn the other hand your guidance assumes essentially that revenue is going to move sideways, maybe even move I think down sequentially in a quarter, which I think is normally a little bit better relative to fiscal Q2, if for no other reason than in China, one of your bigger markets, you don't have a Lunar New Year in that period. And then we're kind of back into the Q4 implied number, you know there is I think something like 4% sequential growth and a pretty big implied moderation in year-over-year growth in the fourth quarter relative to the rest of the year even accounting for comps.\\nSo, there\\u2019s all that, you've got more M&A in there. And then, I listened to what you're seeing in your prepared remarks, and look at the numbers and it sure seems like you're crushing it with no slowdown.\\nSo, am I missing anything here?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No, I think you are reading the numbers very well, Doug. And what I would say is, certainly, we feel very good about Q3 and that's where we have most of our visibility. We still are in a pandemic, but we feel good about the recovery and our \\u2013 I think still a little prudent in terms of our forecast going forward. We want to see how the continued rollout of the vaccines are around the world and I think there isn't anything that in the near term that we see is going to stop us from our momentum.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay, all right, that's helpful. And then again doing math on the fly, so hopefully, I'm not messing up anything.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"But your math on the fly is pretty good Doug.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"I am doing okay so far. Thank you.\\nSo, it seems like you're assuming operating investment growth 15% year-over-year in the second half or something like that, just backing into that from the top and bottom line. And that seems to be a couple of points higher than the revenue growth rate you're guiding to for the second half.\\nSo, assuming I'm still doing this right, could you just talk about what some of the key areas of investment focus are? It seems like you're planning on maybe opportunistically pulling forward some investment even separate from the M&A? And then building off of that, if you are in a position to drive revenue upside relative to guidance, do you think it's possible we could see flow through to the operating line and the bottom line along the lines of what we saw in the second \\u2013 in the first half of the year?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, the short answer on that, let me take the question around investment. The biggest investment that we have going forward is really the addition of the Resolution Bioscience business and continuing to invest behind the capabilities there both from an R&D and development perspective, as well as the channel.\\nAnd so that that does have an outsized investment relative to the second half versus the first half where we didn't really have that in here, but we are continuing to invest in demand driving activities.\\nSome of those things like we just talked about an ACG around the digital aspects, but also building capabilities to continue the momentum going forward, whether it'd be marketing programs and other activities within our R&D pipeline. And I think the last question that you had is, if we do have upside, will it drive the same kind of level of incrementals? And I would say the answer is yes.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay, super helpful. Thanks guys.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, thanks Doug. Appreciate the comments.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question will come from Dan Leonard of Wells Fargo. Please go ahead.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Thank you.\\nSo first off, on the core analytical business, do you think you've seen any benefits from on-shoring through the order book or the revenue line as of yet?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Dan. Hey, thanks for the question. Not yet. We've talked about it with you in prior quarters and we still think it's a area of interest of our customers in terms of future investment, but nothing material yet. This is the core kind of reinvestment happening in the chemical and materials side of C&E and as you heard in our prepared remarks, the order book actually was stronger than the revenue book.\\nSo, pointing to a recovery of this segment which, you know in passive and fairly cautious about in terms of calling it, but the trends are positive now.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. And Mike, I want to ask a follow-up on Resolution Bio, you kind of assume this a build the future positive updates to come there. Can you talk about your [indiscernible] to invest in that business? And the reason I ask is, it does seem like a driver of success in that space is a willingness to absorb losses for long periods of time.\\nSo, can you talk about how you plan to invest in the business and how that fits your overall operating model? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah, I'm not sure I accept the premise that do you need to have huge operating losses to have the business depend on the type of play you're trying to make here. And Bob and Sam you guys, keep me honest here as well, but pharma services business model we have where we can leverage a lot of investments that we've already made around our IHC base CDx business, we're not in the same position increment there perhaps maybe start up some of it brand new entering the space.\\nSo, we have something to build from.\\nSo, I think our expense structure may look perhaps look different than others in this space. We do plan to invest aggressively on the R&D side as well, building out additional commercial relationships. But we think our plan has been to absorb within the overall operating model.\\nSo, there wasn't any asterisk when we put our long-term goals out and said well without Res Bio, so I think we believe that we can manage within our overall operating model and I think given where we're starting from, which is we're not starting from zero in this business.\\nWe have something to build from our acquisition, a number of years ago from Darko.\\nI think that puts us in a different perhaps a different place. Anything else add to that...\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"I appreciate the color.\\nOkay, thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Next question comes from Derik de Bruin of Bank of America. Please go ahead.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hi, sorry, had the mute on, sorry about that.\\nSo, can you talk a little bit more about the LCMS growth and the service going on there. And a couple of questions on that one.\\nFirst of all, I've asked this question about are you seeing an accelerated replacement cycle in that market or any of your markets. Basically, are people feeling good about budgets.\\nYou're spending a little bit more than they had so that general question. And I guess one of your competitors has been talking about new LC platforms, particularly targeting the biologics area. I'm just sort of wondering what your sort of competitive response and product offerings are that will going against that? And then I've got one follow-up.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"It's maybe there are competitive response. But I'm going to pass over to Jacob, because we're in the conference room here and I'm looking at him on the screen and he is finally loved to be able to answer your question. Derik.\\nSo, I'm going to pass it over to you, Jacob.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Thanks Mike. And, Derik this is great question.\\nSo thanks for that.\\nFirst of all the \\u2013 what the growth you're seeing both in our LC and LC/MS space is certainly not a coincidence, it is something we have invested in for quite some years.\\nIf you really think about our mass spec portfolio, we have really invested and innovated around the lines of robust reliable on the team and we really see our customers especially on our single and triple quads have really taken off here in the last period of time.\\nI think even before in the food space, where we see a lot of upgrades into triple quads, but clearly in the pharma and biopharma space, we have doubled and tripled down on that, really, we can see that there's great opportunities there.\\nSo, when you move from small molecule things, the last molecule, we are also seeing that the customer base is changing and the customers or the users of the mass spec is changing and hence, they are looking for a different experience and we have invested quite a lot into our software platforms.\\nFirst of all, to live up to the expectation from a regulatory perspective, but also from a usability.\\nSo that's a big part of our success in what we see and I truly believe there is a lot more to come in that area.\\nIf you look at the LC, investing into bio is a part of the game.\\nWe have had out at bio LC high end high LC for quite a while now and it is doing very well. We can compete about against everyone in this space and you will see us come out \\u2013 continuously come out with new products in that space.\\nSo, we feel very good where we are, and we'll continue to invest to continue to keep tech market standards very important market for us.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Derik, if I could just add on to that, I think it's fair to say Jacob, we're seeing both market expansion but also some acceleration of replacement market as well, particularly in pharma molecule.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Absolutely.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Great, thanks. And then I'm going to ask you an unfair question, but what the hell. And part of it goes like it is \\u2013 this is like all the tools companies that put up really strong results, they're coming off of easier comps and that's great. But I think that everyone sort of focuses on the next fiscal year and the ability to grow earnings. I just sort of thought, can you sort of generally share any thoughts on sort of earnings growth next year and will it be in the double-digit range? Just your general thoughts right now as people are going to start worrying about the tough comps. Not the COVID tough comps and then other core tough comps.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So Bob and I haven't actually compared notes on this. I'll start with a few comments. And then I think we'll probably end been in the line. That said, potential U.S. tax reformer side, our model has been to be able to deliver double-digit EPS growth and I'm not seeing a need to deviate from that in 2022.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Agreed.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Okay. I appreciate it. Have a great day.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question will come from Matt Sykes of Goldman Sachs. Please go ahead.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Hey, thanks for taking my questions.\\nJust maybe in the category of too early, but just look at the growth rate that you guys have been showing in cell analysis. I'm just wondering if you can kind of give us an idea of contribution from that, just given \\u2013 it's been integrated and growing at a pretty good clip. And then also, just sort of what you're seeing in terms of customer is largely new customers deepening relationships with existing customers.\\nJust put more color on cell analysis? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Matt, I think Bob kind of give a view on the overall size of the business and maybe pass it to you Jacob for some more insight on the customer side.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah, I was going to say, Matt, we're extremely pleased with the performance really across all three of the major business groups within cell analysis really driving strong growth. And we are well on our way to continue to drive accelerated growth in those areas. And I would say the margin profile of that business is above the Agilent average.\\nAnd so, I'll let Jacob actually talk about some of the areas where we continue to invest in new products such as the Cytation C10, but also some of the areas around customer acquisition and what we're doing in the marketplace.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, thanks. It's another great question. And as you can hear we are super excited about the cell analysis business, particularly I'll focus on live cell analysis by immuno-oncology and immunology as a whole. And as Bob has also mentioned, we have made some quite some good investments into that space, particularly in also the imaging space where we have recently come out with the Cytation C10.\\nI think Bob also talked about that, which is a new confocal microscope and what it really does is that it allows we have build it and build it out this way that you can get a relatively good entry level microscope that will compete based on the market and then you can upgrade it and use all the other automation platform and configurations that we already have established in BioTek.\\nSo, it is a really mixed unmatched stat that our customers are really delighted about. And our customer base, of course, we enjoy a very strong installed base from the BioTek acquisition, which we are now leveraging also for [our Seahorse]. But we also see a much stronger push into the biopharma space where some of our businesses have been very exposed to the academia government and we had a very clear focus there has to move in that and that works very well.\\nSo, we are excited where we are but I would say that the main growth comes from the biopharma space, but clearly now with the academia government coming back that of course also across the growth.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Matt, just one other thing to add to what Jacob is saying, I mean this is an area that if you look at over the last several years, we continue to invest both organically and inorganically. And I would say, given our success in the strength in that marketplace and the strength of our portfolio, those are areas where we continue to look to invest further.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great. Thanks for that. That's very helpful. And then just on Diagnostics.\\nYour comment that you exit the quarter is stronger run rate. I'm sure some of that sort of catch-up demand from the COVID period, but just can you talk about the sustainability and your views on diagnostics throughout the rest of the year?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, that's one where we are \\u2013 if we think about the opportunities, we're very, very pleased with kind of the progression of that business recovery throughout the course of the year.\\nIf you recall last year, we actually grew in that business and then saw a strong fall off when the pandemic really hit and we're expecting accelerated growth in Q3, but this is an area where we're watching to say, is there going to be sustained \\u2013 how fast is that sustained recovery going. But all signs right now are very positive from the standpoint of the recovery, not only in our business, but if you look at just the overall testing environment continues to be very positive on non-COVID testing.\\nSo, I think people are getting back into the doctors' for wellness tests, certainly diagnostic tests like cancer diagnostics and so forth, and I think we're seeing the benefit of that going forward. And then couple that with the addition of the Res Bio business and I think we've got a very compelling portfolio of opportunities to provide to our customers going forward.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great, thank you very much.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] Your next question comes from Puneet Souda of SVBL. Please go ahead.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes, hi. Thanks, Mike and Bob. Bob question for you first. What are you baking in for pricing expectations for the year? And I think the bigger question here is, your ability to take pricing in the market in case there is a rise in raw material prices and in-line with the expectations? And then I have a follow-up for Jacob and Sam.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That's a great question, Puneet, and what I would say is, first of all, just a shout out to our OFS team, our supply chain organization, who've just done a fantastic job of being able to manage the increased demands on a increasingly fragile supply chain or logistics, I would say.\\nAnd so they've just done a fantastic job of supporting our customers. And as you say, we are starting to see inflationary pressures in these areas, but I would say, you know our contracts are more long-term in nature and the teams have been able to drive with the volume, as well as continued discussions, good cost controls there at least in the near term. And on pricing, our pricing hasn't changed. We felt that we had modest price built into our plan. That's what we've seen through this first half of the year and that's what we're assuming in the second half of the year. It depends on what group, but overall, we hadn't built any expectation of significant price increase or decreases into our business.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay, that's helpful. And then a quick one for Sam first and then other one for Jacob. Sam, if you could characterize what are your expectations with the pipeline in terms of MRD, beyond therapy management for Resolution Biosciences, and if you could also talk a little bit about the regulatory framework? In past you followed PDL1 pharmDx assays into FDA approvals. How should we think about the new product launches? Are they going to follow a similar path? And then for Jacob briefly, could you update us briefly on the Open Lab efforts and your position in pharma there, obviously with your competitor now being focused again on the \\u2013 very much on the core LC position. I'm wondering if you're seeing any changes in the market and I totally appreciate your 1,100 and 1,200 LCs has done well, but I just want to get a sense of Open Lab. Thank you very much and congrats again on the quarter.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah, thank you for the question on the Resolution Bio, I think \\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"How many questions in there.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Quick response for you.\\nOur primary focus remains therapy selection and that's where the programs that we have contracted and the continued significant interest we're seeing both from our existing pharma partners on the Agilent side, as well as the Resolution clientele that are coming into our pipeline as well.\\nNow the fundamental technology is, we do believe the minimal to more applications including minimum residual disease and monitoring, but once again our primary focus remains therapy selection.\\nNow, in terms of the model, I think you asked about that. It is what we can do before, which is we believe as Agilent, we've got a capability set, which we've used for PDL1 where we work, specifically with pharma partners to work on companion diagnostics meaning to develop register and then commercialize those companion diagnostics as they come to market and are approved, tied to a specific indication specific drugs.\\nSo that is our model and ultimately our vision is to have IVD kitted NGS solutions that are near to patients that are distributable, but of course as you heard even earlier we've got a CLIA lab and there's diagnostic testing that will happen along the way, and that's a little bit different than the PDL1 model that we have today, because that's the nature of NGS based diagnostic testing, but our interest and long-term focus remains an IVD kitted diagnostic test. Jacob, over to you.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah. Thank you and let me just start by saying that Informatics and Open Lab is key to our strategy.\\nSo, though we like to talk about our instrument, it's always connected \\u2013 most of the time connected within a very strong position in Informatics, and we continue to invest in Open Lab, in fact, we believe that is the lab, where we connect all our instruments into an ecosystem in a cloud setup where you can also track your samples and in the end also connect into an e-commerce set up is going to be the future, and with Agilent's broad portfolio we can very quickly, we can very well do this.\\nSo, I'm very excited about that and we continue to invest, in fact we have over the last few months decided to further invest into these areas to further accelerate our presence here.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"That's great. I appreciate you guys taking that extra questions. Thanks guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure not a problem.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question will come from Brandon Couillard of Jefferies. Please go ahead.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks, good afternoon. Bob or Mike in terms of the chemical energy business, could you break out instruments versus aftermarket in the quarter? I suspect it's probably the first quarter in a while that you've seen solid instrument growth.\\nJust wanted to confirm that's the case. And then what's embedded in terms of the updated full-year guide for that end markets specifically?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, I know that the instrument business was strong for us in C&E. I can't remember the actual relative ratios of [indiscernible]. We're looking though our notes here right now to answer your question. And going into the Q3 is probably our easiest compare in C&E. We're still looking for that stack growth to kind of move up bit on us, but Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, I was going to say, Brandon to your point of that [14%] LSAG or the instrument business is slightly higher than that and LSAG was slightly lower than that, but both double-digit growth. And as we think about where we are going forward in terms of the guide for the third quarter and it kind of going forward, our assumption for Q3 is somewhat similar to Q2 in terms of continued recovery of a weak base. It was down 10% again last Q3 and then we started seeing recovery.\\nAnd so I think about it \\u2013 we're thinking about it in roughly the same kind of terms in Q3 that we saw in Q2.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think right now we're taking it quarter-by-quarter, Bob. But I think overall we see this trending being more upside than downside.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That's right.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Got you. And then just one more, it doesn't sound like, based on your prepared remarks today, but to what extent if at all are you seeing any supply constraints, printed circuit boards or other marked materials?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Brandon, I just would echo what Bob mentioned earlier, our office team that is on a spectacular job, so in our remarks you heard we talked about some strong orders, order growth higher in China and C&E, but that was not at all tied to any supply chain constraints.\\nSo, we've been able to get product. We've been able to ship product and listen, it's not easy, but the teams find a way to make it happen.\\nSo, I think Bob is relatively material at all to the quarter and we think it's manageable moving forward as well.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That's right.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Great, thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"And your next question will come from Patrick Donnelly of Citi. Please go ahead.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great, thanks for taking the questions guys. Maybe following-up on Brandon's question on C&E there, can you just talk through what you're seeing in there a bit more? Obviously, the order book growth is encouraging coming in higher than revenue.\\nYou know, was that enough to give you confidence that this won't kind of turn quickly on you? I know you've noted historically it's been a bit hesitant to bake in too much growth there. I mean this is among the most positive [indiscernible] I\\u2019ve heard from you guys over the past couple of years.\\nSo, can you just talk through that and then I guess was that segment the biggest piece [recovering the back half] guidance raise doing a bit more comfortable about the sustainability there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Thanks, Patrick. And I'm glad you remember my earlier comments, because I always said once the orders here in my book I'll start to talk a little bit differently about it and that's why you're getting more positive tone. I would say that we're still in the early phases of the transition. We feel really good about where things are on the chemical materials side of C&E. I would say we're starting to see quoting and some initial order activity on the refining side still relatively light compared to the Materials and Chemicals segments.\\nAs you know, the larger part of that business for us, but yes we are \\u2013 I am much more positive.\\nI think it's probably the first time in a long time that we've had this kind of view on the trends we're seeing in the C&E space. And yes, we had in prior quarters seamless PMIs, but I wanted to see in the order book and I started to see it this quarter.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And I would say, Patrick to build on what Mike is saying, we still have \\u2013 we're taking it as he said, kind of, one quarter at a time. We've built in some of that into Q3 and I would still say there is a bias to the upside in Q4.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay, that's helpful. And then just maybe on the M&A landscape. Bob, you mentioned the balance sheet helped, obviously we saw the Resolution deal you guys touched on that a few times. Should we expect more deals of that nature? Are you still on the hunt for something a bit larger? Mike, maybe if you could talk a little bit about the pipeline activity and the segments you're focused on and then Bob, if you want to talk about where the leverage could go, that will certainly be appreciated.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo I think our view on M&A remains the same. We see that as a key part of our \\u2013 we've been terming our build and buy growth strategy. We've signaled that we would be willing to do deals in the multiples of BioTek, which to date is our largest deal. And that's still an area of interest for us. We like to, kind of a growth accretive deals that you're seeing. We're bringing in great new teams like Res Bio team, like the BioTek, ACEA, so we are maintaining our focus on higher growth segments. We like the areas we're going, we've been gone after. We like cell analysis, we like the genomics look at biopsy space, I think Informatics others.\\nWe have a number of areas that we were continuing to look for growth opportunities. Again, we don't have to do deals to make our model work. But if we can find great new teams and great businesses to bring into the company we're quite willing to do that.\\nYou just have to remain disciplined in terms of valuation expectations. There's a lot of frothiness in certain segments of the market, but we're going to stay where we've been successful in the private space, where company founders often looked at and say listen, this will be a great home for my company my team. We like how you guys run your company, we like your culture, we like to just for in terms of growing the business for the long-term.\\nSo, we're going to stick to our model. It\\u2019s been working for us Bob and I think we can adjust the question...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Just quickly, we're not going to give a specific target around that other than to say that our intent is to maintain an investment grade and we ended the quarter at, kind of 1 times net leverage and that gives us plenty of flexibility to continue to invest in deals growth accretive deals as Mike just talked about.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. Thanks, Mike and Bob, really appreciate it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You're very welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"And your last question today will come from Dan Brennan of UBS. Please go ahead.\"}, {\"speaker\": \"Unidentified Analyst\", \"content\": \"Hi this is [Nathan] on for Dan.\\nJust a quick question. To what extent has your upgrade cycle been impacted by the pandemic, and now that we're kind of coming out of the pandemic, are you seeing any traction, any acceleration in the upgrade cycle in any of your instruments or end market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I think to answer your question, I think when the pandemic hit, it really slowed down any kind of replacement cycle. Particularly I would say in the C&E side of our business. And as we just commented, we're seeing positive indications that that actually is now turning to different direction.\\nSo, I'd say it's been even in the C&E space that are tied to chromatography spectroscopy platforms.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I would say, Nathan as Mike said, still early days, but all the trends are looking positive.\"}, {\"speaker\": \"Unidentified Analyst\", \"content\": \"Great. And just, if I can switch [pharma], you did mention that you're seeing share gains on top end market grow. Can you just elaborate what is driving share gains for you?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"If you think about our \\u2013 the combination of our LSAG and ACG businesses where we come in the analytical lab, as Jacob mentioned earlier and I haven't had a chance to have [indiscernible] jump into the call yet, but you know they\\u2019ve been working very well together for multiple years. And you're seeing it by bringing innovative solutions to the market that have a differentiated value proposition from the competition. A superior service experience and I think it's \\u2013 we continue to build out our commercial reach as well.\\nSo, I think it's been the combination of portfolio and the workflow focus within that portfolio, building the service capability and then building out further commercial reach.\\nI think it's been a combination of all those factors helping us to do really well in our LSAG and ACG groups, and then obviously we talked earlier about the play in cell analysis, which is a new addition to the company in biopharma, and then our NASD play in Sam's business.\\nI think it's been a combination of all those factors.\\nSo, that's why we keep using the word broad-based growth because you see it in all parts of the businesses.\\nSo, we feel really good about the results from the size we were working on for a while.\"}, {\"speaker\": \"Unidentified Analyst\", \"content\": \"Great, thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"And this concludes today\\u2019s conference call. Thank you everyone for joining us.\\nYou may now disconnect.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2021-08-18
year: 2021
quarter: Q3
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon and welcome to the Agilent Technologies Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] And now I'd like to introduce you to the host for today's conference. [Indiscernible], Vice President of Investor Relations. Sir, please go ahead.\"}, {\"speaker\": \"Ruben DiRador\", \"content\": \"Thank you, Paul. And welcome everyone to Agilent's Third Quarter Conference Call for the Fiscal Year 2021. With me are Mike McMullen, Agilent's president and CEO, and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining the Q&A after Bob and Mike's comments will be Jacob Thaysen. President of Agilent's Life Science and Applied Markets Group; Sam Raha, president of Agilent's Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news release, investor presentation, and information to supplement today's discussion, along with the recording of this webcast is made available on our website at www.investor.agilent.com. Today's comments by Mike and Bob were [Indiscernible] from non-GAAP financial measures.\\nWe 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, excluding the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of July 31.\\nWe will also make forward-looking statements about the financial performance of the Company. These statements are subject to risks and uncertainties and are only valid as of today. The Company assumes no obligation to update them. Please look at the Company's recent SEC filings for a more complete picture of our risks and other factors. And now, I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Barney, and welcome to your first Agilent's earnings call as our new Vice President of Investor Relations. And thanks to everyone for joining our call today.\\nBefore covering our Third Quarter financial results, I want to acknowledge the recent passing of Dr. Tachi Yamada, a giant in our industry, and a former Agilent board member. Tachi was much more than a knowledgeable, deeply involved Agilent board member for nine years.\\nAs many of you on the call already know, Tachi lived a very full life as a doctor, a scientist, as a humanitarian who was driven to help others. I know that the Agilent team is not alone in recognizing that Tachi Yamada will be greatly missed. And we extend our deepest sympathies to Tachi's family.\\nNow, on the Third Quarter Review and our updated outlook for the year. In Q3, the very strong, broad-based momentum in our business continues. The Agilent team delivered another outstanding quarter, exceeding our expectations. Q3 revenue of 1.59 billion is up a reported 26% and is up 21% core. This is against a modest decline of 3% in Q3 of last year.\\nSo, we are well above the Fiscal Year 2019 pre-pandemic levels.\\nIn addition, like other positive signs of continued momentum, orders outpaced revenue during the quarter.\\nOur growth is broad-based across all business groups, markets, and geographies. The combination of strong top-line performance and execution translated to excellent growth and profitability and earnings per share.\\nOur Q3 operating margin is 26%. This is up 230 basis points from last year. EPS is $1.10, up 41% year-over-year. Agilent success continues to be driven by our build and buy growth strategy and execution prowess. We're developing market-leading products and services, investing in fast-growing businesses, while delivering outstanding customer service, and continue to drive profitability. Since the onset of the pandemic, we have taken actions to ensure Agilent emerges even stronger as a Company.\\nWhile we have yet to leave COVID -19 in the rearview mirror, our Q3 results are another indicator our actions are delivering the intended results. Bob will provide more details on end markets and geographies, But I want to briefly highlight our performance in our two largest end markets, Pharma and Chemical & Energy.\\nWe continue to perform extremely well in Pharma, our largest market, growing 27% with strength in both small and large molecule segments.\\nOur large molecule business grew roughly 52% in the quarter and now represents 36% of our overall Pharma revenue, up from the mid-20s, just a few years ago. In chemical energy, our business is recovering faster than expected, expanding 23% in the quarter. This is an acceleration of the momentum we achieved in the first half, and our order funnel continues to strengthen.\\nLooking at our performance by business unit, the Life Science Applied Markets Group generated revenue of 680 million. LSAG is up 22% on a reported basis, this is up 18% core of just a 4% decline last year. LSAG 's growth is broad-based across all end markets.\\nOur performance was led by strength in Pharma, which is up 22%, and chemical energy up 31%. All businesses delivered strong growth led by cell analysis at 38% growth, and our LC and LCMS businesses, which grew 22%.\\nWe continue to strengthen our position in the fast-growing Large Molecule market segment.\\nDuring the quarter, the LSAG team launched 3 InfinityLab Bio - LC Systems at the well-attended InfinityLab LC Virtual Conference in June. These new products further extend our LC leadership position.\\nIn addition, building on our already strong Pharma offerings, we launched new compliance-ready LC/Q - TOF and LC - TOF solutions to our portfolio in the quarter. The Agilent CrossLab Group posted a revenue of 560 million. This is up a reported 21% and up 15% on a core basis. These results are on top of 1% growth last year. The business is benefiting from increased activity in [Indiscernible] labs and instrument connect rates. This led to more contractive services, on-demand services, and consumables consumption across all end markets. All end markets grew mid-teens or higher, with exception of environmental [Indiscernible] which still grew 9%, The pandemic has shown ACG to be our most durable business with ACG growing each quarter since COVID-19 first emerged.\\nOur customer-focused approach and digital investments continue to pay dividends.\\nLooking forward, instrument placements and demand as well, [Indiscernible] strong performance by ACG, as we drive attractive rates and increased costs for lifetime value. The diagnostic genomics group produced revenue of 346 million up 44% reported, and up 37% poor, compared to an 8% decline last year. The growth was broad-based across product lines and regions and was led by our NASD GMP Alago business. The ramp of our facility in Frederick, Colorado continues to go very well. The quarterly results exceeded our expectations, easily, surpassing the $50 million revenue milestone.\\nWhile one quarter does not make a trend, our team has done a tremendous job increasing output in a high-quality manner. This gives us increased confidence in our ability to exceed the $200 million annual run rate in revenue with existing capacity.\\nIn addition, the trained manufacturing line expense is well underway and on schedule.\\nOur Genomics Instrumentation and Consumables businesses rebounded strongly in the quarter, as did our pathology-related businesses.\\nFor the first time in several quarters, we saw diagnostic testing above pre-pandemic levels.\\nWhile we are watching the Delta variant very closely, to date, we have not seen a meaningful negative impact in testing volumes. I also want to highlight our performance in China.\\nWhile still less than 10% of DGG revenue, our China business grew 50% in the quarter.\\nWe continue to see tangible progress in building a stronger China market position. In Q3, we signed our first ever companion diagnostic development services agreement with a China-based BioPharma Company. Earlier this month, we also announced the initiation of in-country manufacturing for our SureSelect product line.\\nWe are very bullish about long-term growth prospects in China for our DGG Product and Services offerings.\\nIn addition, the integration of the Resolution Bioscience team is going well. And we are very pleased to enter and expand our participation in the fast-growing NGS-based cancer diagnostic market. It was a busy quarter at Agilent, so I have a few other achievements I'd like to share with you. Last month we published Agilent's 21st Annual Corporate Social Responsibility report. At a time when some are just starting to look at issues like sustainability and societal impact, this has always been a key part of who we are as a Company. We've been addressing these issues since our founding more than 2 decades ago. I would encourage you to review our report on the Agilent website. We're also very pleased to receive recognition as a great place to work in the U.S. by the Great Place to Work Institute. This resulted from just one more example of us when having a highly engaged and energized team. And as you know, teams with high engagement win in the market.\\nLooking ahead, building on another excellent quarter and the momentum we're seeing, we expect the business to continue to perform well as we close out what we believe will be the outstanding fiscal year 2021.\\nAs a result, we are once again raising our full-year revenue and earnings guidance. Bob (ph) will share more details, but we're expecting a continuation of our excellent top-line growth and earnings generation.\\nWhile the world has yet to fully emerge from a global pandemic, Agilent is well-positioned to deliver excellent results again in the fourth quarter. I remain very proud of the Agilent team's ability to consistently deliver for our customers and shareholders. Thank you for being on the call today, and I look forward to your questions. I will now hand the call off to Bob. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thanks, Mike. And good afternoon, everyone. In my remarks today, I will provide some additional details on Q3 revenue, and take you through the income statement and some other key financial metrics. I'll then finish up with our updated outlook for the fourth quarter and the full year. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nAs Mike mentioned, we had an excellent result in the Third Quarter. Revenue was 1.59 billion, reflecting reported growth of 26%. Core revenue growth was 21%. Currency added, 4.5% for the quarter, and M&A added 0.5.\\nIn addition, COVID-related revenues were in line with the prior year. All end markets performed well with Pharma and Chemical & Energy as standouts versus [Indiscernible] expectations.\\nOur largest market Pharma, grew 27% during the quarter, after growing 2% last year. The performance was led by the continued strength in our large molecule business, growing 52%, while our Small Molecule business grew mid-teens. And all regions in the pharma market grew double-digits.\\nOur Large Molecule business was driven by our NASD division and demand for LC and Mass Spec instrumentation and solutions.\\nWhile our Small Molecule business was primarily driven by QA/QC refresh. Chemical & Energy also performed well this quarter, with 23% growth. Even after accounting for the comparison against the 10% decline last year, this was clearly our best quarter since the onset of the pandemic. This result was driven by increasing momentum and demand for advanced materials and the general global economic growth.\\nOur view is that the Chemical and Energy market still has additional room to grow moving forward. The diagnostics and clinical, we're very encouraged with the continued recovery in the market as our genomics and pathology businesses saw very good growth. On a regional basis, all regions grew with China up 41% and America is delivering 38% growth. In academia, in the government market, we delivered 12% growth as most research labs continue to open globally and expand capacity. On a regional basis, Europe led the way. The Food market continued its double-digit performance, growing 12% on top of growing 1% last year. Food manufacturers continue to invest in increased testing to ensure quality and authenticity. A developing cannabis testing market, primarily in the U.S. also contributed to the growth in this market. And regionally, the food market was led by the Americas and Europe. Rounding out our key markets, environmental and forensics came in with 5% growth. On a geographic basis, all regions demonstrated solid growth led by the Americas at 32% and Europe at 23%, both exceeding our expectations. The performance was broad-based across all markets. And as expected, China was up 8% on top of 11% growth last year. All 3 business groups grew in China during the quarter. Pharma, Chemical & Energy, and Diagnostics were the key drivers.\\nNow, turning to the rest of the P&L.\\nThird Quarter gross margin was 55.9% up 80 basis points from a year ago, despite roughly 40 basis points of headwind from currency.\\nOur strong top-line, some positive product mix, coupled with the strong execution from our operations team, drove the year-over-year improvement. And our supply chain team is doing a tremendous job getting our products to customers despite the increase in demand. Gross margin improvement in performance, along with continued operating expense leverage, resulted in operating margin for the third quarter of 26%, improving 230 basis points over last year. Putting it all together, we delivered EPS of $1.10 up 41% versus last year.\\nOur tax rate was 14.75% and the share count was 306 million shares as expected. We delivered $334 million in operating cash flow during the quarter, showing a strong conversion from net income and up more than 15% from last year.\\nDuring the quarter, we returned $172 million to our shareholders, paying out $59 million in dividends, and repurchasing roughly 800,000 shares for $113 million. Year-to-date, we've returned $829 million to shareholders in the forms of dividends and share repurchases, a leverage ratio of 0.8. Accounting for our Q3 performance and improved outlook in the fourth quarter, we are again raising our full-year projections for both revenue and earnings per share.\\nWe are increasing our full-year revenue projection to a range of 6.29 to 6.32 billion, up to $125 million at the midpoint from previous guidance. and representing reported growth of 17.8% to 18.4%. in core growth of 14.5% to 15%. Included is roughly three points of impact from currency and a small amount from M&A.\\nIn addition, we're on track to deliver, roughly $100 million in COVID-related revenue in fiscal 2021, in line with our expectations from the beginning of the year and flat to last year.\\nWe expect to continue our strong operating leverage, and so we are increasing our fiscal 2021 non-GAAP EPS to a range of $4.28 to $4.31 per share, up 30% to 31% for the year. This translates to fourth-quarter revenue ranging from 1.63 billion to 1.66 billion. This represents reported growth of 10% to 12%, and core growth of 8.5% to 10%, on top of the 6% growth in Q4 of last year, when we started to see early signs of recovery from the strict lockdowns.\\nIn addition, while COVID revenue was roughly flat year-on-year for the full year, last year's fiscal fourth quarter represented the high-water mark in our COVID-related revenue. And as a result, we expect to see roughly a 1-point headwind due to COVID revenue in the quarter.\\nSo, our core growth, excluding COVID, would be comparable to 9.5% to 11%.\\nWe are forecasting higher expenses in the fourth quarter as we invest to maintain our strong momentum, but expect continued operating leverage in excess of 100 basis points. non-GAAP EPS is expected to be between 1.15 and 1.18 with a growth of 17% to 20%.\\nNow before opening the call for questions, I want to reiterate that we continue to see good demand in our end markets, have solid momentum in all our businesses, and expect to close the year extremely well. We believe our strategies are the right ones for Agilent, but we couldn't achieve these results, we [Indiscernible] without the excellent execution by the team. With that Barney (ph) back to you for Q&A.\"}, {\"speaker\": \"Barney\", \"content\": \"Thanks, Bob (ph). Paul (ph), if you could please provide instructions for the Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"Definitely, sir.\\nWe will now begin the question-and-answer session. [Operator Instructions].\\nHowever, if your question has been answered and you wish to remove yourself from the queue [Operator Instructions]. Please stand by while we compile the Q&A roster.\\nYour first question is from Tycho Peterson with JPMorgan.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Hey, good afternoon. Congrats on the quarter. Mike, I want to start with the --\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Tycho.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"-- China outlook. I know in China, there's been a fair amount of noise about companies being able to do products in-country -- [Indiscernible] shutdown -- internal shutdown.\\nSo, can you maybe just talk to some of the near-term dynamics in China? And it sounds like trade tension's also getting worse with the buy China policy. How do you think about that over the next couple of quarters?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure. Thanks for the congratulatory comments, Tycho, and we really, actually, continue to feel quite good about our performance in China, as Bob and I mentioned in the call script, I think 8% up on 11% last year, and I think our stack growth is around 19% Q2. It's actually up over our stack growth of 17 Q2. We're seeing this good, strong, Pharma and C&E demand in China.\\nNow, the funnels really remain quite robust. And I think, now getting to your specific question, we're not seeing any significant changes in terms of ability to get the product in. I mean, there's been a lot of noise for years, I have to say, between the U.S and China, yet the business seems to somehow get transacted.\\nSo, Bob, I think we're not really overly concerned about those dynamics. We did have somewhat of a little bit of shipment interruption as some of our Academia government customers were \\u2013 had [Indiscernible] our VAP tax exemption change. But I think that was a relatively minor impact on the P&L. But clearly, we're monitoring those developments and you have to continue to work to make sure you've got the logistics of flowing through the country, but we've always been able to find a way and are not overly concerned about it at this point.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I would say, Tycho.\\nWe continue to invest in China as we mentioned in the call. And there are always bumps here and there, but long-term we feel very good about the business in China.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, that's having one other thought here, Tycho (ph.), is relative logistics.\\nWe have divested into a number of forward-looking stocking locations over the last few years, not really has paid us dividend, because we are less dependent on stuff coming directly into the port because we have a lot of in-country inventory.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. That's helpful. And then it sounds like you've got a lot of underlying momentum. I know you don't like to talk about the order book, but any preliminary comments you can make on '22 at this point, you know, Street has you are up about 6.5%, curious if you think that's a reasonable bar and any comments on where you think margins may go next year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Thanks. Those specifics, but what I can tell you is that we feel really good about the momentum of the business, the order book is continuing to be strong and that's as of today, where we got the latest view of the early orders through August, so all the momentum remains there.\\nAs I mentioned on our prior earnings call, we feel a really good ability to meet and exceed those long-term growth goals we put out, and the margin goals.\\nI think that's where we stand right now, is we'll get to that in November, but we're feeling good about the trajectory of the business momentum we built here.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Okay. Thanks a lot [Indiscernible]\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question is from Brandon Couillard with Jefferies.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Many thanks. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Maybe to start with the Biopharma business. I mean, 50% growth in Large Molecules is pretty impressive. Used to elaborate, given the sources of growth there, and what that would look like if you back out the NASD contribution.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sure. And then I'm actually going to invite Bob and I will also want to have Jacob make a few comments on some of those new introductions here.\\nI think I used the word broad-based, at least 5 or 6 times, maybe 10 times in my prepared remarks and we're seeing that in the biopharma.\\nSo, we've got across the board, double-digit growth happening here. Cell Analysis LC, LCMS, other platforms that go into Biopharma, along with our consumables and services. And then to your point, really outstanding growth in NASD. But while NASD was a big contributor, it was an Agilent-wide life story. And Bob, maybe you can just answer the specifics on the numbers?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. And Brandon, to your point, the total in Large Molecules was 52% as I mentioned before. But even if you back out the NASD businesses still grew in excess of 40%.\\nSo very strong business on NASD, but it shows that the rest of the business, both instrumentations, as well as the consumables pieces and the other elements on the Pharma associated revenue in Diagnostics and Genomics also, very strong business in it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Brandon (ph.), I just wanted to maybe have Jacob (ph.) jump in very quickly because we have a continued drumbeat of new introductions into this space as well, which has been the focus and prioritization of our R&D pipeline. Jacob (ph.), I know we had 2 big introductions in Q3 as well.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah, thanks for that, Mike (ph.). And that's -- you know, at the analyst said, I think we've talked about in [Indiscernible] that about 70% of our portfolio above that was really focused on Biopharma a so I'm really happy to see that momentum we have right now. And as you also mentioned in the prepared remarks, you know, I'm very pleased with the bio-LC portfolio.\\nIn fact, we had and -- and, one of the [Indiscernible] of our momentum is that with that Bio-LC that we introduced here a few months ago. And we had a virtual conference with more than 1,000 customers participating, and we had more than 25 external scientific speakers, which I would actually say I know it's the best in history by far.\\nSo that introduction is actually creating quite a lot of momentum and it allows us to play for all the [Indiscernible] biocompatible space to the 2D-LC, but clearly, also into the Mass Spec, with the Mass Spec at the end of it. And we also mentioned compliance. The FDA [Indiscernible] informatics compliances and all that very important part that most of the Biopharma see as the requirement to do business with them. And we have invested in this for quite a while, so we ensure that data integrity, audit readiness, and storage of data is the level of security. And right now, we have the offering both supporting our LC, but also all our major marketable Mass Spec instruments. And also, in spectroscopy, with the recent announcement here off the top in the Q2 informatics solutions.\\nSo right now, we are -- we have a very strong portfolio and that truly drives our growth. Well, I can continue talking about the cell analysis, but I will --\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I'm going to bounce it back to Brandon. Hey Brandon, thanks for allowing us to do an advertisement on the Agilent portfolio strength. But, back do you. Do you have any additional questions?\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Yeah, I think just touched on maybe if we could just elaborate on the Small Molecule market.\\nYou mentioned QA/QC refresh, curious [Indiscernible] we might be in there and what you think the market is kind of growing for Small Molecule relative to your big team.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"It's our view that there is always a replacement market going on in the Small Molecule space, and sometimes, it picks up a bit more. But then -- and I think we're in that phase right now. I wouldn't say it's a huge acceleration, it's just the solid and probably high changes.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah, I was going to say, Brandon as we think about this prior to the pandemic, we were probably slower growth than normal were some of the QA, QC refresh was probably elongated. And now we're starting to see that pick back up, and that typically is an 18 to 24 months kind of cycle. And I would say we're still at the beginning of that.\\nAnd so, feel good about the continued performance of the refresh cycle going forward.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question is from Vijay Kumar with Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hey guys, congrats on the strong print this afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Vijay.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Mike, maybe on my first question here, Resolution Bio, that deal that you guys did, did that come in line with expectations? I'm just curious. The 50-basis points contribution seems a little light. Is there some ramp-up phase here that's in log and not? Maybe just talk about what the deal does to you and how it adds to the corporate growth rates here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So, you do some very good math.\\nSo, it's about half-a-point of reported growth rate, Bob. And I'd say relative to Q3, probably a little bit behind the revenue as we learn more about this business or some elements of this global lumpiness, so we're feeling pretty good about how our business will finish, but we're expecting a lot in the Fourth Quarter.\\nI think this is a story of continued acceleration of growth in '22 and beyond and we're just super delighted by the early days of how the teams feel about being part of Agilent. And then we're really building scale around this business.\\nSo, I think it's still a relatively small part of the overall revenue picture today for Agilent, and we knew that going in, I think is roughly [Indiscernible] million, but we would expect really strong growth rates in the coming years and again, we really feel like we're off to a great start with this team.\\nJust interacting with Mark Li, who is the founder -- co-founder of Resolution Bio. He is really happy about the capabilities that we're bringing to his business to further scale it.\\nSo early days, but feeling good -- pretty good about things and [Indiscernible] I don't know if you're saying [Indiscernible]\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah, I was just going to say the other thing is, obviously, we're just now having more and more conversations with our existing CDx customers and the power of being able to have our established CDx business on the [Indiscernible] side coupled with NGS-based technology, I think is going to be a real significant competitive advantage for us going forward.\\nSo very excited about this business going forward.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That's helpful, Mike. And Bob, one for you on expenses. In the year-to-date operating expense as a percentage of revenues, you guys [Indiscernible] a low 30s sub 31%, that's well below your historical level. I guess my question is, is this all just associated with the volume leverage rate given the strong organic performance year-to-date, or are there some timing elements on expenses, that [Indiscernible], and how should we -- if there are how should we think about those factors coming back in '22?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah, Vijay, it's a great question. And I think if you remember, maybe a year ago we talked about some of these expenses that were going down, and our goal was not to have them come back to the same levels that they had. And these would be in areas around travel, but also leveraging our digital capabilities, and what we've been able to do is be very successful. Certainly, volume is our friend. And the leverage that we've been able to drive across all three of our business groups has really helped. But if you look at our year-over-year elements around travel and costs associated with marketing programs and digital investments.\\nOur digitals investments have gone up, but the actual return on those investments has actually gone up. And in fact, Jacob just highlighted one of the programs that we had.\\nAnd so those are -- our goals are for those to continue -- they will continue to ramp next year to come back, but not near the level that they had come prior to the pandemic.\\nSo, we do think that there's a fundamental margin improvement associated with these expenses. And that's why Mike talked about our long-term margin expansion story is intact. It's not going to be 200+ basis points like it were this last quarter, but certainly feel good about our continued ability to drive margin expansion.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Vijay (ph.), this is Mike, if I can just add one additional comment too, and I hopefully came out in my prepared remarks, but we're not holding back on investing for growth.\\nSo, we're quite pleased with the margin performance, but it didn't come at the expense of our ability to grow down the road.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That's extremely helpful, Mike (ph.). Congrats again. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question is from Doug Schenkel with Cowen.\\nYour line is open.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Hey, guys. Good afternoon. Could I -- actually could I just build off of that last question with a quick follow-up. Again, acknowledging and recognizing you're not going to guide on 2022 today. I'm just wondering though at high levels, should we assume that incremental margin is going to be a little bit lower than normal next year? If we're assuming a normalization of activity in the post-pandemic world? I heard what you said about areas where you're not going to need to invest as much, but at the same time, you are investing in growth.\\nJust mathematically, does the incremental need to be a little bit lower than normal next year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. We're still building our plan. But our intent is to still be able to drive that margin expansion. I will say that we are having our new Train B in NASD come online, which will add a little pressure to it. But, I think, we've been very good about being able to do 30% to 40% incremental and sometimes even higher than that when the margin comes in. And I don't see any reason why we shouldn't be able to continue to do that, Doug.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay, super helpful.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Maybe what's -- yes, maybe what's underlying your question is inflationary pressures and activities around that I would say that we didn't see any material impact. Obviously, there is some but we're planning to manage that going forward.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Yeah, that's in audits. It's supply constraints, it's inflation or refreshers. It's the hope that we're traveling a little bit more and there are real conferences and real site visits, things like that.\\nSo that's the spirit of the question.\\nJust making sure that the capture of those dynamics, we don't have to think about something other than that 30 to 40 traditional [Indiscernible] range.\\nSo that's helpful, Bob (ph.).\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I would just add. [Indiscernible] we're under 22 now.\\nSorry to interrupt there, but I'd just say that some of our programs, and -- and such are really geared towards making sure we can manage our way through this in '22, so we're on this already.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Got it.\\nOkay.\\nIn terms of full-year guidance, as it's been noted a few times, you increased the outlook by more than the magnitude of the Q3 B. I guess I'm just wondering what gives you confidence in this change. Is it backlog data? Is it pacing across the quarter? Is it activity through the first month of the quarter? Maybe it's all the above and maybe more importantly --\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"[Indiscernible]\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"You just checked everyone? Okay. Perfect.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I know. Bob and I are smiling in the room here, and, I think, we can probably put a checkmark on all -- first of those 3 things you mentioned.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. And then throughout the year, you've consistently beaten your own targets pretty maturely, and it definitely makes sense to skew the error bars a bit more conservatively when you set your targets, given the state of the world. That said, given how well you performed relative to those targets, and recognizing we're not out of the pandemic, but we've got a little more experience with it at this point. Is it fair to say that you're at the point where you could adjust the philosophy a little bit and maybe change the positioning of those error bars as you set guidance moving ahead?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah, I think that that's fair.\\nI think -- what we've tried to do is set prudent guidance as we've talked about in the past. But certainly, as we've and our customers, more importantly, the market is getting used to dealing in a COVID world, there are fewer variables to be able to understand. And I would look at just what we did in Q2 to Q3, we dramatically increased our Q3 guidance and then did the same thing here for Q4.\\nSo, I think our visibility is improving.\\nYou should take that away for all the things so you rattled off. Certainly,\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"the momentum that we're seeing, the general economic improvements, and so forth. But as you mentioned, there's still a Delta variant out there, and so well, as Mike mentioned, we haven't seen any impact of that yet.\\nWe also recognize that that could change during the course of the quarter.\\nSo, we're trying to take all those factors into account, but also try to provide some realistic guidance going forward.\"}, {\"speaker\": \"Doug Schenkel\", \"content\": \"Okay. Thanks again, guys.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"You're welcome, Doug.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question is from Derik de Bruin with Bank of America.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hello, and good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Derik.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hey. Can we talk a little about environmental and [Indiscernible] and I wanted Doug to tell that question too? I know it's probably a little bit early, but any signs of how we should think about the GC portfolio picking up, or you just replaced -- is it just sort of like catch-up spending right now in the industrial or any initial indications that the replacement cycle that you were going -- you were in the midst of prior to the pandemic is likely to restart.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Derik. Hey, how do I take the first one in Bob -- I mean, Bob and Jacob, you may want to add additional comments here. But let me talk about the question around gas chromatography.\\nWe are seeing that. And that's really behind a lot of the fairly bullish comments, if you will, around C&E space.\\nSo, we're seeing it in our GC revenue, and we're also seeing it in our GC order book. And I've been very reluctant to call that hey, we think this business is now in a situation of returning to growth. That reluctance has now passed.\\nI think we're now into what looks to be the start of some really good potential business on our GC side, as that replacement cycle turns back on. And Jacob, I know you're a lot closer to the detail\\u2019s alignments, anything else you could add to that?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah, Mike (ph.).\\nYou're absolutely right.\\nI think first of all of them -- I think Bob (ph.) mentioned that also the chemicals and engineered materials market certainly on fire right now, [Indiscernible] in Semicon and in the mining industry, including lease term for batteries. But we also see the traditional Petrochem markets really start to see some momentum now. And there's a lot of talk about the future of Petrochem but this market is going to pay for quite along. And I think that all the analysis shows that there'll be [Indiscernible], so we see investments coming into this market right now. And the new market that's also coming along is Renewable Energy, which will also use many of our technologies. And we see a great opportunity there also in the future. They're still in a development phase, but as you know, there's a lot of investments going in here, so we are participating in that also.\\nSo, we see a lot of opportunities in GC and the GC is actually seeing momentum both first in the chemical markets, but now into the energy markets.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Okay, so following up on that.\\nSo, you're feeling good about your more industrial [Indiscernible] experiments, even with some of the choppiness in the Chinese market, the data there.\\nSo, are you seeing -- is it the U.S. and Europe [Indiscernible] anymore or is it just that you're seeing turn on that one? And then where were we -- what remind me in annoying baseball analogies where we were in [Indiscernible] on the GC replacement cycle?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nSo, Bob, I think it's fair to say that there really is no difference across the regions. I mean, China actually was the area of strength for us in C&E, and I think we're seeing good -- good strength globally, which I think points to the importance of global economic outlook for this segment. And I'd say we're probably earlier middle innings on the -- paused there for a while because we got rate run going with the new portfolio, but a pause. I'd say we're early innings, middle innings.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. I would say too, Derik, just to give you a frame, China was more than twice the -- China C&E market was in line with the overall C&E growth rate that we saw.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Thanks for answering the question.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question is from Dan Leonard with Wells Fargo.\\nYour line is open.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Thank you. And good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"I was hoping you could -- Mike (ph.), I was hoping you could address the 5% to 7% core revenue growth model that you've introduced in December. Is that still relevant? Do you think something has fundamentally changed in the markets from that time period?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I'd say it's relevant till we change it.\\nSo, I'm not ready to, on the fly here, revise our long-term growth. But as you may recall, in our December outlook, we said, think about us being more of the high range in that area. And I think [Indiscernible] a little tougher so I put a 7 out there in any type of long-term growth guidance.\\nI think what's changing is the nature of our portfolio, which is we continue to build very quickly, much bigger positions in faster-growing segments. And I think it's probably fair to say that the Pharma market, in particular, the Biopharma market is -- remains very robust, but again, we're sticking with those long-term growth goals at this point in time.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I would say, Dan, to build on what Mike is saying, particularly the pharma market. We do feel that that market, and in fact, Mike talked about it in his prepared remarks that we're emerging as a stronger Company. We do think that the Pharma market, really driven by that Large Molecule area, is a faster-growing market coming out of the pandemic than going into it. And I think if we look at where our investments are and the performance that we've had in particularly the Large Molecule.\\nNow again, Small Molecule has been doing very well. That, in and of itself, would elevate that overall long-term growth rate to be faster than what we saw going in, which certainly helps us, given that is -- that's our largest market.\\nSo, I'll leave it at that.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Okay. That's a helpful clarification. And just a follow-up on China, could you elaborate further on the drivers of that 50% growth rate you called out for DGG in China?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I'm going to invite Sam on this call. He hasn't had a chance to work today in this call.\\nSo, Sam, your thoughts of what's been going on in China, I was doing a little bragging on your growth rate there.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yeah. Mike, happy to give more perspective on China. We actually had a good quarter across the board for all of our business groups within DGG.\\nSpecifically, we continue to see real momentum in clinical diagnostic testing, led in pathology. We've seen really good pick up of our PD - L1, and our diagnostic -- or companion diagnostic there, as we've continued to train more pathologists there in the use and so forth. Genomics also had a really, really, good quarter, both on the consumable side. And we've also just recently announced within the quarter, the launch of our new V8 Xome, which is being well received in China and globally. And I will tell you one of our absolute strengths in China as it is elsewhere, remain our core NGS and Genomics QC portfolio.\\nSo, all of those elements, along with Mike, as you mentioned now, the signing of our first companion diagnostic development agreement with the Biopharma there, I think foretell a continued story of strength in China for DGG.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And just to build on Sam's comments, I mean, we've been working really hard the last several years putting in the right foundational capabilities, building the right commercial channel, the right ability to handle diagnostics products ourselves, and it's really great to actually see those investment starting to pay off in year term growth.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Appreciate all that color. Thanks, everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question is from Patrick Donnelly with Citi.\\nYour line is open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Hey, thanks for taking the question, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Mike, maybe one on the Chemical & Energy side to follow up on some of the earlier questions. I know that's one where you pretty closely keep an eye on the order book and your confidence goes with that. Are you getting more visibility as the order book builds there? I'm just trying to compare it to pre-pandemic mid-pandemic, I know you guys had a pretty short leash on in terms of how you would guide for that segment, how comfortable you would allow yourselves to get.\\nJust wondering how the order book is looking there relative to some of the past quarters and how you're feeling about that segment. Certainly, seems like the tone is pretty positive here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nNow I'm glad you picked up on that. We really want that to come through in the call. And I think the confidence is coming from not only the revenues that we've reported, but as Bob (ph.) mentioned in general, and I think it also holds for C&E, we just have much better visibility into our funnel. And you may have recalled I was talking a lot of -- in prior calls, I talk a lot about a conversation we're having with customers and we knew there was activity. But now that conversation is turning into orders.\\nSo, we're feeling much better about the trajectory of the C&E space. Historically I've been very cautious to give any real kind of positive trends in this area. But I think we've seen enough over the last few quarters and what we're seeing with our customers and the order book is really the basis for this confidence. And again, it's tied to not only the pent-up demand they've had in terms of even replacing aged equipment in their laboratories, but they are also -- what we hear from our customers, there are much more confident about where the global economy is going.\\nSo, they're willing to make investments. A couple of positives here and there and there will be some ups and downs because of outbreaks here and there of COVID, but in general, the [Indiscernible] remains very positive, I think as Bob mentioned earlier, our customers have learned to deal with this.\\nSo, Bob, I know this is -- we've talked a lot about this, anything I missed there?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"That's helpful. I appreciate it, Mike. And then on the diagnostic side and just given commentary that you guys are above pre-pandemic levels, can you just talk about the pace of the recovery in the quarter and then expectations for the further ramp from here. And I just want to clarify and make sure you haven't seen any impact in Delta up until I guess this week. I just want to make sure I have that clear. Thank you.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. I mean, we saw continued recovery.\\nI think we mentioned at the beginning -- at the end of Q2 that we were at pre-pandemic. We exited there. The average was still below. And that steady improvement across our business, across really across all of the regions continued into Q3. And by the end of Q3, we were above. And Patrick, to your specific question about Delta, we have not seen any impact to date associated with that.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great. Thanks, Bob.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question is from Matt Sykes with Goldman Sachs.\\nYour line is open.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Hello. Hey guys, thanks for taking my questions, congrats on the quarter.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Sure.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Just on ACG, you guys had a pretty impressive operating margin, over 29% for the quarter. I'm just wondering what you feel about the sustainability of those margins and then any progress that you've made on attachment rates in that business? I know you mentioned a little bit in your prepared remarks, but any additional color on that would be helpful.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think I'll pass it on to Borick (ph.), who can provide some additional color to the ACG and answer your questions. Go ahead, Borick.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yeah. Great. Thanks -- thanks, Mike. And we're getting back to more normalized service support with our customers, which is more cost associated, of course, with travel, but we're starting to see an accretive margin in Q3 and we're seeing that come through to improve in Q4.\\nSo very, very strong in that.\\nIn terms of touch rate, we're seeing increased touch on our services and consumables and of course, with the larger install base, this bodes really well for the future, as more attach rates for services and consumers will be available to a very strong outlook.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, hey, and Matt, maybe just to build on what Borick(ph.) is saying in terms of sustainability, we feel very good about the ability to continue to sustain those levels of margin. It gets back to the work that our service engineers do in servicing our customers. It's mission-critical for our customers, keeping those labs and those instruments up. And our ability to continue to invest in digital, as well as, be there on-site on the labs or with the labs is really important. A one piece that I would add is we continue to invest in that digital as I mentioned before, and our online orders actually grew faster -- our revenue grew faster than the overall ACG business, which actually speaks to our continued relevance in that space. And obviously, that's good for our customers in terms of either doing business with Agilent, but it also helps from that margin perspective as well.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great. Thanks for that color, it's very helpful. And then just one more on C&E. I know you've answered a lot of questions already, but I'm just wondering how the competitive landscape might have changed. Obviously, it had a challenging time during COVID. It took a while for it to recover, and now, it's certainly in recovery mode. I'm just wondering, as you look out of the competitive landscape, have you seen some competitor's slow investment; and therefore, there are some share gain opportunities in that growth that you're seeing?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I don't know where they slowed. I'm not sure they're investing for that segment.\\nSo, and we're not seeing much happen on the competitive side. We're by far this is -- we're the clear leader in this space, we've continued to invest in our core portfolio pre and throughout the pandemic.\\nSo, as you can tell, I'm pretty bullish about our ability to outgrow the competition in this space.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah, let me add. It seems like a long time ago, but we launched 2 new GCs back in 2019, both at the high end and a mid-range GC. And we talked about one of the reasons that we did that is we've got a leadership position in the GC market. But when you look at it, we're over-index to the high-end, and so the ability for us to be able to have this mid -- mid-range, I think was really critical, and we're starting to see that benefit. And maybe Jacob wants to jump in that conversation. Yeah.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Exactly.\\nYou're actually right on the GT and our strength in our GT, but I think we should also mention our spectroscopy business and the ITPMS, where we have done a lot of work also ITP, OES, and MS, where you're doing a lot of work that is -- that has a very strong market share for the material science. And we continue to take market share in that space also.\\nSo, I think you'll see us being very strong here. And we have also a site that we will continue to invest in this market going forward.\\nSo that's [Indiscernible] therefore the costumers going forward.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Thanks very much.\"}, {\"speaker\": \"Operator\", \"content\": \"Your next question is from Joshua Waldman with Cleveland Research, your line is open.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Hi, thanks for taking my questions, just two for you. Mike, you mentioned overall orders outpaced sales in the quarter, and it sounds like book-to-bill in the LSAG business was slightly positive.\\nJust wondered if you could provide us with your assumptions for core growth in the LSAG business in the fourth quarter. And then as we look beyond FY21, given the broad-based strength you've spoken about on the call today, I guess, is it fair to assume that as we look to FY '22, this business should likely grow something above a low to mid-single-digit longer-term average?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah.\\nLet me talk about the fourth quarter and I'm not sure we're going to answer the last one just yet as we're going through our plan, but --.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"I had to try.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, yes, that was a good try. But I would say for Q4, you're accurate in the belief that our book-to-bill was positive for the quarter, and if you think about Q4, our guidance comprehends high single-digit, low double-digit growth for the LSAG business core growth.\\nAnd so, I'll leave it at that.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Got it. And then it seems like here today, Pharma has outperformed what you expected coming into the year. I just wondered if you could comment on any current thoughts you have around the potential magnitude of any year-end budget flush, I guess, given -- it seems like investments from these customers have -- have been fairly consistent -- consistent, and strong throughout the year. Does that deflate any year-end spending?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. We'll address that in the Q1 call. But to your point, we've been pleasantly surprised, and it has continued to be stronger than what we've anticipated throughout the first 3 quarters, and what I would say is we don't expect that to slow down any in Q4 either.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Got it. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"And your last question is from Jack Meehan with Nephron Research.\\nYour line is open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thanks. Good afternoon.\\nYou talked about the job that your team is doing, managing the supply chain. Was wondering if you can elaborate on a hotspot you're seeing in terms of inputs, shipping, or labor. And when you look at the fourth-quarter guidance, is that -- are you taking any more prudent or conservative type approach based on what's going on in the supply chains?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, I mean, this has been a lot of discussion on that.\\nI think everybody is talking about the supply chain constraints on a global basis. It's been a challenge for us, but as Bob noted in this call script, our team has just done a tremendous job getting the Agilent products to our customers. And we're really good at this about managing situations.\\nSo, we will work on a number of commodity areas for some time. And we also have done things as identifying a changing alternatives source, supply.\\nSo, we've been able to do that. We've had a last-minute changes notification from logistics suppliers that they won't pick up our boxes, and so we switched to another supplier.\\nSo, we've been able to manage our way through that. And it was conspicuous, it was absent in our cost script a lot of details because while we continue to monitor it, we don't believe that's a material risk to the Company at this time, and we still likely -- we factored all that into our guide for the fourth quarter. And Bob (ph.), I know that you've done a close study of this as well, anything else you'd add to that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. The only thing I would say is it's the usual suspects that other folks have called out, things like [Indiscernible] and our team has done, to date, an outstanding job of being able to continue to satisfy demand here. And our expectation is that that's going to continue to happen into Q4. And we've got a continuous improvement program that continues to drive productivity and efficiency gains. And we're expecting that, and to combat some of these inflationary pressures as well as continuing to deliver to our customers. And we will continue to do that into '22 as well.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. And then one other follow-up is on COVID.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"So, the fourth-quarter guidance assumes it's a 1-point headwind, though we're obviously in the middle of another Delta wave here.\\nSo, I was curious what you're seeing on the ground or whether your products are just starting to wane in general and any preliminary thoughts around how, you have 100 million this year, just how you're going to guide as you go into 2022 related to that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"What I would say, Jack, it's a good question, and our products aren't directly tied to the testing. We didn't see the dramatic increase but also didn't see the dramatic decline with the testing there.\\nOurs is more around expanding capacity both in testing and over the course of this last year. We've actually seen it migrate to more therapeutic capacity or excuse me, vaccine capacity in demand there.\\nAnd so, we don't see it spiking up or not building that into Q4.\\nI think it's a little too early to tell for -- for FY22. It's been -- it's been reasonably steady the last couple of quarters. And we do expect contribution in '22 and we'll provide more color as we get through our planning process, but we don't see it dramatically dropping off.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Sounds good. Thanks, Bob (ph.).\"}, {\"speaker\": \"Operator\", \"content\": \"I do apologize but we do have an additional question. The last question is from Dan Arias with Stifel.\\nYour line is open.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Yeah. Hi, guys. Thanks for getting me in here at the end. Hi, Mike?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure. No problems.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Just one for me.\\nJust Bob, maybe a high-level question.\\nJust to the idea of getting to a post-COVID world, whenever that might be. I'm wondering which of the 3 segments you think might stand the best chance of maybe rebasing at a higher level of the up-margin line, just by virtue of some of the success that you're having, and then to your point, some of the fundamental changes that might come to the expense structure. Is that something you think is possible? And if so, would you be willing to help us with which one is looking most promising there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I do think it's possible. I'm not going to call out because I'm not going to let -- if I call out one, I'm not going to let the other two Division Presidents off the hook. They must have paid you.\\nI think we could continue to do it across the board. Certainly, we are making investments across all three of the businesses to continue to grow. But we certainly feel like we have opportunities to continue to drive margin enhancement across all 3 of our business groups.\\nSorry guys.\"}, {\"speaker\": \"Dan Arias\", \"content\": \"Okay. Thanks so much.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Dan.\"}, {\"speaker\": \"Operator\", \"content\": \"And that concludes the question-and-answer session for this conference call. I will now turn the conference back to Puneet Souda for closing remarks.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Thanks, Paul. And thanks, everyone. With that, we would like to wrap up the call for today. Have a great rest of your day.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, this concludes today's conference call. Thank you for joining.\\nYou may now disconnect. Stay safe and well.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2021-11-23
year: 2021
quarter: Q4
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon and welcome to the Agilent Technologies Fourth Quarter Earnings Conference Call. My name is Bethany, and I will be the operator for today\\u2019s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] And now I'd like to introduce you to the host for today's call, Parmeet Ahuja, Vice President of Investor Relations. Sir, please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Bethany, and welcome everyone to Agilent's Fourth Quarter Conference Call for Fiscal Year 2021. With me are Mike McMullen, Agilent's president and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO.\\nJoining in the Q&A after Mike and Bob\\u2019s comments will be Jacob Thaysen, President of Agilent's Life Science and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news release, investor presentation, and information to supplement today's discussion, along with the recording of this webcast are made available on our website at www.investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth, excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of October 31.\\nWe will also make forward-looking statements about the financial performance of the Company. These statements are subject to risks and uncertainties and are only valid as of today. The Company assumes no obligation to update them. Please look at the Company's recent SEC filings for a more complete picture of our risks and other factors. And now, I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Parmeet, and thanks everyone for joining our call today. The Agilent team delivered another excellent quarter to close out an outstanding, record-setting 2021. At $6.32 billion for fiscal 2021, revenues are almost $1 billion higher than last year. Full year, core growth is up 15% on top of growing 1% last year. The strength is broad-based with our three business units all growing more than 10% core for the year.\\nOur full year operating margins are up 200 basis points. Earnings per share of $4.34 are up 32%.\\nLet\\u2019s now take a closer look at our strong finish to 2021 and review Q4 results.\\nOur momentum continues as orders increased faster than revenue in Q4 and at the same time, we delivered our fourth straight quarter of double-digit revenue growth. At $1.66 billion, revenues are up 12% on a reported basis.\\nOur core revenues grew 11%, exceeding our expectations. This is on top of 6% core growth last year.\\nOur Q4 operating margin is 26.5%. This is up 160 basis points from last year. EPS is $1.21, up 23% year-over-year.\\nOur earnings growth also exceeded our expectations.\\nWe continue to perform extremely well in pharma, our largest market growing 21%, driven by our biopharma business. Total pharma now represents 36% of our overall revenue. This compares to 31% of our revenues just two years ago. The strong growth in our chemical and energy business continues, as we delivered 11% growth in the quarter. This is on top of growing 3% in Q4 of last year. PMI numbers are positive and we expect that chemical and energy will continue its strong growth trajectory into fiscal 2022. In diagnostics and clinical, revenues grew 11% on top of growing 1% last year, as testing volumes started to recover. On a geographic basis, our results were led by a strong performance in the Americas and China.\\nOur business in the Americas grew 15% on top of 5% last year. China grew 8% core on top of strong 13% growth in Q4 of last year. China order growth outpaced revenue growth for the third quarter in a row.\\nNow, looking at our performance by business unit, the Life Sciences and Applied Markets Group generated revenue of $747 million. LSAG is up 11% on both a reported and a core basis. LSAG\\u2019s growth was broad-based and led by strength in liquid chromatography and cell analysis. The pharma and chemical and energy markets were particularly strong for new instrument purchases.\\nOur cell analysis business crossed the $100 million revenue mark in the quarter for the first time.\\nDuring the quarter, the LSAG team announced a new Ion Mobility LC/Q-TOF and enhancements to our VWorks automation software suite. These new, well-received offerings are used to improve the analysis of proteins and peptides to speed development of new protein-based therapeutics. The Agilent CrossLab Group posted revenue of $572 million. This is up a reported 10% and 9% core. Growth is broad-based driven by strength in service contracts and on-demand services, as well as for chemistries and supplies.\\nOur focus on increasing connect rates continues to pay off for us. The strong expansion of our installed base in 2021 and increasing connect rates bodes well for continued strength in our ACG business moving forward.\\nOur ability to drive growth and leverage our scale produced operating margins of roughly 30%, up more than 200 basis points from the prior year. The Diagnostics and Genomics Group delivered revenue of $341 million, up 16% reported and up 13% core.\\nOur NASD oligo business led the way with robust double-digit growth in the quarter and achieved full-year revenues exceeding $225 million.\\nWe expect another year of strong double-digit growth as the team continues to do a great job of increasing throughput with the existing capacity. The additional expansion of our \\u201cTrain B\\u201d oligo manufacturing facility in Frederick, Colorado is proceeding as planned.\\nWe expect this additional capacity to come online by the end of calendar year2022.\\nMoving on from our other business group updates, there were several other significant developments for Agilent this quarter. We announced our commitment to achieving net zero greenhouse gas emissions by 2050. We believe our approach delivers the same rigor to sustainability that we apply to everything else we do.\\nWe also believe these actions are not only the right thing to do, but fundamental to achieving long-term success.\\nOur sustainability leadership continues to be prominently recognized, as well.\\nYou may have seen that Investors\\u2019 Business Daily recently named Agilent to its Top 100 ESG Companies list.\\nWe are also a company where diversity and inclusion represent a company priority and is a core element of our culture.\\nDuring the quarter, we achieved recognition by Forbes as one of the World\\u2019s Best Employers, and as a Best Workplace for Women.\\nWhile the Agilent team has a strong track record of delivering above market growth and leading customer satisfaction, we are always looking to do more. To further accelerate growth and strengthen our focus on customers, we are implementing a new One Agilent Commercial organization, combining, for the first-time, all customer-facing activities under one leader. The new organization brings together and strengthens our sales, marketing, digital channel, and services team. The new enterprise-level commercial organization is led by Padraig McDonnell. Padraig will continue to lead the Agilent CrossLab Group as Business Group President, as well as serve as Agilent\\u2019s first-ever Chief Commercial Officer. The way I like to characterize this move is to say we are \\u201cdoubling-down\\u201d on the success we\\u2019ve achieved with ACG applying a holistic, customer-focused approach to all aspects of our business.\\nWe are also moving the Chemistries and Supplies Division to LSAG. This closer organizational alignment between instrument and chemistries development will further accelerate our progress on instrument connect rates for chemistries and consumables. We believe that \\u201cstructure follows strategy\\u201d and that this new organizational structure will further enhance our customer focus and the execution of our growth strategies.\\nLooking ahead to the coming year, we are in a strong position to continue to deliver on our \\u201cbuild and buy\\u201d growth strategy. Agilent\\u2019s business remains strong. We enter the New Year with a robust backlog and have multiple growth drivers, coupled with the proven execution excellence of the Agilent team. A year ago, during our Agilent Investor Day, we raised our long-term annual growth outlook to the 5% to 7% range, while reaffirming our commitment to annual operating margin improvement and double-digit EPS growth.\\nWe are now one year in and well on our way to achieving these long-term goals. Bob will provide more details, but for fiscal 2022 our initial full-year guide calls for core growth in a range of 5.5% to 7%.\\nWe expect to continue our top-line growth as we launch market-leading products and services, invest in fast-growing businesses, and deliver outstanding customer service. My confidence in the unstoppable One Agilent team and our ability to execute and deliver remains firmly intact. This is our formula for delivering solid financial results, outstanding shareholder returns and continued strong growth.\\nWe are very pleased with our performance in 2021, but not satisfied.\\nAs I tell the Agilent team: The best is yet to come, for our customers, our team, and our shareholders. Thank you for being on the call today and I look forward to your questions. I will now hand the call off to Bob. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thanks Mike, and good afternoon everyone. In my remarks today, I will provide some additional details on revenue and take you through the income statement and some other key financial metrics. I\\u2019ll then finish up with our initial outlook for the upcoming year and for the first quarter. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nAs Mike mentioned, we had very strong results in the fourth quarter. Revenue was $1.66 billion, reflecting reported growth of 12%.\\nBefore I get into the details, I want to acknowledge our supply chain team, which has been doing a great job managing in a very challenging global environment. Core revenue growth at 11% was a point above our top end guidance range. Currency accounted for 0.8% of growth, while M&A contributed 0.5% of growth during Q4. And as expected, COVID-19 related revenues were roughly flat sequentially and resulted in just over a point headwind to the quarterly core growth. Late in the quarter, we did see transit times that were in certain cases greater than anticipated resulting in some revenues being deferred into Q1.\\nOur results were driven by a continuation of outstanding momentum in pharma, and in biopharma in particular, while chemical and energy and diagnostics and clinical also delivered strong results for us.\\nOur largest market, pharma grew 21% during the quarter against a tough compare of 12% last year. The small molecule segment delivered mid-teens growth, while large molecule grew 31%. Pharma was a standout all year, growing 24% for the full year after growing 6% in 2020. And in FY22, we expect our pharma business to grow in the high-single digits. Chemical and energy continued to show strength, growing 11% with instrument growth in the mid-teens during the quarter. This impressive performance was against a 3% increase last year. The C&E business grew 12% for the year, after declining 3% in 2020. Growth was driven by continued momentum in chemicals and engineered materials and we expect our C&E business to continue to grow solidly next year in the high-single-digits. Diagnostics and clinical grew 11% with all three groups growing nicely during the quarter.\\nWhile the largest dollar contributor to this market is DGG driven by our pathology-related businesses, the LSAG business continues to penetrate the clinical market and drive growth with strong performances by cell analysis and mass spec. We saw mid-teens growth in the Americas and strong growth in China, albeit off a small base.\\nFor the year, the diagnostics and clinical business grew 15% for the year after declining slightly by 1% in 2020. And we expect to continue to grow in the mid- to high-single-digits in 2022. Academia and government, which can be lumpy and represents less than 10% of our business was up 1% in Q4 versus a flat growth last year. Most research labs continue to remain open globally and increase capacity to pre-pandemic levels. China came in at low-single-digits, while the Americas and Europe were roughly flat.\\nFor the year, we grew 7% after declining 4% last year.\\nWe expect this market will continue to improve slightly in fiscal year 2022 and expect growth of low to mid-single-digits. Food was flat during the quarter against a very tough 16% compare. Europe and the Americas grew while China declined.\\nFor the year, food grew 13% after growing 7% in 2020.\\nLooking forward, we expect food to return to historical growth rates in the low-single-digits. And rounding out the markets, environmental and forensics declined 2% in the fourth quarter, off a 5% decline last year, as growth in environmental was overshadowed by a decline in forensics.\\nFor the year, we grew 5% off a 2% decline in 2020. And looking forward, like food, we expect environmental and forensics to grow in the low-single-digits in the coming year.\\nFor Agilent overall, on a geographic basis, all regions again grew in Q4 led by the Americas at 15%. China grew 8%, and Europe grew 4%. And for the year, Americas led the way with 21% growth, followed by China at 13% and Europe at 12%.\\nNow let\\u2019s turn to the rest of the P&L, fourth quarter gross margin was 55.9%, up 90 basis points from a year ago. Gross margin performance, along with continued operating expense leverage, resulted in an operating margin for the fourth quarter of 26.5%, improving 160 basis points over last year. Putting it all together, we delivered EPS of $1.21, up 23% versus last year. And during the quarter, we benefitted from some additional tax savings resulting in a quarterly tax rate of 13% and our full-year tax rate was 14.25%.\\nOur share count was 305 million shares, as expected. And for the year, EPS came in at $4.34, an increase of 32% from 2020.\\nWe continued our strong cash flow generation, resulting in $441 million for the quarter, an increase of 17% versus last year.\\nFor all of 2021, we generated almost $1.5 billion in operating cash and invested $188 million in capital expenditures.\\nDuring the quarter, we returned $195 million to our shareholders paying out $59 million in dividends and repurchasing roughly 830,000 shares for $136 million. And for the year, we returned over a $1 billion to shareholders in the forms of dividends and share repurchases. And we ended the year with $1.5 billion in cash and $2.7 billion in outstanding debt and a net leverage ratio of 0.7. All in all, a great end to an outstanding year.\\nNow let\\u2019s move on to our outlook for the fiscal 2022.\\nWhile we are still dealing with the pandemic and we have the additional challenges around logistics and inflationary pressures, we enter the year with strong backlog and momentum.\\nFor the full year, we are expecting revenue to range between $6.65 billion and $6.73 billion, representing reported growth of 5% to 6.5% and core growth of 5.5% to 7% consistent with our long range goals. And this incorporates absorbing roughly a half a point headwind associated with COVID-related revenues, with the majority of that impact coming in Q1.\\nWe are expecting all three of our businesses to grow, led by DGG.\\nWe expect DGG to grow high-single-digits with the continued contribution of NASD and cancer diagnostics.\\nWe expect ACG to grow at high-single-digits with both services and our chemistries and supplies businesses growing comparably, while LSAG is expected to grow in mid-single-digits.\\nWe expect operating margin expansion of 60 to 80 basis points for the year as we absorb the build out costs of Train B at our Frederick, Colorado NASD site. And in helping you build out your models, we are planning for a tax rate of 14.25%, consistent with current tax policies, and 305 million fully diluted shares outstanding. All this translates to a fiscal 2022 non-GAAP EPS expected to be between $4.76 to $4.86 per share resulting in double-digit growth. And finally, we expect operating cash flow of approximately $1.4 billion to $1.5 billion and capital expenditures of $300 million. This capital investment represents an increase over 2021 as we continue our focus on growth, bringing our NASD Train B expansion online and expanding consumables manufacturing capacity for our cell analysis and genomics businesses.\\nWe have also announced raising our dividend by 8% continuing an important streak of dividend increases and providing another source of value to our shareholders.\\nNow, let\\u2019s move on to our first quarter guidance, but before I get into the specifics, some additional context. Lunar New Year is February 1st this year, a shift from last year when it was in mid-February.\\nAs a result, we expect some Q1 revenue to shift to the second quarter this year as customers shut down ahead of the holiday.\\nIn addition, as I mentioned, we do expect to see the largest impact of COVID-related revenue headwinds in the first quarter. We estimate these two factors will impact our base business growth by 2 to 3 points and are roughly equal in impact.\\nFor Q1, we are expecting revenue to range from $1.64 billion to $1.66 billion, representing reported and core growth of 5.9% to 7.2%. Adjusting for the timing of Lunar New Year and COVID-related headwinds, core growth would be roughly 8% to 10% in the quarter.\\nFirst quarter 2022 non-GAAP earnings are expected to be in the range of $1.16 to $1.18. And a couple additional points before opening the call for questions. In conjunction with new One Agilent Commercial organization Mike talked about, we will be reporting under the new structure starting in Q1.\\nIn addition, we will be providing a recast of certain LSAG and ACG historical financials to account for the segment changes after the filing of our Annual Report on Form 10-K in December. I am extremely proud of what the Agilent team achieved in 2021 and look forward to another strong performance in 2022. With that, Parmeet, back to you for Q&A.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Bob. Bethany, if you could please provide instructions for the Q&A now?\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] The first question comes from the line of Vijay Kumar with Evercore.\\nYou may proceed.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hey guys. Congrats on a nice print here and thanks for taking my question. Maybe as to my first one on\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Vijay.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Mike, maybe my first one on the guidance here. A lot of questions around supply chain inflationary environment. The guide of 5.5% to 7% core growth for fiscal 2022, what is that assuming for pricing versus volume? And does it assume any contribution from interest run?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Hey, Vijay, this is Bob. I did get the last part of your question, maybe. Yes, so, on the price, we do have built in roughly a point of price into our plan which is slightly higher than what we had this year, Vijay. And in terms of inclusion, we won\\u2019t get into individual customer products, but what I would say is NASD is expecting another year of very strong growth.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"And just on that last point, Bob, and maybe, Mike for you,\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"I think the Analyst Day outlook had NASD ramping up quite meaningfully. Has anything changed on NASD it did capacity ramp up by timing change at all and I am curious on just around on anything changed \\u2013 your response letter to no orders?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Not at all. What I would say, the one big change is the business is doing even better than we had communicated at December of last year.\\nSo really appreciate the question.\\nAs you know, in my \\u2013 we\\u2019ve been talking about the new capacity coming online and that\\u2019s still gone right per schedule, in fact, we distributed earlier last week and that\\u2019s still to come on online by the end of calendar 2022. But I think the team has just done a fabulous job, which is we are going to be able to grow double-digit in 2022 even without the new capacity, because they are able to continue to drive process improvements of broader book of business and larger batches.\\nSo the business is really on fire. I mean we are very, very happy with it.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Vijay, if we looked at our order backlog, we are taking orders for 2023 already.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. I have met Bob the other day, Vijay that a year ago we are talking about could we fill out the factory? Could it ramp and we\\u2019ve blown right through that.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Yes. That\\u2019s fantastic, Mike. And just sorry to clarify post the complete response letter to Nord, there is no change in interest around assumptions for you guys, correct?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No. No.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Fantastic. Thank you, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are welcome. Appreciate the feedback.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. Kumar. The next question comes from the line of Tycho Peterson with JPMorgan.\\nYou may proceed.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Tycho? Tycho, I think you are on.\"}, {\"speaker\": \"Operator\", \"content\": \"Your line is now open.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Moving to the next in the queue.\"}, {\"speaker\": \"Operator\", \"content\": \"Okay. The next question comes from the line \\u2013 excuse me, of Brandon Couillard with Jefferies.\\nYou may proceed.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Hi. Thanks. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike, maybe just \\u2013 Mike, maybe just starting with the guide for next year.\\nYou just kind of talked through some of the variable upside, downside that you considered when building the outlook. I\\u2019d be curious what you\\u2019ve embedded for China specifically, as well?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, when I talk about the \\u2013 what we see is the potential upside in the guide and Bob, maybe you can talk about the \\u2013 our China assumptions. And by the way, we are \\u2013 hope we came through, so we are very happy with the momentum we have in China.\\nI think the upside fits with our two largest end-markets, pharma and chemical energy. And as Bob indicated in his script, we are assuming high-singles, I believe, Bob, for the pharma market really coming off just toward growth here in 2021. That high-level growth continues, that would represent upside in our biggest market. And we\\u2019ve got a lot of early positive things happened in the pharma side of things. Pharma, let\\u2019s say, C&E as well, right, Bob.\\nSo we\\u2019ve always \\u2013 I think this is the most bullish language that I\\u2019ve had in a call for sometime about the C&E.\\nSo you can imagine there has been even some caution about not over plan or too much. But I\\u2019d say the two \\u2013 our two largest end-markets represent the highest \\u2013 where we think we may have some upside relative to our initial first guide for the year. Bob, can you remind what we had assumed for China?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, Brandon, it\\u2019s a good question on China and we continue to be very positive on China. If we look at our backlog, our order growth rate has increased higher than our revenue for the last three quarters. We exited 2021 with a record backlog going into 2022 for China. And our guidance comprehends high-single-digit growth in China.\\nSo, both being led by \\u2013 from a geographic basis, growth will be led by Americas and China going forward.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay. And then, Mike, in terms of the new organization structure, why need the COO role now? And then, correct me if I am wrong, are you planning to collapse ACG into the LSAG segment entirely?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, no, thanks for that clarifying question.\\nSo, let me handle the second part of your question first, which is the ACG group will be 100% services in 2022 and then we are moving over the CSD, the chemistry and supplies portion of that business over to Jacob, for two reasons. One is, just the breadth of responsibility that product would have as we had made that change. But we think that\\u2019s going to be a driver of growth and I ask Jacob to make a comment on that here in a second, because I think they have these teams even closer together.\\nWe are going to be able to even further accelerate our connect rates on instruments for our chemistry products. Why the change? Hey, it\\u2019s best to make, when things are going really well, it\\u2019s really time to put down the hammer and really go as hard as you can and that\\u2019s what we are doing here.\\nSo, as you may know, when I first came in as CEO, I had five sales forces. I collapsed those into two. This is next evolution of that overall transformation of the company with this One Agilent culture behind it. The real belief is that the segmentation of our markets really calls for a much more of a customer orientation as opposed to product-centric view of how we want to sell and reach our customers. And you think about the scale as you get with the digital platforms, digital infrastructure, our services organization, this makes sense to do this volume on top of your game.\\nSo, all things are going well, we thought it was really time to pit the seller down even further. And Jacob, you wouldn\\u2019t mind just to comment to what you are thinking about your new responsibilities?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Thanks for that, Mike and I am sure that things got with now that you see the consumables product where it is, so we can truly build out end-to-end solutions that will really drive customer expectations and I think Padraig and the team have over the past few years in fact shown that the design end consumables can really drive a tremendous connect rates.\\nSo I think that already shown the path forward and now all being completely into LSAG, we can really accelerate that.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"And, hey, thanks for that Jacob. And then, maybe just to close off this line of response, any thoughts about your additional new responsibilities?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Thanks, Mike.\\nFirst of all, really excited about the new role and I think the unified commercial strategy and organization will really continue to strengthen Agilent\\u2019s customer focus and help us to align capabilities for the future where we are going to kind of maximize the connect rate and customer lifetime value. And also, I think accelerate execution of our digital ambitions for both delivering near-term growth and strategically invest for the future.\\nSo, very excited and already building on what is a great capability in the company.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay. That\\u2019s helpful. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Brandon, appreciate the questions.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. Couillard. The next question comes from the line of Derik de Bruin with Bank of America.\\nYou may proceed.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hi. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Derik.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Hey.\\nJust maybe \\u2013 so, a couple of questions. I guess, can you talk a little bit about the market expansion 68 at this point is and just repeat that out.\\nYou got some inflationary pressures.\\nYou got some FX.\\nYou\\u2019ve got some COVID headwinds coming off. Can you just provide what\\u2019s the underlying market expansion is just sort of normalizes, you have obviously the capacity coming on car rails.\\nJust how should we think about the margins and just the different pieces?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, do you want to take that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Yes. Thanks, Derik. It\\u2019s a great question. And what we\\u2019ve been able to do even in this last quarter in the phase of inflationary pressures is be able to drive pretty significant margin expansion across our businesses.\\nAnd so, as we think about the 60 to 80 basis points to put kind of as perspective, we are anticipating roughly 15 basis point headwind associated with that train B build up and that\\u2019s hiring the people and getting the product coming online and so forth.\\nAnd so, if we think about that, that\\u2019s closer to 75 to close to that 100 basis points. A lot of that\\u2019s going to come through SG&A operating leverage and the activities associated with just not growing our business expenses as fast as the top-line. And we are going to be looking to cover some of the inflationary pressures on the top-line with that price that I talked about before which we didn\\u2019t really have any significant price in 2021.\\nWe have started to see that. We took quick action earlier this year to reflect that and so a combination of it. Most if it being in OpEx leverage, but there will be some small operating leverage at the top-line as well, if you take out the \\u2013 excuse me, at the gross margin, if you take out the NASD expenses as a result of covering our cost through pricing increases.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Thanks. And then just a couple of quick follow-ups. Any evidence of stocking transportation supply chains degree on the consumable side and just an update on ResBio, that looks like it so lagging its largest rotations? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Derik, a follow-up on those two questions and so, and I have Sam coming on the second question.\\nSo, we\\u2019ve not seen any real evidence of stocking on the consumables.\\nSo, I think that\\u2019s pretty interesting, right, Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That\\u2019s great.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Yes. And then, what you are going to hear from Sam in a minute he will provide a little bit of color, we remain very, very bullish about the long-term prospects with ResBio and a lot of the work has been done to develop new opportunities with our pharma partners. But we are already on the short-term as well. Sam?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Hey. Thanks, Mike.\\nIn terms of Q4, whereas the revenue came in a little bit below expectations and that\\u2019s driven in part by COVID-19 related delays in clinical trial enrollment. Overall, the interest that we are seeing both from our existing customers on the pharma side that we\\u2019ve been doing I see work with, as well as new customers that\\u2019s very, very real.\\nIn fact, we\\u2019ve now signed an agreement which is our first with a large existing customer giving evidence to the interest that\\u2019s there in terms of the work that we are doing on the PMAs. These are approvals related to existing agreements with our Resolution Bioscience business.\\nWe are making good progress on that.\\nAnd so, lot of the momentum in a number of areas.\\nSo, very pleased to have them as part of our business to really bring together the strategy we\\u2019ve had which is to be the companion diagnostic development and commercialization partner leveraging multiple modalities including immunohistochemistry and next-generation sequencing.\"}, {\"speaker\": \"Derik de Bruin\", \"content\": \"Thanks, Sam.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. de Bruin. The next question comes from the line of Tycho Peterson. I do apologize. The next question comes from the line of Dan Leonard with Wells Fargo.\\nYou may proceed.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Hi, good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Dan.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Hey, Dan.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"So my first question relates to the 2022 guide. What are some of the factors that might pull performance back down to the mid-single digit range, specifically, something that would start with the five handle?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think, what I would say is, first of all, I think our guidance is prudent given the beginning of the year. If we saw continued, greater than expected disruptions in the supply chain that may impact demand, particularly in some of the applied markets that could do it.\\nAlthough we haven\\u2019t seen that, to be very clear, Dan. We feel very good about where we are given our forecast and backlog.\\nSo we are \\u2013 I would say are, we have bias towards the upside in our forecast as opposed to bias towards the downside.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Appreciate that. And then, a follow-up on the shift in chemicals and supplies from ACG to LSAG. Is the logic behind the move is to increase the connect rate? Can you remind me where is the connect rate today and where you want it to be over some period of time?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. It\\u2019s a great question and the team continues to do a great job under Padraig\\u2019s leadership here to do that both at the purchase and then on the ongoing aftermarket. What I would say is, right now, if you look at the overall attach rate, it\\u2019s probably in the mid-20s right now. And if you look at the attach rates year-on-year, we saw very nice growth on the new placements.\\nSo, all the new instruments that Jacob and team have been able to sell, that\\u2019s why we feel very good about the ACG business going forward.\\nSo, we still have a long way to go there in terms of opportunity across both the services as well as the consumables.\\nSome of our competitors are higher than that and so we\\u2019ve got aspirations that are well above that mid 20s. And Dan, I just like to make sure this clear, we are not making this change because we were dissatisfied with the improvements in that connect rates. This is icing on top of the cake before that accelerated as we look to balance span of control and business responsibilities with the real driver was the one commercial \\u2013 creation of the one commercial organization. And I think this is a nice secondary benefit that we are actually going to get, we think even more focus and header alignment between our product development groups on the CSD side and instrument side.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Helpful clarification, Mike. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. Leonard. The next question comes from the line of Puneet Souda with SVB Leerink.\\nYou may proceed.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes. Hi, Mike. Thanks for taking the question.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Puneet.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Bob, thanks.\\nSo, first one is on environmental. I mean, you have a leading position there with a number of products across the LSAG product line. Maybe just could you elaborate a bit more for us what\\u2019s going on there? Specifically, related to China, the timing in China, is that just Lunar New Year? Is there something more that we need to consider?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think this is \\u2013 let me start, Bob, you can jump in on this.\\nSo, I think when we talk about environmental and forensics, I think it\\u2019s a tale of two cities.\\nSo, buried in that number is a decline in forensics and I think that\\u2019s probably really tied to governments prioritizing other investments in this COVID-19 world. The demand is not there.\\nI think relative to China, it\\u2019s been more about priorities. Right now, they are shifting some of their priorities towards the pharma and other COVID-19 related type investments.\\nSo, I think that\\u2019s probably, I mean\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, the only thing I would add on that Mike is, there is some shift, but it\\u2019s also timing.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Yes.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"There are some\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Something\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, yes, there is some budget that we\\u2019ve seen that has shifted into our fiscal first quarter and into FY 2022 in particular in China.\\nI think long-term, we still see the importance of the environmental testing in China and around the world remains to be seen or is still intact, Puneet. And it\\u2019s more a function of timing than anything.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And thanks for jumping in on that, Bob, because we still are very, very confident about our ability to grow environment builds in China I think it\\u2019s well known the government\\u2019s real emphasis on continuing to make improvements in the quality of life of citizens.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. And then, just on the liquid chromatography, just staying on that point, I\\u2019d really appreciate your comments on the chemistry columns and consumables now being part of LSAG, but when we look at the business overall today, you obviously have a strong 1200 series offering.\\nWe are also seeing pickup from another competitor in the market space that had lost some share over the last few years and there seems like they are gaining some back. But just wondering what you are seeing in the field and in terms of further competition in this side of the market, we\\u2019ll appreciate any thoughts. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, hey Jacob. I lead off on here and I mean, I first want to say is the key competitors in the LC market remain unchanged. Nobody new in the market and what I can tell you is that, we are very, very happy with where we are in liquid chromatography.\\nSo we are not playing any kind of catch-up game at all here. We delivered high-teens growth in the quarter and exited the year with record backlog and our growth rate in orders were significantly higher than our revenue growth rate. And I think, Jacob, it\\u2019s fair to say that the strength is both on the large and small molecule size with the real standout of China geographically. And I think you exited the year, but we see as record backlog.\\nSo we are really bullish on our LC business and maybe you want to have some additional comments?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Thanks, Mike. It\\u2019s something to be proud of and I am \\u2013 I feel really good where we are right now.\\nAs you said, we are growing very strongly.\\nAs I can see, when I look into the market, we are in a very strong position versus our competition also. And just a reminder, we - a few quarters ago, we did announced that we have expanded our Bio LC portfolio substantially.\\nSo we really have the full range of Bio LCs out there. But we also have 2D-LCs and also online LCs to really drive growth in that area.\\nSo a Bio LC really came timely with all the investment that goes into large molecules right now.\\nSo I truly believe we have momentum and we\\u2019ll continue with that over the next period of time.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Great. Thanks, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Jacob.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr.\\nSouda. The next question comes from the line of Patrick Donnelly with Citi.\\nYou may proceed.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Hey, guys. Thanks for taking the questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hello, Patrick.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Bob, maybe one for you to start, just on the margin side. I know you talked about 60 to 80 BPS of expansion. It sounds like the NASD facility might be a little bit of a headwind. Can you just talk through the moving pieces there? I know you called out price a little bit, as well. Can you just talk about the levers and how much of an offset the facility is, as we can kind of think about the underlying number as well?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nSo, I would say, maybe on NASD, if I look at it and I break it into two components. If I look at it with the existing capacity, that team not only has driven top-line growth, but if we looked at the margin, it actually is accretive to the overall Agilent margin.\\nSo that team has done a fabulous job ramping up.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"It\\u2019s accretive, right?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Accretive, yes, very nicely.\\nAnd so, we are making the investment on Train B. It\\u2019s roughly 15 basis points. That\\u2019s inclusive of that 60 to 80.\\nSo it\\u2019s a roughly $10 million to $15 million of incremental cost associated with the training and investments as the lines come on board.\\nAnd so, we are seeing that and take that to a side because those are kind of discrete. And if I look at the business, what we are seeing is the faster growing areas. We actually are seeing a benefit of mix.\\nAnd so, we talked a little bit about cell analysis but also cell analysis in LSAG has been very accretive both on the gross margin, as well as the operating profit side.\\nAnd so, we\\u2019ve got these faster growing businesses that are helping with mix and then we are adding on the incremental price to cover the inflationary pressures that we are seeing and so forth. But we\\u2019ve also got productivity measures in place and this is where I think the One Agilent approach to our systems and our infrastructure really pays dividends, because we are able to leverage those costs across a larger base and because a lot of that is internal, we don\\u2019t have that same level of pressure on cost as we are seeing in some other areas.\\nAnd so, it\\u2019s a combination of product mix, that price. I talked about 1% price and then leverage in the operating expense side.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"That\\u2019s helpful. Thanks, Bob. And then, Mike maybe one for you on C&E. I know, in the script, you kind of called out maybe having the most positive tone you\\u2019ve had in a little while here on that segment. Obviously the end-market health seems pretty high from the customers. And can you just talk about, I guess, the conversations you\\u2019re having there, visibility, again, guiding to high single for next year off a pretty strong 2021 is encouraging.\\nSo maybe just your confidence and then again, it sounds like maybe there\\u2019s even some upside to that number?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sure, Patrick.\\nSo, yes, so we are seeing really good end market demand for and I think Bob highlighted a lot of those like the advanced materials or chemicals. It really speaks to the overall recovery economically on a global basis and the fact that this in particular, this customer base had deferred a lot of investments for some period of time.\\nSo, they are in a reinvestment mode and we have pretty good visibility to the funnel.\\nSo, I think we probably got at least a six month lead view on what\\u2019s coming down on instrument purchases.\\nSo, we are feeling really good about the C&E business as well as there is the ACG story here as well of where we are continuing to increase services in this segment, which has historically been more of a self-maintainer kind of market, as well as the chemistries and consumables side.\\nSo, I think we\\u2019ve got pretty good visibility, given our confidence and be able to put this kind of number out there in a full year guide at this point in time. Bob, anything else you\\u2019d add to that? I know we spend a lot of time talking about this.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No, I think you got it.\\nYou said it well.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Great. Thanks, Mike.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"You are quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. Donnelly. The next question comes from the line of Josh Waldman with Cleveland Research.\\nYou may proceed.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Hi. Thanks for taking my questions. Wanted to start with a quick follow-up on supply chain.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Sure, sure.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Yes. Hey, Bob. Wanted to start with a quick follow-up on supply chain. I wondered if you could give us the magnitude of the push-outs you referenced and is this all LSAG?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Well, I am going to pass it to Bob here in a second, but let me really clear in terms of our language. When I use supply chain, that means material constraints and then we have logistics.\\nI think, of the issues that Bob, the transit times was really logistics issue.\\nIn terms of our ability to get product to customers and get the raw materials, we feel pretty good about what\\u2019s been going on there so.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes, exactly.\\nSo it was more just longer delivery times and Josh, it was in the LSAG business, as you would expect. It was roughly a point in the quarter.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Okay. And given the transient nature, it sounds like you are assuming this all hits in the first quarter. Is that kind of what\\u2019s embedded in your guide?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"We are assuming that it will get better over the course of the first half of next year or first half of the fiscal year.\\nSo not all of it will come back in Q1.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Got it, okay. And then, I wanted to follow-up on your comments within the LC/MS franchise. I believe, in your prepared remarks, you highlighted stronger install rates in this franchise in the fourth quarter.\\nJust wondered if you could provide any additional color on that, maybe what\\u2019s driving it? Is it higher or faster kind of accelerated refresh levels at legacy accounts? Or maybe you\\u2019re seeing kind of increased win rates at new accounts?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I am going to \\u2013 great question. I am going to pass that to our expert on this topic. Jacob, maybe you want to talk about what\\u2019s going on in the LC/MS front.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Certainly, Mike and as you mentioned, we had great success with our new Ion Mobility, 6560C that we launched here at ASMS and we had a fantastic worker and user meeting also that was rally all subscribed. But as you also speak to, we had tremendous traction on our triple core and single cord businesses. And particularly in the biopharma space, we see a lot of smaller accounts also coming live, small mid-sized accounts that are starting to build up their capabilities within the analytical instruments business.\\nSo we see a lot of tremendous momentum there. But obviously, also the big accounts that is more in the refresh mode.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo, I think part of the story, Josh, is new customers, right, particularly on the biopharma side and also doing very well on the refresh side with existing customers.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Got it. Yes. Really appreciate it guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. Waldman. [Operator Instructions] Our next question comes from the line of Michael Gokay with KeyBanc Capital Markets.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Hey, Mike. It\\u2019s Paul Knight. Thanks for the time.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Paul. How are you doing?\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Good, good.\\nOn the Avantor agreement, is there any way you can talk about - does that give you another 5% of addressable market? What are your thoughts around that deal?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Hey, thanks for noticing that we had worked with Michael\\u2019s team and have a real agreement we are really excited about. And I\\u2019m actually going to pass it over to Agilent\\u2019s new Commercial Officer to his view on that question. Go ahead, Padraig.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nI think, yes, thanks, Mike.\\nI think we see that it\\u2019s a really mutual beneficial arrangement that we are going to see not only different customers, but at different spaces within customers and it also helps with overall the addressable market and coverage.\\nSo, the Agilent team and the Avantor team will be able to share leads and so on so we\\u2019ll be able to cover the market better. We\\u2019ll also be able to use our digital capabilities to be able to find new customers and also increase the wallet share and customer side.\\nSo all around, a very positive development.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Paul, it\\u2019s hard to put an exact percentage on the question. But we wouldn\\u2019t be doing it if it was on the margin.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. And I was going to say, Paul, this is Bob.\\nJust to add, I mean, we didn\\u2019t really see any revenue. That\\u2019s all future opportunity for us. And I think one of the areas that Avantor is strong is in the research area, Academia and Government, and this will help us even cover that market even broader than we do today.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Absolutely.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. The next question comes from the line of Dan Brennan with Cowen.\\nYou may proceed.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Hey, Mike. Hey, Bob. How are you guys doing?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"All right, Dan. How about yourself?\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Thank you. Thank you. Doing well, doing well. Maybe first question on NASD, maybe I missed it. Did you guys give a number for 2022, what\\u2019s implied?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"We did not, but what we did say is, we would expect strong double-digit growth. I\\u2019ll leave it at that. Yes, what I can tell you is we exited at a run rate that was higher than the - if you took our $225 million that we talked about and divided by four, our runrate was higher than that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Right.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"So we continue to ramp.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, thanks for that question. It was hard to explain it in the call narrative. But as Bob mentioned, our Q4 exit rate is higher than the full year number.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"And maybe could you give a little color there.\\nI think, Bob, you mentioned in the prepared remarks or in Q&A that you\\u2019re taking in orders to 2023. Could you just give us a sense like what the utilization is today of your capacity that\\u2019s available and any color about demand trends book of business things of that nature?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. In short, we are running 24/7 at both our Frederick facility, as well as our Boulder facility, which was a legacy facility. And we are \\u2013 I feel very good about our ability to continue to expand capacity. What Brian and team have been able to do is increase both throughput, as well as yield.\\nAnd so, that\\u2019s really helped us drive additional capacity with the existing footprint or the existing manufacturing facility. And the Train B, as we talked about has the opportunity to add more than $100 million of incremental volume coming online starting at the end of this - our fiscal - our calendar 2022.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Got it. And then, maybe on the One Agilent, Mike, could you just give us, I know, Mike, when you got there, you made some changes to the sales force that have made under your predecessor, now you are going further.\\nSo how should we see this manifest from the outside over the next, I don\\u2019t know, one to two years? Does this \\u2013 could this lead to stronger growth? Is it going to lead to more better margins, more durable growth? Just obviously the customers are going to see something, but how will that manifest in reported results, do you think?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think it\\u2019s a check for each one of the things you listed there. But the number one reason why we are doing is to drive more growth. And it\\u2019s just a natural evolution of the transformation in the sales force. I started a number of years ago. And it really points to the fact that we have this broad-based portfolio that\\u2019s selling into the same customer base. And why have two separate sales forces and have to go do the coordination between across sales forces, and then the big push that we made over the last several years in terms of digital, this allow us, I believe, to even go faster on realizing our digital ambitions. And then you\\u2019ve got the voice of the customer will be right in the CEO\\u2019s staff and on Padraig\\u2019s table, the Head of the service delivery organization.\\nSo, everything relative to the customer facing that we do in this company will be under one leader. We just think it\\u2019s going to find ways to accelerate our growth, increase our customer satisfaction, and I think as we push more and more of our business because customers want to buy that way through digital, it will have a natural knock-on effect of efficiency gains in the P&L.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great. And then, maybe one more, obviously, balance sheet is in great shape.\\nSo, the proverbial question about M&A, just wondering what does the funnel look like? Any update on the strategy? I know you\\u2019ve been pretty cognizant of not wanting to go too big here and kind of not disrupt what you built there. But just give us a sense of what the needs are today? And what is the outlook for M&A in 2022?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Sure, Dan.\\nSo I\\u2019ve used - been using this order the last several years of the build and buy growth strategy.\\nSo, we are still very interested on the buy element of fueling future growth and for example, in this past year, we did the Res Bio acquisition really got us into liquid biopsy and really allows us to play to our strengths that we already have from our CDx and IHC business.\\nSo, we are going to look for continued opportunities such as those where you are in higher growth markets than the total company average, where they can really benefit by being part of Agilent and where they have differentiated technology and differentiated teams.\\nWe will stay in our lane, so to speak, on valuations.\\nLet\\u2019s - I\\u2019d say, the - you know that\\u2019s better than I do, perhaps, Dan. The market is still very robust.\\nWe are very active. And we just want to make sure that the deal works for our shareholders. But deploying capital for M&A is part of our story going forward and it\\u2019s all upgrade.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Thanks, guys. Excellent. Great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. Brennan. The next question comes from the line of Jack Meehan with Nephron Research.\\nYou may proceed.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thanks. Good afternoon. Hey. I want to dig in a little bit more on Cell Analysis.\\nSo, heard cleared $100 million in the quarter. What was the 2021 contribution? And similar to the line of questioning on ASP, what\\u2019s the target there for 2022 growth?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nSo, I\\u2019ll start with the cell analysis business and I\\u2019ll bring in Jacob here, because it has just done a fantastic job and it\\u2019s really continued the momentum that we saw at the beginning - throughout 2020.\\nSo, it ended just short of $400 million for the full year and it grew in the mid-20s. And I would expect us to looking forward if we think about where the market is headed and the fundamental demand there, that will be growing double-digits for sure going forward. And as I mentioned before, the beauty of that business is, it\\u2019s right ingrained with where the research and technologies are going and where a lot of money is being put in. But it\\u2019s also an extremely well run and profitable business for us.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Jacob, maybe you can give some insights in terms of where are the end-markets you think that are driving - been driving the growth and where we think it\\u2019s going to come from in the future?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, thanks for that. It\\u2019s a really good question. Obviously it\\u2019s something I\\u2019d really like talk about. The cell analysis business has been super successful in the past years and our focus on the immuno-oncology space has really paid off.\\nWe continue to see opportunities there and we continue to see that our portfolio of being able to measure live cells is required to really drive the research forward.\\nSo where we really see the opportunities is, is in the - between biopharma and also the academic markets there, that\\u2019s where we see the biggest and the biggest momentum going forward.\\nWhile we have seen here in the past period of time also that the diagnostic business, particularly with our flow cytometry is picking up good speed, but, I would say, the main opportunity sits in the biopharma space.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And did you ask a question about NASD?\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"No.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Can you down that line just from the comparison?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay. All right.\\nYou are right, Bob.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"My follow-up was going to be, a lot of discussion obviously around driving growth. I was hoping to just get your philosophy on CapEx.\\nSo, I think the guidance implies about 4.5% of sales for 2022. That\\u2019d be higher than you\\u2019ve done in the last few years. Do you expect this is going to remain elevated more kind of in the medium-term? Or is this just kind of some of the near-term opportunities coming through?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Jack, that\\u2019s a great question and what I would say is, if we look at where our there is different kinds of CapEx, and it\\u2019s not all created equal. But the reason that it\\u2019s being increased is really to fund that growth and capacity expansion, whether that be Train B and NASD or the capacity expansions in places like genomics and cell analysis and I would say, given our growth trajectory in those areas, I would expect us to continue at probably an elevated level to incorporate that growth.\\nAs Mike said, we\\u2019ve got this buy and build strategy and that\\u2019s part of the build strategy and it has paid off in spades with NASD. And what I would say is, we are not \\u2013 there is more letters in the alphabet than B. It doesn\\u2019t end at B. But what I would say is, there is - we are going to be prudent about it, but also be aggressive about going forward.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. Meehan. The last question is from the line of Catherine Schulte with Baird.\\nYou may proceed.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Hey, guys. Thanks for the questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Catherine.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"First - first on the LSAG guide for mid-single-digits.\\nI think on the last call, you talked about the GC replacement cycle coming back on, maybe being in the midst of an LC replacement cycle on small molecule. And you\\u2019ll now have chemistries in there as well.\\nSo, should we think about this as being more towards upper-end of that mid-single-digit range for 2022 or was there some sort of catch-up spend in 2021 that maybe is a headwind as we get into 2022?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think you\\u2019re spot on, Catherine. It\\u2019s the former, not the latter. Think about it as a higher end and that\\u2019s where, I would say, if we think about where our opportunities for upside are, are in the instrumentation business and continuing the strong momentum that we\\u2019ve seen.\\nNow we are also going up against, I think, a 15% core growth rate year-on-year. But we feel very good about the momentum in that business, particularly in the areas that you just talked about in Chemical and Energy and in Pharma.\\nWe continue to believe that the pharma business coming out of COVID is structurally a higher growth market and as we continue to place our focus on the biopharma or the large molecule, if you look at that throughout 2021, that was a much - growing much faster than the overall pharma business.\\nAnd so, we would expect that - we feel very good about that business going forward.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Okay. And then, maybe one more, you had a lot of success on NASD. Do you have any interest in entering other areas as manufacturing components for biopharma, whether it\\u2019s GMP reagents or DNA plasmas or other areas? And is that\\u2019s something that you might get into in 2022?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Well, Catherine, we are always looking for new drivers of growth that would make sense for Agilent to be directly involved in.\\nSo, nothing to report for 2022. We\\u2019ve got a handful of adding different additional letters, if you will to the all that we serve in NASD. But never say never to the thesis of your question.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"Okay. Great. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Ms. Schulte. And the last question is from the line of Noah Baron with JPMorgan.\\nYou may proceed.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Can you guys hear me?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Hey, Tycho.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"It\\u2019s Tycho.\\nSorry about the phone issues.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No problem. No problem at all. Sure.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"So, Dako, I appreciate the China color. Obviously people are focused on China tenders at the moment. It doesn\\u2019t sound like you\\u2019re flagging any issues there, specifically for Dako, but can you talk about what you\\u2019re kind of seeing on the ground there for China? And then, how big is the CDx business? You mentioned that earlier, Mike, and you obviously had a bunch of press releases during the quarter about new approvals for CDx?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo, Sam, I know this is something you\\u2019ve been talking to your team about relative specifically about what maybe happened in the China diagnostics market and what\\u2019s going on there.\\nSo, we think we\\u2019ve got a pretty good protective position. But why don\\u2019t you elaborate a bit more?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, happy to, Mike. Tycho, thanks for the question. We\\u2019ve had another, just overall for our pathology business, the former Dako business, if you will, a really good quarter, including in China. And you may be referring, Tycho, to the buy China requirements that we are all aware of that are happening specifically to our former Dako business, if you will. The relative unique position, particularly with PD-L1 and having a minimal number of local competitors really differentiates us.\\nSo, we haven\\u2019t felt really pressure from the buy China impacting our business. But we have continued to see really good interest not only in PD-L1 companion diagnostics that brought more broadly speaking in China for our diagnostic products.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Sam, if I recall, you\\u2019ve got your PD-L1 registered in China, right?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes, we do. I mean, we registered that almost exactly two years ago, becoming the first-ever companion diagnostic in China. And it\\u2019s doing well for us there in China. We\\u2019ve actually now trained over 400 different pathologists throughout China to utilize our companion diagnostics.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Hey, and Tycho, maybe just a follow-up, if I looked at our business in China for DGG for the year, it grew in the 30s, and it was actually in excess of that for Q4.\\nSo, it had very positive momentum and CDx is roughly $100 million, ex the Res Bio acquisition.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Great. And then, on Cell Analysis, Mike, I know one of the priorities you\\u2019ve talked about is moving that portfolio downstream. Can you talk about those efforts how actively you\\u2019re looking at kind of pushing that into QA/QC and further downstream?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo, Jacob, why don\\u2019t you follow-up with some thoughts here?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"So, Tycho, when you said downstream, can you tell a little more?\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"More in the bioproduction versus R&D, yes.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"On the bioprocessing, yes, we see a big opportunity in the bioprocessing space, both for our Cell Analysis business, but also for our Analytical Instrument business.\\nSo, I think that\\u2019s something we will continue to invest in going forward.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think what we are seeing right now, Tycho, is moving from truly research into the development area. And then, that will then lead into the QA/QC.\\nSo, I think you see a multi-step process here and so, as Jacob said, it\\u2019s just early days here from that standpoint. And - but making great progress across all three of those kind of sub-businesses and have high hopes for that to continue.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"A similar flow that we\\u2019ve seen in pharma for years, right, which is starting in our R&D then works its way into QA/QC.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And, Tycho, I think we\\u2019ve built this great business through a series of acquisitions and the way we integrate into it making one business. And this would be an area of obviously future focus for us on the M&A front, as well.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Great. And just one last one on the new Agilent and I know you\\u2019ve got a number of questions on the rollouts there.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Are there new services you\\u2019re introducing in conjunction with that? Are you broadening the service portfolio?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Not yet, but stay tuned. It\\u2019s only just a few weeks old.\"}, {\"speaker\": \"Tycho Peterson\", \"content\": \"Fair enough. Alright. Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay. Thanks a lot, Tycho. Glad you get on the call.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you, Mr. Peterson. There are no additional questions waiting at this time. I would like to pass the conference back to Parmeet Ahuja for any closing remarks.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Bethany, and thanks, everyone. With that, we would like to wrap up the call for today. Have a great rest of your day.\"}, {\"speaker\": \"Operator\", \"content\": \"That concludes the Agilent Technologies fourth quarter earnings conference call. I hope you all enjoy the rest of your day.\\nYou may now disconnect your lines.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2022-02-23
year: 2022
quarter: Q1
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Hello. And welcome to the Q1 2022 Agilent Technologies Earnings Conference Call. My name is Emily, and I will be coordinating the call today.\\nDuring the presentation you will have the opportunity to ask a question [Audio Gap] [Operator Instructions] I now have the pleasure [Technical Difficulty]\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"[Technical Difficulty] Agilent President and CEO; and Bob McMahon, Agilent Senior Vice President and CFO.\\nJoining in the Q&A after Mike and Bob\\u2019s 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 Q1 financial results, investor presentation and information to supplement today\\u2019s discussion, along with a recording of this webcast are available on our website at www.investor.agilent.com. Today\\u2019s comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year 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 exchange rates as of January 31.\\nAs previously announced, beginning in the first quarter of fiscal 2022, we implemented certain changes to our segment reporting structure.\\nWe have recast our historical segment information to reflect these changes. These changes have no impact on our company\\u2019s consolidated financial statements.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties, and are only valid as of today. The company assumes no obligation to update them. Please look at the company\\u2019s recent SEC filings for a more complete picture of our risks and other factors. And now, I\\u2019d like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Parmeet, and thanks everyone for joining our call today.\\nOur momentum continues. The Agilent team delivered a strong start to 2022 in Q1, exceeding the expectation of both the top and bottomline.\\nOur Q1 revenues are $1.67 billion. This is up 9% core and up 8% reported. This is on top of growing 11% core in Q1 a year ago.\\nExcluding COVID-19-related revenues, our core growth is even better at 10% this quarter.\\nWe continue to see strength in our order book with robust order intake throughout the quarter.\\nIn fact, Q1 orders grew roughly twice as fast as revenues. Q1 operating margins are a healthy 26.3%, up 80 basis points from last year. Earnings per share of $1.21 are up 14%. The EPS increases versus a tough comparison of 31% growth in the first quarter of 2021. These strong results have been achieved in a very dynamic environment. I could not be more proud of the Agilent team\\u2019s ability to execute and deliver.\\nLet\\u2019s take a closer look at some of what\\u2019s driving our strong results. Bob will go into more details later in the call, but our two largest markets continued strong double-digit growth.\\nOur Pharma business, Agilent\\u2019s largest market, continues to lead the way for us, growing 17%. Global end market demand for our products and services remains very strong. Biopharma grew 32% while small molecule growth came in about at a robust 9%. The momentum in our Chemical and Energy business also continues, delivering 15% growth in the quarter. This was driven by mid-teens revenue increases in Chemicals and Advanced Materials. PMIs remain positive, along with our overall outlook in the Chemicals, Energy and Advanced Materials markets. On a geographic basis, our results led by 13% growth in the Americas. This is on top of 13% growth in Q1 a year ago. China grew 3% on top of 25% growth in Q1 of last year and was impacted by the timing of Lunar New Year, as noted in our November call. Demand in China remained strong as orders grew high-teens in the first quarter.\\nWe continue to invest in China for China to further strengthen our ability to serve our customers. We recently announced a $20 million expansion of our Shanghai manufacturing center to meet growing demand for our locally made liquor chromatography, spectroscopy and mass spec systems.\\nLooking at our performance by business unit, the Life Science and Applied Markets Group generated revenue of $976 million, an increase of 7% on a core basis. This is versus a 10% core growth in Q1 of 2021. LSAG\\u2019s growth was led by strength in the Pharma and Chemical and Energy markets. From a platform perspective, customer interest and purchases of our chromatography systems and mass spec offerings are very robust.\\nOur chemistries and supplies business, which moved over from ACG this year, continue to do very well, delivering double-digit growth.\\nWe also continue to invest and strategically partner for future growth. Late last week, we announced the acquisition of very exciting artificial intelligence technology that will be integrated into our industry-leading chromatography businesses. This technology has the potential to significantly improve lab growth productivity and accuracy by automating manual interpretational chromatography data. We believe that this capability will be very well received by the high throughput labs Agilent serves around the world. This acquisition is an example of our build and buy growth strategy, as a complement to work, our internal R&D teams are going to develop these types of capabilities for other Agilent platforms.\\nDuring the quarter, we also announced a partnership with Lonza to integrate Agilent\\u2019s analytics technologies and techniques into Lonza\\u2019s Cocoon Platform cell therapy manufacturing workflow. The collaboration has the potential to transform the way personalized cell therapies are manufactured.\\nIn addition, to ensure we can meet the strong and growing demand for our cell analysis offerings, we also recently announced plans to invest more than $30 million for the construction of a new manufacturing site in Chicopee, Massachusetts. The Agilent CrossLab Group posted services revenue of $359 million. This is up 10% core against a 11% Q1 2021 core growth compare. This growth is broad-based with strength in service contracts, preventive maintenance, compliance, education and informatic enterprise services.\\nOur focus on providing a differentiated customer experience that leverages our large-scale and talented customer support team continues to pay off.\\nOur connect rates continue to improve and our installed base continues to expand, both boding well for continued strength in our services business. The Diagnostics and Genomics Group delivered revenue of $339 million, up 14% core versus Q1 2021 core growth of 15%.\\nOur excellent growth is broad-based across pathology, genomics and NASD.\\nOur Pathology business grew roughly 10% with strength across all regions.\\nOur core genomics business grew low-teens, with strength in target enrichment and our genomics quality control product lines. The NASD team continues to deliver, driving 45% plus growth in the quarter. Meanwhile, the additional capacity expansion at our Frederick GMP oligo manufacturing facility continues to proceed as planned.\\nWe continue to expect this capacity to come on line by the end of calendar year 2022.\\nOur Resolution Bioscience team achieved a major milestone in the first quarter by completing the pre-market approval submission for the Resolution ctDx FIRST liquid biopsy assay as a companion diagnostic. This was done in conjunction with Mirati Therapeutics for non-small cell lung cancer and is currently under review by the FDA. It is the first of what we hope will be several indications for liquid biopsy assays. I am pleased with how we have started the year. Building on our Q1 results, continued order strength and execution prowess, we are increasing our full year financial guidance.\\nWe are raising our core growth guidance to a range of 7% to 8%, up 125 basis points at the mid-point from our prior guidance. Fiscal year 2022 non-GAAP EPS guidance is increased to a range of $4.80 per share to 4.90 per share, growing 11% to 13% over last year. Bob will be providing the Q2 outlook along with more detail on our improved full year guidance.\\nWe are very pleased with our Q1 results and looking forward to another strong quarter and year ahead. I am also very confident in our team and our ability to execute and deliver for our customers and shareholders, no matter what the challenge. Thank you for being on the call today and I look forward to taking your questions later.\\nHowever, for right now, I will now hand the call off to Bob. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thanks, Mike, and good afternoon, everyone. In my remarks today, I will provide some additional details on revenue, take you through the income statement and some other key financial metrics. I will then finish up with our improved outlook for the full year and our guidance for the second quarter. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nAs Mike described, we posted very strong results in Q1 and exceeded expectations. Revenue was $1.6 billion -- $1.67 billion, up a reported 8.1%. Core growth was even better at 8.9% as we overcame a greater than expected negative exchange rate impact of 1.3 points, while M&A added 0.5 point to growth. Q1 core growth was 170 basis points higher than the top end of our guidance.\\nIn addition, after adjusting for the 1-point headwind due to COVID-19 revenues, our core growth outside of COVID was roughly 10%, and as Mike said, order growth was even better. Again, a very strong start to the year.\\nNow moving to our end-market performance, our results were driven by a continuation of strong growth in Pharma, led by Biopharma, while momentum in Chemical and Energy and strong results in Diagnostics and Clinical also led the way for us in Q1.\\nOur largest market, Pharma grew 17% during the quarter, on top of 20% growth last year. The small molecule subsegment delivered high single-digit growth, while large molecule continued its strong performance growing 32%.\\nWe are seeing our ongoing investments in biopharma paying off as demand was strong throughout the quarter.\\nWe continue to believe in the long-term growth potential of the Pharma market and that our business will drive above market growth. Chemical and Energy continued to show strength, growing 15% during the quarter. Growth in Chemicals and Advanced Materials led the way, and we expect continued growth in this business. Diagnostics and Clinical grew 11% on top of 9% growth last year, with all three business groups again expanding revenues nicely during the quarter.\\nOur expansion of LC/MS equipment into the clinical space continues to do well. And our growth in China was particularly strong, increasing more than 30% as we continue to penetrate this market. The academia and government market was flat in Q1. The business remained resilient despite omicron impacts in the U.S. as some universities delayed in-person learning in the period following the holiday break in December and reduced lab activity in January.\\nWe have seen lab activity improve into February and believe the funding environment remains positive. The Food segment declined low-single digits against a very strong 22% growth comparison from last year. The Americas were a bright spot for us, growing in the mid-teens, while Europe was flat and China down due to difficult comparisons and Lunar New Year timing. Closing out on the performance of the markets, environmental and forensics, our smallest market was down 11%.\\nFor Agilent overall on a geographic basis, all regions again grew in Q1, led by the Americas at 13% and Europe at 6%. China grew 3% on top of 25% in Q1 last year, in addition to the effect of Lunar New Year timing, which should benefit us in Q2.\\nNow turning to the rest of the P&L, first quarter gross margin was 56.1%, up 30 basis points from a year ago.\\nOur team has done a good job increasing productivity and pricing has helped offset higher input and logistics costs. Operating margins of 26.3% increased 80 basis points even as we have increased our R&D investments.\\nOur investments in digital technology for our internal operations also continue to pay off as we leverage our infrastructure across the company using our One Agilent approach.\\nOur tax rate of 14.25% came in as expected and we had 303 million diluted shares outstanding, slightly lower than projected. Putting it all together, we delivered EPS of $1.21, up 14% versus last year after growing 31% in Q1 of fiscal 2021.\\nWe continued to produce strong operating cash flow, generating $255 million in the quarter, beating our forecast, while we also invested $75 million in capital expenditures during Q1. And during the quarter, we took advantage of market volatility to repurchase $447 million worth of shares.\\nWe also paid out $63 million in dividends, returning a combined total of $510 million to shareholders.\\nOur balance sheet remains very healthy with a net leverage ratio of 0.9 times and given current market conditions, we expect to continue to be aggressive in deploying capital.\\nNow, let\\u2019s move on to our improved full year guidance and our outlook for the second quarter.\\nAs Mike indicated, we are raising our full year core revenue growth to an expected range of 7% to 8%, up from our initial guide in November of 5.5% to 7%.\\nExcluding the COVID related 0.5-point headwind this year, this results in core growth of 7.5% to 8.5%. The new guidance takes into account our strong Q1 results and an improved outlook for the rest of the year on a core basis.\\nWhile we have increased our core growth expectations, the dollar has strengthened considerably, doubling the estimated exchange rate headwinds from our initial guide to $110 million for the year, while the M&A impact remains relatively unchanged. Putting it all together, we are expecting full year revenues to be between $6.67 billion and $6.73 billion.\\nIn addition, we have increased our EPS guidance for the full year to $4.80 per share to $4.90 per share, up from the previous range of $4.76 per share to $4.86 per share and representing 11% to 13% growth versus fiscal year 2021.\\nFor Q2, we are expecting revenue to range from $1.595 billion to $1.625 billion. This represents core growth between 7% and 9% after adjusting for an expected 0.5-point impact related to COVID year-on-year and we expect reported growth in the range of 4.6% to 6.6%. Exchange rates are expected to have a negative impact of about 2.3% in the quarter while M&A is expected to contribute 0.3 points to growth. And closing out our Q2 guidance, non-GAAP EPS is expected to be in the range of $1.10 to $1.12, up 13% to 15% versus the prior year. This is based on a 14.25% tax rate and 303 million diluted shares outstanding. Again, the Agilent team performed extremely well in Q1 and with the solid growth we are seeing in orders and the team\\u2019s willingness and ability to take on every challenge that comes their way, I am confident that Q2 and our full year results will also be strong. With that, Parmeet, back to you for Q&A.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Bob. Emily, if you could please provide instructions for the Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"Of course. [Operator Instructions] Our first question for the call today comes from Tycho Peterson from JPMorgan. Tycho, your line is open.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great. Hi. This is Rachel on for Tycho. Thanks for taking the question.\\nSo, first off, great to hear the\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Rachel.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"\\u2026 about companion diagnostic package for FDA review.\\nSo can you just give us the expected time line for when you think you will get that back and if anything is expected in contribution for this guide for 2022?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Rachel, thanks for that question. I am going to pass it over to Sam.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yeah. Rachel, thank you very much for the question.\\nWe are very excited about having completed all the modules and made the submission for the companion diagnostic related to Mirati\\u2019s adagrasib.\\nAs you know now, we have done what we need to and we will engage with the FDA as they come back with questions. We can\\u2019t -- we don\\u2019t exactly are able to control the time line, and as you likely know, the actual approval would be very much tied to the approval of the drug itself, which of course, we have no control over either. But we are very excited about the progress.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. I would say, Rachel\\u2026\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Okay. And then\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"\\u2026to the following question.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Rachel, I think, Bob had to build on that.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\\nJust to build on that as\\u2026\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Yeah.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"As was recently disclosed, the PDUFA date is scheduled for the end of this fiscal -- calendar year.\\nSo there\\u2019s not any material revenue associated with this built into our fiscal year guide, but we are very excited about the opportunity in 2023 and beyond.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Noted. And then, for the updated guide, can you just give us a rundown on the updated outlook by end market for what\\u2019s assumed in the new guide?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"For the full year or second quarter, Rachel?\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Both would actually be great.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. I am going to let the witness, Bob.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\\nSo, I think very similar to what we had talked about at the very beginning of the year. The two strongest markets will continue to be our Pharma and Chemical and Energy market.\\nI think, as we look at those, certainly, both of them performed better than we expected in Q1 and our expectation is that, those will continue to be the driver of growth for the full year, with Pharma probably at a roughly double-digit growth and Chemical and Energy about that high single-digit, double-digit growth as well, and then, followed very closely by Diagnostics in -- at high single-digits. And then food, environmental and academia and government are probably in the low-to-mid single digits, which is pretty consistent with our expectations at the beginning of the year. And it\\u2019s slightly different, but same directional for Q2 with Pharma probably being a little stronger.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Got it. And then, for Chemical and Energy, can you just talk about if you see any risk coming from Russia and Ukraine, and then also, if you could just touch on that decline 11% this quarter in environmental. How much of a headwind with COVID for that segment or is there anything else underlying in that market that\\u2019s really changed relative to your prior expectation?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. I would say, for Chemical and Energy, as you know, I mean, our business is really globally based.\\nAnd so as of right now, we don\\u2019t see any material impact to the Chemical and Energy market or our forecast going forward. Obviously, we are watching that closely. And then, I think for environmental and forensics, it\\u2019s our smallest market and can be lumpy. There was some impact associated with Chinese Lunar or Lunar New Year in China. But we haven\\u2019t seen any impact there. What I would say is we are starting to see some of the disbursements more in our order funnel than in revenue associated with the Infrastructure Initial Bill here in the United States.\\nSo I wouldn\\u2019t read anything into it in terms of changing in fundamental demand.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great. Thanks for taking my questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are very welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question today comes from Matthew Sykes from Goldman Sachs. Matthew, your line is open.\"}, {\"speaker\": \"Unidentified Analyst\", \"content\": \"Hey guys. This is Dave on for Matt. It was great to see the strength in biopharma end market. It\\u2019s impressive given the challenging funding market for these biotech firms. Any additional color you can give on what you are seeing in the biotech end market and productivity there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. Dave, first of all, thanks for the recognition.\\nWe are really pleased with that 32% growth print and we see the underlying demand remaining strong. And Bob, I think, it\\u2019s fair to say, we haven\\u2019t release any impact at all from \\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"\\u2026what maybe happened in the biotech funding arena.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\\nWe are very excited about our portfolio and how it plays into that space and are believing that that strong growth will continue going forward.\"}, {\"speaker\": \"Unidentified Analyst\", \"content\": \"Fantastic. And any additional color on the drivers of the strong margin expansion in LSAG and how sustainable is this margin expansion over the rest of the year?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. I will jump in there. it -- yeah, the team has done a fantastic job really driving margin and if we look at it, it\\u2019s a combination of being able to cover our costs from the standpoint of the increased logistics and material costs, as well as very strong management discipline in the operating expenses.\\nSo it\\u2019s a combination of being successful in our price, which we had talked about before and covering those costs, as well as being able to leverage kind of our infrastructure across all three of the groups.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Bob, I think, you also called out the digital investments we are making.\\nSo that\\u2019s in particular showing up through the SG&A line as we leverage digital investments.\"}, {\"speaker\": \"Unidentified Analyst\", \"content\": \"Fantastic. Congrats on the quarter, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Dave. Most appreciated.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Vijay Kumar from Evercore ISI. Vijay, please go ahead.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hey, guys. Congrats on a nice quarter here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Vijay.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"And thanks for taking my question.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Bob, maybe one near-term question here on the second quarter guide. The 200 basis points range, that\\u2019s wider than your normal -- typical range, your annual guidance range is 100 basis points, any reason for a wider branch and it comes to it really hard in 2Q.\\nSo I am curious, what\\u2019s giving you the confidence to get to that upper end of 8.5%, which would imply sequentially flattish with 1Q trends?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\\nSo let me take the second part first.\\nAs Mike mentioned in the call, our demand continues to be very strong and we actually had order growth that exceeded revenue growth almost 2x and that gives us confidence around the order book going into Q2 really across multiple end markets.\\nAnd so that gives us the ability to deliver the -- or expected to deliver the high growth in Q2. In regards to the range, there are still uncertainties out there, as Omicron continues to impact, mainly Asia right now and then some other uncertainties.\\nSo I think that\\u2019s just taking a little wider lens, but we still feel good about the business for the full year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. I appreciate the recognition, I think, Bob, what we posted 19% core last year.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So I appreciate that recognition, Vijay. And as Bob mentioned, the book of business is really quite strong, plus also our services business is really strong Diagnostics.\\nSo the recurring revenue side of the house is quite strong.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That\\u2019s helpful, Mike. And maybe on the comment on the acquisition contribution here in the second quarter, it seems to be sequentially down. Is there any seasonality to that business and what is the guide assuming for -- you didn\\u2019t note the strong order book for 2Q? Is the guide assuming perhaps the order book momentum tapers down in the back half?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. No. It doesn\\u2019t. There is an element of getting tougher comps, but the momentum continues. I would say for Q2, it\\u2019s more timing than anything else relative to the M&A. It is down slightly sequentially, but I would say, in the overall scheme of things, not material.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Got it. Thanks, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are very welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Up next we have a question from Brandon Couillard from Jefferies. Brandon, your line is open.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Hey. Good afternoon. Mike, on the\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Brandon.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"\\u2026AI acquisition, it sounds interesting. It\\u2019s definitely a buzzword. Would you expect to be making incremental investments with this deal and could you just comment on how and why the AI tools are kind of used in the instrumentation today and when you sort of expect this to be, I guess, more of a reality of feature?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. Brandon, happy to do so. I am going to actually invite Jacob on the response here, because, yeah, we hear a lot about the buzzwords and when the team first came to be and started talking about this opportunity, we said, well, in actuality, there\\u2019s a lot more than buzzwords here. We actually have some lighthouse customers using this capability already. And as you hear from Jacob, it really drives productivity for those high volume labs.\\nSo we think for certain segments market, this is actually going to be a reality. And Jacob, why don\\u2019t you, why don\\u2019t you build on my comments there, if you don\\u2019t mind?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah. Sure. Thanks for the question, Brandon. I am very excited about this also on bringing the best control team here into Agilent. It might be a buzzword, but we have really seen that it really makes a difference. And first of all, it fits very well into an informatic strategy, where we are all about digitalizing the lab and create that deal inside both scientifically and productivity wise for our customers.\\nHere, the first product realization, which has already been prototype, we are aiming to what a part of the -- that is very prone for AI right now and that is really the manual interpretation of commercial graft, as Mike also mentioned. Usually, labs are spending a highly trained chemist to go out and do manual peak integration, which is tedious process. And you can imagine if you have a high volume lab, there\\u2019s a lot of investment going into this area. And active virtual control here have already proven with the customers that they can take a substantial part of that work and actually automate that.\\nSo we are very glad about that.\\nWe are going after the PCMs business first.\\nWe have a substantial installed base and we actually believe that we can implement this here in the second part of fiscal 2022.\\nNow long-term, we do believe there\\u2019s a great opportunity to provide those algorithms also across our analytical platforms and also for other applications like QC release and predictive maintenance and all things.\\nSo even though it\\u2019s the buzzword, there is a lot of real products behind this and I am very excited about it. Mike?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Jacob.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Thanks.\\nJust one follow-up for Bob.\\nJust if you could just elaborate a little bit more about the book-to-bill in the first quarter and then a couple just housekeeping, was the Lunar New Year impact kind of in line with the plan, and I think, last quarter you talked about\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"\\u2026 $15 million of kind of delayed orders, were all those recouped in the first quarter, just kind of an update on that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Brandon, as usual, your notes are quite accurate and so let me address a couple of those things.\\nSo the Lunar New Year impact came in kind of as we anticipated, which should come back into Q2. That transit time or that $15 million that came in, but we haven\\u2019t seen really the improvement.\\nSo that\\u2019s still opportunities in the second half of this year.\\nOur end of the quarter coincided with the large snowstorm in the U.S., but the shipments were out and we still were able to deliver.\\nIn terms of the first question was about Lunar.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think on both.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\\nOkay.\\nI think on both. Brandon, we missed something?\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"No.\\nJust if you quantify the book-to-bill, if you are really?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Oh! Yeah. Yeah. Quantify the book-to-bill. Yeah.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are right.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I knew that there was something else. I was trying to avoid that one on purpose, because we are not going to provide that. But what I can tell you is that, the growth rate of our orders was twice as much as the revenue growth, and I would say, our backlog is the highest it\\u2019s ever been.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Brandon, this is Mike. I would just add one comment. There is one word in my script. I really want to make sure that I emphasize here throughout the quarter.\\nSo this wasn\\u2019t just a calendar December year end kind of story. We saw this order strength throughout the entirety of our fiscal Q1.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Got it. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Puneet Souda from SVB Leerink. Puneet, your line is open.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Yes. Hi, Mike and Bob. Thanks for taking the question.\\nSo, the first one is just a follow-up on the order book. I am wondering if you can quantify that, obviously, that\\u2019s been growing strongly. And maybe just help us understand, once said, you have the strong order book, you have confidence in the rest of, I mean, the guide throughout the year based on what you are providing. But maybe just talk to us about the sort of the cadence wise in terms of supply chains. Obviously, we are hearing -- we have a number of questions that we get on supply chains frequently.\\nSo just wondering what\\u2019s your level of confidence on the supply chain and turning those order books into orders?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah.\\nSo, first of all, I\\u2019d say, that the supply chain environment continues to be quite challenging.\\nOn the other hand, I remain quite confident, because our team has found ways to continue to navigate through those and meeting the expectations of customers terms to delivery times.\\nIn fact, if I recall correctly, our order cancellation was actually lower this year than prior year.\\nSo while I don\\u2019t want to imply that it\\u2019s all sunny out there in terms of the supply chain, we have been working on this thing for a while. I mean many quarters ago, we were working on this quarter and the second half of this year.\\nSo while the environment remains challenged externally, I remain confident in our ability to actually get product to customers when they need it.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. Puneet to your first question on the quantification, we are not going to provide that other than what I had answered\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. That one, Bob. But we did find the 2x order growth rate versus revenue.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. Fair. And in terms of cell analysis, Mike, I mean, that franchise has been growing.\\nYou highlighted Lonza, the Cocoon platform, a couple of other capabilities. Maybe can you -- I know at one point, you had sort of quantified that business. I am wondering if you can do that again and what sort of growth rates you are seeing there and what\\u2019s the expectation this year given the acceleration you are seeing in overall in biomolecules? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. Thanks for that question. We love to talk about the cell analysis. It\\u2019s been a really great addition to the company over the years and we continue to grow and expand that.\\nSo, first of all, I\\u2019d say, that business remains to be very healthy.\\nWe are seeing really good strong end market demand. And Bob I think for the year, we are expecting the double-digit growth out of the cell analysis business. And really excited and the fact that, in addition to the manufacturing expansion we had in Chicopee, that kind of gives you an indication of our confidence in future growth. And I believe we are close to, Bob and Jacob, close a north of $400 million for this business?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"This year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"This year. Yeah.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Forecast for this year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. Super helpful guys. All right. Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are very welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Patrick Donnelly from Citi. Patrick, your line is open.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Hey. Thanks for the questions guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Patrick.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Mike, maybe one on China, between the tough comp\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"\\u2026 Lunar New Year, obviously, a few layers there. Can you just talk about, I guess, the core performance is going to stripping that out a little bit, what you are seeing there, what you saw through\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Got it.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"\\u2026 to your point there throughout the quarter, I guess, the cadence and then the expectations going forward there as well, just between the different markets there.\\nJust curious what\\u2019s going on?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. It\\u2019s interesting.\\nSometimes you can get kind of diverted on the headlines out of China, because our business remains quite strong and we are seeing good strength in pharma has really been a key driver for us, which Bob highlighted in the script. But also our Diagnostics business, DDG grew, I think, over 40% in the first quarter, services growth in the mid-teens.\\nSo other things that I have talked to you about, which is, in addition to continuing to grow and strengthen our instrumentation portfolio market share in China.\\nWe have also been talking about our ability to grow our ACG business in China with that large installed base and the fact that we have historically viewed ourselves of being underpenetrated in Diagnostic and Genomics, and we are really starting to see traction on both of those growth factors.\\nSo, again, we feel really confident about the state of the China business, because we don\\u2019t have the order book we have, but also these other areas of recurring revenue are really growing, growing well for us and we continue to invest for our customers in China, as I mentioned in my call script.\\nSo I think there\\u2019s a lot to like about the opportunities in our business in China.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. Patrick, just one other thing, we -- while we grew 3% as we mentioned, if we add back in kind of the Lunar New Year estimate, it was high-single digits, which was in our -- in line with what we had expected and our expectation is that, that\\u2019s going to be for the full year as well.\\nNow Q2 will be stronger than that, obviously, as it comes back and we also saw mid-teen -- mid-to-high-teens growth in orders in Q1.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay. That\\u2019s helpful. And then maybe just on the academic government market.\\nYou are not alone, obviously, calling that out as being a little sluggish to come back. Maybe just what you saw there in January, Mike, I know you called out the remote learning maybe caused a little more of a pause even as we go into 2022? And then just expectations there going forward, you expect the market to kind of normalize a little bit and what are you hearing from customers on that front?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. Thanks for that, Patrick. We saw -- we see the Omicron impact is transitory. We saw that in the U.S., for example, and we would expect to, I think, Bob, you called out in the script back to normal kind of levels in February.\\nSo we actually expect the environment to improve over the year.\\nI think we are flattish for Q1. But, Bob, I think, we are calling for mid-singles or so growth for the full year.\\nSo that would imply a pickup in growth in this segment later on this year.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. I mean, for everything that we see, Patrick, funding levels continue in activity within our order book continues to be strong.\\nSo it not as strong obviously as the Pharma and C&E areas, which are leading the growth in the Diagnostics, but we are not seeing any fundamentally different performance in that market going forward.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"That\\u2019s helpful. Thank you, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are very welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Up next we have a question from Jack Meehan from Nephron Research. Jack, your line is open.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you. Good afternoon, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Jack.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I was hoping you could elaborate on the pricing actions you are taking in the market? How do they compare to kind of normal periods and what areas of the portfolio have you had success when it comes to pricing?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. I will take that, Jack. And I think we mentioned at the beginning of the year that we were estimating roughly a point of growth associated with that was about half of what we had seen normally to cover the increased costs, and what I would say is, through Q1 we are ahead of schedule, which is good.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Okay. And then, the other area I was hoping you had an update on is NASD, so over 45% growth in the quarter. Maybe just any update to what your guidance is for the full year? It seems like you are tracking ahead of schedule here and just when the new line opens up, just what sort of pace you expect to be able to take advantage of that capacity?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. I was going to say, we -- the team continues to do a fantastic job and continues to drive even more revenue and product out of the existing capacity and it was a great first quarter and slightly ahead of our expectations. We had expected double-digit growth and that continues to be our expectation before the new train, Train B comes online at the end of this calendar year. And the order book continues to be strong. That team continues to actually build the order book for 2023 and building that demand for that train.\\nSo we are extremely excited about that business and are looking forward to not only bringing that up, but also looking for other ways to expand our capacity.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you, Bob.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Derik de Bruin from Bank of America. Derik, please go ahead.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Hi. Thanks for taking the questions. This is Mike on for Derik.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Mike.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"I want to ask a little bit on the -- hey -- I want to ask a little bit on the Diagnostics and the Clinical end markets. In particular, you called out sort of the expansion of our CNS [ph] into some of the applications here and you are seeing a new vector of clinical growth here. I was wondering if you could elaborate on that.\\nJust sort of what are the specific drivers you are seeing there and where some of that uptick happening.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. I am going to pass it over to Jacob for some more details here. But also I would also just remind, we also had a very good print on the pathology side of our Diagnostics business. But I think you will hear from, Jacob, LC/MS is an indication of some future traction, we are already getting some good growth.\\nSo, Jacob, your thoughts there?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah. Absolutely.\\nWe have closed the year have a good LC/MS Clinical business in U.S. But over the past year, we have also expanded ourselves into China, really good tractions. We both have our own product line there, our direct sales, but we also have an OEM partner.\\nSo in that sense we are both addressing the customers that we know, but also a lot of customers that we want to get access to. And that\\u2019s been quite successful and hence we are right now looking to expand the portfolio even further.\\nWe have the Ultivo, of course, with our LC connected and we are looking to other parts of our portfolio, both within LC/MS, but also beyond LC/MS here over the next period of time. But we do see China as a great opportunity, but here over the next over time, we will also enter into other areas like Europe and other places.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Jacob, on the Ultivo, what I think the customers love the combination of performance and the size of the footprint really fits nicely into the diagnostic lab.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yeah. Exactly. We spent a lot of energy of both making it a size that fits very well into the LC stack. But more than that we also made it more easy to work with.\\nSo it\\u2019s actually an ease-of-use solution.\\nSo we are very excited about that and even better the customers are also super excited about that. I do want to mention also that we also have a strong Clinical business within the flow cytometry.\\nWith the Ultivo business that continues to drive growth and particularly China, where we see a lot of demand there also.\\nAs you might recall, the flow cytometry from the LC business is really focused on decentralized lab also again with ease-of-use and we see a lot of interest in that. And I do expect also that U.S. will be a future market for us here.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Great. I appreciate that. Any color you can give us just real quick on sort of how meaningful LC/MS is within that 15% of your exposure? Is it just to give us a sense of the scale of that relative to genomics and cancer diagnostics and pathology things like that?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, do you want to take it or do you want me to?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. Yeah. I will take it. It is still relatively small but growing very fast, which the market itself is quite large and so the opportunity here is really in front of us going forward.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Great. And if I could ask a quick follow-up on -- just on the capital deployment side\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"\\u2026 and on M&A. Obviously, you have done some smaller deals in the last couple of years and you continue to invest in new technologies and you have got some, you have had M&A deployed into sort of Life Science Solutions and cell analysis.\\nYou have had things in liquid biopsy and now artificial intelligence.\\nSo it\\u2019s kind of showcase that you can deploy capital in a variety of different markets. But just looking at where the balance sheet is now, any thought on larger acquisitions and sort of scaling up to do a bigger deal? And what excites you, what markets would you be looking to? What\\u2019s -- so how would you go about starting to deploy that capital?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. Sure. Happy to address that, Mike.\\nSo I appreciate, by the way, the recognition of the variety of where we deploy capital. But there\\u2019s a consistent theme across where we deploy capital, which is high growth end markets, which will drive increase to the overall core growth of the company in places where we can leverage the scale and the capabilities we have in the company to really make those businesses even more successful.\\nSo I think there\\u2019s a timing kind of an underlying theme behind all those acquisitions.\\nSo that would continue to be our thesis and our approach, as well as staying focused in the private sector, which we think there\\u2019s -- really fits well the Agilent model and often the potential acquired companies and leadership teams really find the Agilent culture, a good place to be and they also see how well we have done with previous acquisitions.\\nSo we have got a track record as well that they can point to. And I am on record saying that, we wanted to deploy our balance sheet as part of our overall growth story. It\\u2019s part of what we have been calling our build and buy growth strategy. And as you may know, the largest deal that we have done to date has been -- was the acquisition of BioTek, but we believe we can do multiples of that deal and be willing to deploy capital if the right opportunity comes along for us.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Okay. Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Thomas Peterson from Baird. Thomas, your line is open.\"}, {\"speaker\": \"Thomas Peterson\", \"content\": \"Hi, guys. Thanks for taking my questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Thomas Peterson\", \"content\": \"Just wanted to circle back on Pharma and just wanted to know if you had seen any benefit within Pharma from both onshoring activities and manufacturing redundancies and kind of, if so, where has this tailwind been and what are your expectations for any potential durability here?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Great question.\\nSo I think this is actually a story both for the Pharma, as well as elements of our Chemical and Energy business. And I\\u2019d say right now, not yet material in terms of order book or revenue, but we believe it\\u2019s coming. There\\u2019s a lot of discussions with customers that are building new capacity. I would say it\\u2019s probably more of a 2023 kind of event. But I think it speaks to the durability of growth that we think we have in Agilent\\u2019s two largest end markets.\\nSo we are hearing lots of discussions about dual sources of critical components, onshoring of previously offshore critical supply chain elements.\\nSo I think the continued supply chain challenges that the world is seeing is only putting more emphasis on that direction.\\nSo I\\u2019d say right now, it\\u2019s in the longer term planning phase.\\nAs you know, the analytical laboratory instrumentation is often the last thing that\\u2019s added when they bring on new capacity, but we believe it\\u2019s coming, but it\\u2019s not been material yet to the company\\u2019s performance.\"}, {\"speaker\": \"Thomas Peterson\", \"content\": \"Great. That\\u2019s super helpful. And maybe just to finish for me, just any updated thoughts on the One Agilent commercial organization transition? Anything that surprised you relative to expectations, sort of how is that incorporation gone internally?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah.\\nSo I am going to have Padraig jump in here with some additional specifics.\\nAs you know, I have asked Padraig to take on this role in addition to his leading the overall Agilent Services business. But we are just delighted with the start of this new structure and I think I always say the proofs in the results and we are off to a good start with the fact that we had such a strong Q1 order book throughout the quarter. And Padraig, I know it\\u2019s been just a few months where you have been pulling your team together and but I think you are already starting to work with customers differently and maybe you could share some of your thoughts here.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yeah. Thanks, Mike.\\nI think we are starting to see the benefit of an enterprise approach to both sales and service, and the associated functions, and of course, selling the complete Agilent solution to customers, which includes instruments, services and consumers with aligned sales approach is really giving us a lot of scale with customers.\\nWe are also seeing a doubling down on our investment in our digital interaction with customers and we continue to see strong momentum with accelerating digital growth of about 25%.\\nSo great start, Mike, and more to come.\"}, {\"speaker\": \"Thomas Peterson\", \"content\": \"Okay.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Dan Brennan from Cowen. Dan, your line is open.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Hey, Mike and Bob, thanks for taking the questions. Congrats.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Dan.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"I was hoping to go back to C&E, Mike, could you or Bob...\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"\\u2026unpack -- kind of unpack the customers there, Chemical R&M, can you just kind of give us a flavor for what you are seeing? I know the question was asked earlier about the impact of what\\u2019s going on. But just wondering, as oil price spikes in the past, kind of what kind of impact have you seen if the oil price spike is sustained?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. I\\u2019d say if you look at the three sub-segments of the C&E marketplace, we often talk about the Chemicals, Energy and Advanced Materials market.\\nI think it\\u2019s the Chemicals and Advanced Materials market segments that are driving the growth here.\\nNow theoretically, when -- although, be it now much -- it\\u2019s a very small part of the total number these days, higher oil prices would tend to lead to more investment in that Energy segment portion of the whole market segment. But I can\\u2019t remember the exact percentage. I know it\\u2019s evolved a bit over time. But I think what\\u2019s most interest to us is how does the world view global growth were PMI.\\nSo, yes, I think, the highest correlation of growth in this segment relate to PMI and the global growth outlook. But we would -- there could be some more money to invest in exploration, perhaps, if oil prices stay high, but it\\u2019s really also really driven by the PMI view. That\\u2019s why they still remain positive and that\\u2019s why we are optimistic about our ability to grow this overall market throughout the rest of this year.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. Dan, to build on what Mike was saying, if we looked at those three big areas, over 90% or roughly 90% of our C&E business is actually Chemicals and Advanced Materials.\\nAnd so the Energy piece is an important component, but that demand around new types of Chemicals, Advanced Materials and so forth is really what\\u2019s driving it\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And so whether it be batteries and other areas around these is the growth driver today.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Got it. Thanks guys. And then, just related to the Oligo business the MAC business, just can you remind us, at least from the perspective of like basin within your high single-digit growth for Pharma, kind of how many points of growth should we be thinking that business is contributing?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"From Pharma, it grew -- it was roughly 2 points to 3 points of growth for pharma in Q1.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"And then, for the year, sorry? Yeah. Yeah.\\nSorry about that, I misspoke.\\nSo for the year, I think you are talking low double now for Pharma.\\nSo what\\u2019s assumed from the Oligo business\\u2026\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"\\u2026within that [inaudible] demo?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"A point or two.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah.\\nI think the\\u2026\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Very clear.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"\\u2026 message here is the, yeah, the Pharma growth was strong for the biopharma, NASD, but also across the rest of the company\\u2019s portfolio as well.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Yeah.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So it\\u2019s an Agilent wide story.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Yeah. Great. And then maybe just one final one to sneak in just the LC market, Mike, it\\u2019s always entering here, what\\u2019s going on\\u2026\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"\\u2026 and that\\u2019s a big part of your business, what the competitive trends there like in LC?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"All I can tell you about is what\\u2019s going on in my business, which is its doing very well.\\nSo we have got -- we had -- we continue to see very strong business momentum. The market demand is very robust.\\nYou may have recall in my script, I tried to call out demand in our chromatography systems remains very robust. We saw double-digit growth again in Q2 -- Q1 2022 off double-digit or the prior year, backlog strong, orders growing faster than revenue.\\nSo there\\u2019s a lot to like about what\\u2019s going on with the LC business.\"}, {\"speaker\": \"Dan Brennan\", \"content\": \"Great. Thank you guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You are very welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Our next question comes from Paul Knight from KeyBanc. Paul, please go ahead.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"It\\u2019s always tough to ask a good question late in the day, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Come on, Paul. I know you are up to it. I know you are up to it.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"As I look at the 32% biotechnology growth, which seems extraordinarily good, would you attribute this to the cell and gene therapy market, and what specifically biotech instruments? What\\u2019s behind that really high growth rate?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, why don\\u2019t we tag team on this, but I\\u2019d say, it\\u2019s really being driven by not only the NASD business we talked about earlier, but our core LC/MS business. I mean there is some contribution from cell and gene therapy, but it really is coming from the LC/MS business along with really strong growth of services and consumables as well.\\nSo, I\\u2019d say, it\\u2019s really a broad-based story, but really around our core instrumentation platforms along with services and consumables.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yeah. Spot on.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I mean, goes for that.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Okay.\\nSorry, Bob.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Go ahead, Paul.\\nSorry.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"You have mentioned LC/MS more than, I think, is typical. Is this a result of -- are you seeing a result of benefit yet from the Avantor JV. And in addition, I know CrossLab, you mentioned higher connectivity.\\nI think you are implying you continue to gain some share there, if you can talk to those two topics?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah. Sure. Happy to do. ACG has been what we are doing has been near and dear to our overall growth strategy for a number of years and we are very excited about the new relationship we have with Avantor. I\\u2019d say it\\u2019s still very early days, so not yet a material contributor to the topline revenue and that really was all according -- so it\\u2019s proceeding according to plan.\\nSo I\\u2019d say there\\u2019s more to come in that regard. And then on the connect rate, yeah, in fact, we called that out on purpose to say, we continue to see higher connect rates with our consumables and services business, and we think that bodes well for future growth. And Padraig, maybe you want to just comment a bit on what you are seeing on the services side and the connect rate.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yeah. Well, overall, the attach rate for both service and consumables in the high 20s, but we believe and we have significant headroom for growth going forward as we target into higher technology spaces. And on the services side, in particular, we have a strong demand for contracts and that\\u2019s driving a lot of connect rate with new instruments as well, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yeah.\\nI think we had double-digit contract growth and probably more than 10% of Agilent\\u2019s revenues now in -- under service contracts.\"}, {\"speaker\": \"Paul Knight\", \"content\": \"Okay. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Those are all the questions we have time for today.\\nSo I will now hand back to Parmeet to conclude today\\u2019s call.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Emily, and thanks everyone for joining. With that, we would like to wrap up the call for today. Have a great rest of the day everyone.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you everyone for joining our call today. This now concludes our call. Please disconnect your lines.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2022-05-25
year: 2022
quarter: Q2
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon and thank you for attending today's Agilent Technologies Inc. Q2 2022 Earnings Conference Call. My name is Selena, and I will be your moderator. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Parmeet Ahuja, Vice President of Investor Relations. Please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Selena, and welcome, everyone, to Agilent's conference call for the second quarter of fiscal year 2022. With me are Mike McMullen, Agilent President and CEO; and Bob McMahon, Agilent 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 Sciences 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 second 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. Today's comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of April 30th.\\nAs previously announced, beginning in the first quarter of fiscal 2022, we implemented certain changes to our segment reporting structure.\\nWe have recast our historical segment information to reflect these changes. These changes have no impact on our Company's consolidated financial statements.\\nWe will also make forward-looking statements about the financial performance of the Company. These statements are subject to risks and uncertainties and are only valid as of today. The Company assumes no obligation to update them. Please look at the Company's recent SEC filings for a more complete picture of our risks and other factors. And now, I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Parmeet. And thanks to everyone for joining our call today. In Q2, the Agilent team again demonstrated the resilience and strength of our business model. We delivered core revenue growth in-line with our forecast, expanded operating margins, and exceeded our EPS expectations. We did this while navigating a dynamic macro environment, including the conflict in Ukraine and COVID-related lockdowns in China.\\nOur Q2 revenues are $1.61 billion. This is up 7% core and is on top of growing 19% in Q2 a year ago. Order performance was even stronger, growing double digits on a core basis.\\nSecond quarter operating margins at 25.3% continue to expand, up 140 basis points from last year. Earnings per share of $1.13 are up 16%. We achieved these results despite the COVID-related lockdowns that closed our operations in Shanghai, starting in late March and continuing through the entire month of April. We estimate that this was roughly a 350-basis point headwind to our core revenue growth for the quarter.\\nAs Bob will indicate when he takes you through the details, this business is not lost and is expected to be recovered through the rest of the calendar year. Most importantly, our team in China is safe and we restarted limited operations in May at our GC factory and logistics center in Shanghai. From an end-market perspective, the pharma and chemical and energy markets again led the way for us.\\nOur pharma business, Agilent\\u2019s largest market, grew 13%, led by biopharma growing high 20s. This represents our seventh consecutive quarter of double-digit growth in the pharma market. It also builds on top of a stellar 29% growth rate last year. The momentum in our chemical and energy business also continued this quarter, delivering 9% growth in line with expectations, and overcoming the shutdown of our primary GC production facility in Shanghai and the conflict in Ukraine. Growth was driven by advanced materials and chemicals. On a geographic basis, the Americas again led the way with 13% growth built on top of 27% growth a year ago. Europe also performed well with growth coming in at 7% following 16% growth last year. China revenues were on track with our expectations through March, but we exited the quarter down 3% given the COVID-related lockdowns.\\nWhile revenues were affected by the temporary shutdowns in the quarter, overall demand in China remains very robust.\\nIn fact, China was the fastest growing region in Q2 from an order perspective, up about 20%. We remain very confident about the ongoing strength of our business in China.\\nLooking at our performance by business unit, the Life Sciences and Applied Markets Group generated revenue of $896 million, an increase of 4% on a core basis.\\nGiven our manufacturing footprint and relative strength in China, LSAG was disproportionately impacted by the COVID related shutdowns there. To provide some additional perspective, all major product lines, excluding GC related products, grew solidly in the quarter, led by strong performance in our cell analysis business growing in the mid-teens. Orders for LC and LC/MS continue to be strong. Orders grew mid-20\\u2019s globally with particularly high adoption of our two new Bio-LC products.\\nOn the LC/MS front, we look forward to announcing several exciting new offerings at the upcoming ASMS conference that will expand our portfolio.\\nOur value proposition continues to resonate with our customers and LSAG exited the quarter with record backlog. The Agilent CrossLab Group posted services revenue of $353 million. This is up 10% core. Growth in services was again broad-based across services contracts, preventive maintenance, compliance, education and informatic enterprise services. The scale of our ACG business and breadth of portfolio continue to drive growth and margin expansion even in the face of inflationary pressures. Q2 marked the sixth straight quarter we\\u2019ve delivered growth across all markets and regions. The Diagnostics and Genomics Group delivered revenue of $358 million, up 15% core versus 16% last year.\\nOur excellent growth was led by NASD and genomics. The NASD team delivered yet another strong quarter, generating record revenue and profitability.\\nDuring the quarter, I had a chance to visit our team in Colorado and see first-hand the excellent progress that\\u2019s being made meeting current customer needs and also the work underway in continuing to build for future growth with our Train B expansion. We remain extremely bullish about NASD\\u2019s future and with Train B coming on line in 2023, we\\u2019re adding yet another $150 million plus in capacity.\\nLooking across the company, our One Agilent approach and focus on our customers has never been stronger.\\nDuring the quarter, we were ranked number one in our industry and number two overall in customer satisfaction in The Management 250 ranking, developed by the Drucker institute.\\nIn addition, the new Agilent Commercial organization is already resonating well and delivering successfully for our customers. Agilent\\u2019s Q2 results are yet another proof point for how we\\u2019ve built a resilient company that can quickly adjust to a changing environment and still post strong results.\\nGiven our results to date, along with our backlog and continued order strength, we are again raising our full year core revenue growth and EPS guidance.\\nFor the year, we are now expecting 8% to 9% core revenue growth and EPS of $4.86 to $4.93. Bob will provide more detail on our Q3 outlook along with more information on what we expect for the rest of the year. After Bob\\u2019s comments and before we take your questions, I will be rejoining the call for some concluding remarks. Thank you for being on the call today and now, I will hand the call off to Bob. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thanks Mike, and good afternoon, everyone. In my remarks today, I will provide some additional details on revenue and take you through the income statement and some other key financial metrics. I\\u2019ll then finish up with our guidance for the third quarter and the fiscal year. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nAs Mike described, we posted solid topline results in Q2 while overcoming some difficult macro challenges in the business environment. Revenue was $1.61 billion, up a reported 5.4%. In the current quarter, currency was a headwind of 2.1 points while M&A added 20 basis points of growth. Core growth was up 7.3%, in line with expectations, despite the COVID-related lockdowns in China, which primarily affected us in April. We estimate the lockdowns deferred $50 million to $55 million of revenue into future quarters, impacting growth in Q2 by roughly 350 basis points.\\nIn addition, COVID testing-related revenues were roughly a one-point headwind in the quarter.\\nOur largest market, pharma, grew 13% during the quarter, on top of 29% growth last year. Biopharma continued to be the main driver of results, growing 27% year-on-year, led by NASD. Investments in R&D programs and demand for instrumentation, consumables and critical components remained strong. Pharma represented 37% of our overall revenues this quarter. To put that in perspective, in Q2 2019, effectively one year before the pandemic started, pharma represented just 30% of our business. This not only highlights the strength and resilience of this market, but it also demonstrates how our innovation and investments in higher growth markets continues to pay off. Chemical and energy continued its strong trend of positive results, growing 9% during the quarter despite the impact of the COVID-related lockdowns in China and the conflict in Ukraine. Results were led by strong double-digit growth in advanced materials and specialty chemicals.\\nWe expect strong demand to continue in these areas, particularly in semiconductors and battery and clean energy technologies as industry-wide capacity expands. Diagnostics and clinical grew 5% on top of 13% growth last year as year-on-year declines in COVID-related revenues and the temporary shutdowns in China muted our results. The academia and government market was a nice surprise for us, growing 5% in Q2 on top of 21% growth last year. We saw an increase in spending in this market as more university labs opened up and students returned to on-campus learning.\\nIn addition, sales activity and the funding environment continues to be healthy. In the food segment, we saw growth across all regions except for China due to the shutdowns. The higher concentration of food business in China drove the food segment to decline low single digits against a very strong comparison of 22% growth last year. And rounding out our end-markets, environmental and forensics grew 1% versus an 8% growth last year. On a geographic basis, the Americas grew 13%, Europe grew 7%, Asia, excluding China grew 8%, while China declined 3% in the quarter as the lockdowns affected our manufacturing and logistics operations for over a month.\\nRegarding China, I\\u2019d like to provide some additional detail on how the quarter evolved and how we expect to see the recovery progress.\\nFirst, as Mike said, demand remains strong with the order growth of about 20%, despite the temporary COVID lockdowns.\\nSecond, our business in China was tracking very well with our expectations through late March when production and our main logistics hub in Shanghai were shut down and remained closed throughout April. We were able to partially reduce the impact of the lockdown by shifting production to other factories where possible and adjusting the shipping routes into and out of China.\\nWe expect the $50 million to $55 million in revenue to be recovered throughout the rest of the calendar year, so it is deferred, not lost.\\nIn terms of phasing, we expect to continue to ramp our operations and anticipate modest recovery of the Q2 impact in Q3.\\nWe expect the majority of the recovery to occur in fiscal Q4 with some spillover into November and December, which is our first fiscal quarter of 2023. This phasing is baked into our updated guidance.\\nNow turning to the P&L. The team continues to execute at a very high level.\\nSecond quarter gross margin was 55.7%, up 30 basis points from a year ago as pricing actions and productivity helped offset inflationary pressures tied to ongoing supply chain constraints and higher logistics costs. Operating expense leverage and strong cost management helped drive very healthy incremental improvements as we delivered an operating margin of 25.3%, up 140 basis points from last year.\\nOur tax rate for the quarter was 50 basis points better than forecast, helping us deliver earnings per share of $1.13, up 16% versus last year, and exceeding our expectations.\\nLooking at cash flow and our balance sheet, we generated operating cash flow of $283 million in the quarter while investing in $64 million in capital expenditures during Q2, with the year-on-year increase primarily related to the NASD expansion. Cash flow in the quarter was impacted by the transitory impact of COVID-related lockdowns in China as well as increased inventory to fulfill strong demand in a challenging supply chain and logistics environment, as expected.\\nWe are still on track to deliver our cash flow forecast for the year.\\nDuring the quarter, we again took advantage of market volatility to repurchase $234 million worth of shares.\\nWe also paid out $63 million in dividends, returning a combined total of $297 million to shareholders.\\nOur balance sheet continues to be healthy with a net leverage ratio of 0.9 times. And earlier this month, we refinanced $600 million in senior notes opportunistically, and now have no long-term debt maturing until 2025.\\nAs we stated last quarter, our approach given current market conditions is to continue to be aggressive in deploying our capital.\\nGiven our strong balance sheet and confidence in the future, we intend to deploy another $250 million in opportunistic share repurchases in Q3 while continuing to actively look at M&A opportunities.\\nNow, let\\u2019s move to our improved full year guidance and our outlook for the third quarter.\\nGiven the strong business performance in the first half of the year and order backlog, we are raising our full year core revenue growth to an expected range of 8% to 9%, up a full point from our previous guide. This core revenue takes into account the recovery phasing in China, as well as a $35 million, or 55 basis-point headwind due to the conflict in Ukraine.\\nWhile we\\u2019ve increased our core growth expectations, the dollar has again strengthened considerably since our last guide, resulting in estimated currency headwinds of $170 million for the year, up $60 million since our last guide. And the impact of M&A remains unchanged. This results in us maintaining our full year reported revenue guidance range of $6.67 billion to $6.73 billion for the full year.\\nWe have also increased our EPS guidance for the full year to $4.86 to $4.93 per share. This is up from the previous range of $4.80 to $4.90 per share, and now represents 12% to 14% growth versus fiscal year 2021.\\nFor Q3, we\\u2019re expecting revenue to range from $1.625 billion to $1.650 billion. This represents core growth between 7% and 9%.\\nWe expect operations in China to ramp and be fully operational before the end of the quarter and continue to accelerate into Q4.\\nGiven the strengthening of the dollar, exchange rates are expected to have a negative impact of about 4.7 points on the reported growth in the quarter. Closing out our guidance, in Q3 non-GAAP EPS is expected to be in the range of $1.20 to $1.22, up 9% to 11% versus the prior year. This is based on a 14% tax rate and 300 million diluted shares outstanding. The Agilent team once again performed extremely well in Q2 under some very challenging circumstances. At the same time, our business remains strong, and I\\u2019m confident we will continue to deliver strong results in Q3 and through the rest of the year. With that, Mike, I will turn it over to you for some concluding comments.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks Bob.\\nBefore we take your questions, I would like to share some thoughts with you on the current environment.\\nAs you know, we\\u2019re living in very dynamic times.\\nHowever, our end markets remain strong.\\nOur build and buy growth strategy is working. What is also very clear is the ability of the Agilent team to continue to deliver in a challenging external environment.\\nWe have built a resourceful, quick moving team and a resilient business model that has shown again-and-again, time-after-time, that we can successfully address any challenges or obstacles that come our way. We delivered inline growth, increased margins by 140 basis points and exceeded our EPS expectations during a time of rapidly growing inflation, continued supply chain challenges and the effects of a COVID-related lockdown in a key market. In times like this, our customers want to work with people and companies they can rely on. This works to our advantage, and I remain confident in our growth strategy continuing to deliver, and in the power of the unstoppable One Agilent team.\\nOur growth drivers remain intact, and our business prospects remain strong now, and into the future. Thank you. And now, back to Parmeet as we take your questions. Parmeet?\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Mike. Selena, please provide instructions for Q&A now.\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] The first question comes from Vijay Kumar with Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hey, guys. Thanks for taking my question. Mike, certainly, you did mention this is an impressive performance given the relative fears on the Street on impact from China lockdowns.\\nSo, I guess, one, when you look at your peers, very strong instrument growth across LC and mass spec. Maybe could you talk about how did Agilent's portfolio within that instruments segment perform? What were the trends within the Q? Were there any lockdown impact for instruments and maybe order trends specific to instruments, please?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Vijay, thanks for the comments. We're really pleased with the performance given all the teams we're dealing with in the external environment.\\nSo, we're going to tag team the response here with myself and Jacob.\\nSo, the story is the -- our instrument business is doing very well. And in the call, we highlighted a few areas where we received an outstanding order growth. We talked about the cell analysis business, LC and LC/MS, particularly on the bio side, and I'll have Jacob add some specifics. And absolutely, as I tried to pull out in remarks, I think Jacob's business was disproportionately impacted by the shutdowns that we experienced of a COVID nature in China.\\nSo, we're very bullish about the strength of our LSAG business, exiting the quarter with record, record backlog. And Jacob, why don't you talk about what's been going on and why you're excited about the future?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Absolutely.\\nOf course, the quarter was challenging with the Shanghai lockdown. But overall, we continue to see very strong growth in orders coming in, particularly in our LC, LC/MS business, which I think Mike alluded to also some of the NPIs we came out with approximately a year ago in the LC business. And with that connected with our very strong positioning in the mass spec, we continue to see very strong growth in that aspect. Clearly, with GC and GC/MS was challenged in China this year -- or this quarter due to the situation. But overall, the orders continue to be very strong.\\nSo, I'm not concerned about that. And besides that, I think we have seen also for the spectroscopy business that the material science is really a strength for us right now.\\nSo overall, very strong performance across the portfolio.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And hey, Vijay, this is Bob.\\nJust to kind of dimensionalize that impact when we talk about disproportionate, roughly 80 to 85% of the impact due to the COVID lockdowns was instrument -- LSAG-related.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"That's helpful, Bob. And maybe one on the top -- lockdown impact in China. The guidance is assuming that $50 million to $75 million comes back in the second half. What gives you the confidence that this is coming back in second half? And where are we in China? Have the markets reopened? Like is your production facility up and running? Because I know you have a GC manufacturing facility, and there have been some questions on perhaps there could be an impact in GC shipments out of China.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Vijay, how would I lead off the response here? So -- and this ties into why we have confidence about the outlook.\\nSo, we are back up and running in Shanghai, albeit on limited capacity. Both our logistics and production facilities are now up to 25% operating capacity. And we've actually started some limited international and in-country shipments.\\nSo product is starting to move. And we expect to have -- our view is that the lockdown controls will start to ease over the coming weeks and that we'll be fully operational by the end of the quarter. But we don't want to get too far ahead of ourselves here, and that's why I think Bob will describe a fairly modest recovery assumption in Q2. I'd also like to take this opportunity to call just to do a shout out to our team in Shanghai, who are actually camped out, living at the factory and not being asked and volunteering to do that.\\nSo, I've also got confidence in the outlook because I know what this team can do.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And to build on that point, Vijay, a couple of thoughts. I mean, we've watched the order backlog very closely.\\nWe haven't seen any cancellations associated with this. And as we're ramping up the factory in Shanghai, we also have dual manufacturing capabilities, and we continue to ramp up the factory here in the United States to be able to also provide GC and GC/MS.\\nSo, we are expecting, as Mike said, a very modest recovery of that $50 million to $55 million in Q3, the majority of it being in Q4 and then spilling over a little into November and December. But given the backlog and the fact that we haven't seen any of those orders cancelled, we feel like we definitely will get the product back. And if we go back to what happened in the initial phases of COVID, China dropped down pretty substantially and then came back fairly quickly, so.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Matt Sykes with Goldman Sachs.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Congrats on a quarter in a tough environment. Maybe kind of following up on the instrument question, just we dig a little bit more into C&E.\\nAnother good quarter there. And a couple of things you called out in terms of advanced materials, battery, semis. I mean, I think traditionally, this has been looked at as sort of a highly cyclical sector, but when you're seeing sort of the secular growth drivers within those subsegments, it just seems less cyclical. Could you maybe kind of help us size that sort of cyclicality versus non-cyclicality within C&E? And what could be actually far more durable from an instrument growth standpoint in that segment over the course of this year and into next year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So, I'm going to lead off with this and then tag team again with Jacob and Bob. But we completely agree with your premise of your question.\\nIn fact, you may recall some of our earlier presentations where we talked about there's elements of the C&E segment that aren't fully appreciated. They're being driven by capacity expansion for supply chain concerns, move to new materials, investments in semiconductor batteries. All you have to do is see what's happening in the whole automobile industry. We're a part of that. And I think it's important to just remind the audience here of the three segments that we have. And advanced materials grew, I think, mid-20s for us. The chemical side grew high teens. We were down in the energy segment. And I think that's been historically the more cyclical element of the business. But I think you need to keep in mind that that's less than 3% -- and energy side, less than 3% of Agilent's total revenues. And perhaps I'll pass it over to you, Bob and Jacob, to -- some commentary on the relative size of those buckets, if you will.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. I can also mention that Agilent has actually historically been very strong in material science.\\nSo, we have a very strong market presence both in the semicon industry, especially with our IC-PMS portfolio, but also with the GC, and generally speaking, in materials, in batteries and other renewable energy with our GC business.\\nSo I think we see a great potential in that. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nJust one other thing.\\nI think on the -- just a couple of things. Energy was down. That is one area that was disproportionately impacted in China as well.\\nSo, we also had that impact.\\nSo, it wasn't -- it was a temporary phenomenon there. And then you can speak to -- it was -- China was also impacting the chemicals and advanced materials, and they still grew.\\nSo, that kind of speaks to the strength of those markets. And these are areas -- I mean it's our second-largest market.\\nWe have a leadership presence in these areas. And I would say it's just starting. When you think about the amount of capacity that's needed just for lithium-ion batteries as an example, we're only at a fraction of the capacity that needs to be there.\\nSo, these are probably $100 million-plus markets today that are having a long runway, if you just look at the cars and the opportunities here to continue to develop those. And that's just on the battery side.\\nIf you look at that, this is a very significant opportunity for us going forward, and we are definitely the leader.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great. Thanks very much. I appreciate the color. And then just secondly, on the pricing side. Bob, you mentioned that some of the offsets on the gross margin pressure coming from pricing. Can you just kind of remind us of what your expectations are for pricing this year? And then, in terms of some of the actions you did last year, how quickly are you realizing some of those higher prices that you put in place?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. It's a really good question. And we continue to be pleased by the ability for our value proposition to be recognized in the marketplace and actually having higher price than what we had initially had at the beginning of the year.\\nIf you recall, we had talked about roughly a 1-point year-on-year price realization. Q1, we were ahead of that. In Q2, we actually accelerated beyond that. And I would say most of the pricing that we're realizing today were for actions that we took most in the fall of last year and just starting to see some of the actions that we took in January of this year just given the strength of our backlog.\\nSo, it was above that. I would say in our new guide that we actually feel more optimistic about being able to be higher than that 1%. It was higher than that, certainly in Q2, which we needed because we -- our costs have been higher as well in terms of being able to have higher logistics costs given the price of oil and the cost of shipping. But we feel very good about our ability to continue to manage that across our entire portfolio.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, I think it's also very well. We feel really pleased about the net price realization that's occurred.\\nWe also continue to drive productivity as well.\\nSo, it's a combination of pricing and productivity improvements we're having across the Company.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That's right. That's right, Mike.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Brandon Couillard with Jefferies.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike, biotech end market, very strong again in the second quarter.\\nJust talk about sustainability of trends there and perhaps the impact of NASD specifically on the biotech segment growth.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo, I'll have you call that out, Bob. I know that's in our notes. And I think what you'll hear from Bob is it's a broad-based biopharma story with really strong growth in both sides of the market, the analytical lab and NASD. We remain quite bullish on the outlook in biopharma.\\nIn fact, we continue to actually gain new business. And actually, I'll have Padraig talk about in a second. We've actually expanded the number of accounts we're serving in the biopharma space.\\nSo we're feeling really good about the long-term growth aspects of biopharma as well as the impact it's having on the business right now.\\nYou heard me crone about a few of our growth numbers in the prepared remarks. And Bob, before I pass it over to Padraig for some comments, can you remind me what it was?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nOur biopharma continues to -- first of all, Brandon, continues to be a greater proportion of the overall pharma market.\\nSo we're not only disproportionately growing in pharma, but the fastest-growing market continues to be bigger and bigger. It grew 27%.\\nIf you took out NASD, that number was still 19%.\\nSo, it still says that we have very strong growth there, and we grew backlog.\\nAnd so, I feel very good about our offerings across both the instrumentation but then also across the entire portfolio of products and solutions that we have.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Thanks, Bob. And I thought given the start of this fiscal year of our one commercial organization, maybe Padraig, you think some comments of how us helping to gain further penetration in the biopharma space.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. Mike, we're absolutely seeing that we have a bigger focus on the longer tail of accounts or smaller biopharma accounts as well as the large players. And of course, our strong focus in biopharma was with application support and so on, really helps us with attach rate in that business. And it really helps the instrument trend with that attach rate.\\nSo overall, I think we see both services and consumer has been a very strong play and very strong enabler within -- in the biopharma accounts, which we're, of course, getting a lot more access to.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Got you. That's helpful. And then, the DGG gross margin at 56% are quite strong. Is that a mix dynamic or pricing? And should we think about mid-50s as sustainable for this business going forward now?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I'll let you and Sam hash that one out, Bob. Go ahead.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think we certainly benefited from an extremely strong performance there. And Sam and team have continued to drive productivity in the business there. We did benefit from mix, but it -- I wouldn't necessarily put that number in for Q3 and Q4 because if you recall, one of the things that we are starting to do in the second half of the year is ramp up the start-up costs for Train B in our NASD facility and so forth.\\nSo -- and that hits our gross margin. But obviously, that has a great payoff in '23 with that $150 million-plus capacity.\\nSo, I would say the team had a benefit of mix. They're working on that productivity and activities. But I would say in the second half of the year, we probably will see some pressure because of some of that start-up costs.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Bob, it's -- completely agree with everything you said.\\nSo, it is mix, it is volume. By the way, just also affirm we benefited from price.\\nWe have some leadership positions in the market, which we are absolutely able to go after. And continued good performance expected, though.\\nAs you said, the expectation is going to be a little tougher with NASD Train B coming on board.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Puneet Souda with SVB Securities.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"So, first one, strong pharma, obviously. But just focusing on North America and pharma. Any reason why you shouldn't continue to see that in the second half, too? I mean, the question is more around instrumentation, and it's really around -- we're seeing your peers deliver very strong growth rate in U.S. pharma.\\nSo, wondering if there is any element of pull-forward you're seeing here. And should we see a sustained sort of growth rate when we think about North America and U.S. pharma?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Puneet, happy to answer that question. We're seeing the same phenomena. Pharma remains very, very strong in the U.S., and our outlook remains very bullish for the remainder of this year.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. To give you perspective, I mean, our Americas business in pharma grew twice as fast as the overall pharma business. And we do -- we will have some comps in NASD that we won't be continuing to post a great -- the strong performance there -- as strong a performance, I should say, because we're ramping up against the capacity, which is what Train B is going to help us provide. But we're still seeing that very strong performance, particularly in the instrumentation that you were just asking about. That has been a standout.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Okay, great. And then just briefly on another smaller segment, academic and government for you, that was strong in the quarter. Maybe could you just elaborate a little bit there what's driving that? And what sort of -- what are some of the elements of growth that we should continue to expect through the year? Thank you.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And as Bob mentioned -- this is Mike. That was a nice surprise for us.\\nI think we came off a 21% compare and still grew 5%.\\nSo, we're seeing some positive developments. The funding environment seems to be quite healthy. And even though we had some COVID-related headwinds in the academia segment in China, even that area was strong.\\nSo, we think it's continuing to be a healthy funding environment.\\nI think perhaps some of the COVID challenges we had as the society over the last several years has reinforced the importance of funding in those areas.\\nAs well, we're seeing return to labs or access for students and others in the lab activity as well.\\nSo, I think it's that combination of a healthy funding environment as well as lab access.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think, Puneet, just to build on what Mike was talking about, if you go back to our first quarter results, we had January in our first quarter, and that was just coming off of Omicron -- the wave of Omicron. And we were talking about seeing increased activity starting in February as -- late in January, early February as kids were going back to school. We saw that continue throughout the course of our second quarter and really across the board.\\nSo, I think, it's pretty broad-based, particularly in our cell analysis business was one of the -- probably the strongest in that area and saw a really nice recovery after that first wave of Omicron there. And I think it continues to speak to kind of the value proposition that we have in cell analysis.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Derik De Bruin with Bank of America.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Hey. It's Derik. Thanks for taking the questions.\\nJust sort of follow-up on some things Puneet asked.\\nSo, we've been getting a lot of questions from investors basically asking if what the instrumentation sector is seeing is sort of like a pull-forward of the budget flush earlier in the year because customers are worried about delays in products, supply chains or anything like this. I mean, are you seeing any sort of like unusual order patterns? Or anything that's still suggesting it could be still catch-up orders from 2022 that didn't get -- sorry, for 2021 that didn't get shipped this year? Just like to because the instrumentation numbers have been just so strong across the group.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No.\\nWe haven't seen any indication of that. And I think the supply chain challenges, if you will, are no better, no worse.\\nSo, there's nothing that would be -- from a supply chain standpoint that would be encouraging customers. I got to get my order book now or I won't get a product.\\nSo we're not seeing that. We do think that some of the markets have seen an increase in their overall inherent long-term growth rate, particularly pharma, biopharma. We actually think some of the COVID challenges we had that I mentioned earlier have actually led to a more positive funding environment in some aspects of our marketplace. And Bob, I don't know if you have thoughts on this as well or...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think from the standpoint of order growth, from a budget perspective, it only counts if they actually get the product, right? And so, if you look at -- the order growth continues to grow faster than revenue, which says, hey, from our standpoint, there's not necessarily pull-forward and it's just robust demand.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Got it.\\nSo, no sign of over-ordering, for example, that you can see? Okay. And I guess another question...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Derik, just one other thing, I think, just real quick on that. Yes, because we continue to look at -- we talked about it relative to China, but we look at it on a on a regional and global basis. And again, the order cancellations are at -- year-on-year, they're lower than they were last year. And last year, they were lower than the prior year.\\nSo, they continue to be at a very de minimis amount. It's something that we haven't seen more -- somebody is placing orders with multiple vendors and whoever can deliver gets the product first.\\nI think it is consistent across the industry where we just are seeing very strong demand.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Got it. Thanks. That's really helpful. And just in terms of some of the competitive dynamics, I mean, it -- some of the other companies in the space have been talking about share shifts and changes going on in the markets and customers going on. I mean, it sounds like your order book is still -- I mean, did I hear you correctly you said mid-20s order growth in China? It doesn't sound like there's any sort of like change in the competitive dynamics going on in that region?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"At least not with us.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I was going to say for some of our core technologies, it's mid-20s globally.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. And we have included analytics on this, Derik, with win-loss ratio.\\nSo, we know what's going on with the business, and we can kind of parse through the rhetoric.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Patrick Donnelly with Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Bob, maybe following up on that.\\nJust looking at the guidance -- in terms of the guidance, obviously, you guys are typically pretty conservative.\\nSo, it's encouraging to see that 100 bp bump for the year. Can you just talk about, I guess, what gave you the confidence? It obviously implies a decent 4Q ramp. Is that just coming from exactly what you talked about there, the order growth, obviously, China coming back, visibility into that? Maybe just talk to the confidence level. Again, historically pretty conservative.\\nSo, that 100-bp bump off an in line quarter, maybe just talk through that a little bit. Thank you.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. No, you're spot on, Patrick.\\nYou hit on the two key points. One is the continued strength in our order book globally, where our orders continue to outpace our revenue. And then you build on that fact we have a strong conviction that the revenue deferred from China we will recover.\\nAnd so, you see that in both, Q3 and really Q4.\\nYou see that step-up because of the strength. I would say our visibility remains high, particularly in the instrument side of the business with record backlogs across all of our technology stacks.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Okay, great. And then, Mike, maybe following up on one of the earlier questions on cyclicality.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"We get a lot of questions about recession sensitivity and thoughts about if there is a recession where the companies look like.\\nYou guys have obviously transformed the portfolio quite a bit since the last time we saw a real pullback. Can you just talk about the resiliency of the portfolio broadly, how you would think about, what this would look like into a recession? And then again, maybe just expand a little bit on what's cyclical, what's not across the entire portfolio there. And then similarly, Bob, just the levers on the cost side, if things were to slow.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So I'm going to make a few opening comments here. Then Bob has been doing a nice little set of model here. He has a few slides to reference, so he can give an even more precise answer. But I must use the word resiliency or resilient in my script comments at least 5 or 10 times because -- really to drive the point home that the Agilent business model, business portfolio, is significantly different than the last time that we've seen some type of recessionary pressure on the business. And at this point, for example, to a service business that just posted another 10% core revenue growth where I've got over 10% of my total company revenues under a service contract, whole consumables business, our NASD business, what we've been doing to really change the nature of our business and also deeper penetration in markets such as pharma, biopharma, which tend not to be as affected by a recessionary pressure if that was to occur. And Bob, I know this is something you're a keen student of, and I think we'd be happy to share some more insights here.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Thanks, Mike, and you're telling all my secrets with my secret pages here. But I think, Patrick, to your point, this is something -- as Mike was talking about, the portfolio really has dramatically changed.\\nSo, if you went back to probably '08, '09, the great financial crisis, our business was much more capital-intense, much more instrument-oriented than it is today. It was probably in the mid-30s in terms of services and consumables. And today, it's closer to 60%. And then, if you also look at it, the pharma and clinical businesses, which are probably more recession-resistant, they're now 50% -- greater than 50% of the entire company.\\nAnd so, back then, we were pretty close to GDP. And if you just look at what happened in COVID 2020, one of the greatest shocks we had, actually, we still grew 1%.\\nAnd so, you can see that we've got a much more resilient business model because of the higher concentration, not only in faster and more resilient markets like diagnostics and the pharma business. But then when you look at the types of products that we have, the greater element of services, a lot of them on contract, as Mike just talked about, but then the consumables piece and then the consumables and services a greater proportion of the business than we had before. And then, even in some of those areas that we talked about, the more -- we're traditionally viewed as cyclical, there's some longer-term growth drivers.\\nI think that people are going to still transition from gas-powered cars to electrical cars. There's still going to be a regionalization of investments and capacity around semiconductors and so forth to bring them closer to the markets, whether that be here in the U.S., Europe and other places to diversify that supply chain. Those are things that weren't there in 2020 -- or in 2008-2009.\\nSo I think we've got some tailwinds from a market perspective, and the business composition looks very different.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Rachel Vatnsdal with JP Morgan.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"So, another question around biopharma. Biotech funding slowdowns have obviously been an area of concern.\\nSo, could you just talk about if you've seen any slowdown from customers related to funding concerns at all? And then, have you had any concern amongst challenging therapy customers? Or is that business really operating as expected as well?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo, let me leave with some thoughts on the biopharma, and maybe you want to jump in on the cell and gene therapy, Jacob. But no, we haven't seen it. We've seen some of the publicized concerns, but it's not showing up in our discussions with customers or in our order book or order funnel.\\nIn fact, that's why I pulled Padraig into the conversation earlier because we're actually expanding our penetration in there.\\nSo, the funding environment still remains strong for the products and services looking from Agilent. And then, I know that you've got something going on with Lonza right now already on the cell...\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Actually, the -- overall the cell analysis business is doing really well, and we are -- we have a high penetration into biopharma. Actually, one of the areas we didn't have that high was in the Seahorse, where we were very balanced towards academia. And here over the last a period of time, we have launched a new product which is really penetrating into biopharma, really doubled our penetration into the biopharma for the -- especially for the gene and cell therapy area. Also the same for the our LC/MS business where we have a strong presence in the oligo, and we will further improve that over the next period of time here.\\nSo, we actually see a lot of strength still in that area. And as Mike mentioned, we also are committed to partnerships. Lonza, where they have built a new platform that can be a bioreactor that can actually -- that could be used out in the in the hospital settings. And we are working with them to improve that to put QC methodologies in there based on our cell analysis technology.\\nSo we are -- continue to be very bullish in this space.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Hey Rachel, one other thing, it's a question that's come up a number of times.\\nSo, we've done a fair amount of analysis. And as Mike and Jacob talked about, we haven't really -- we haven't seen any slowdown in the order book or any -- even in the elongation, any material elongation, in kind of the order conversion cycle, so to speak, in terms of getting from proposal to order.\\nThe other piece that I think is probably underappreciated is the penetration that we have actually into this market from a services and consumables base.\\nAnd so, we have probably some of the highest attach rates in our biopharma businesses just because of the types of instruments that they buy and the amount of service uptime that they require. And as long as those customers don't go bankrupt, we'll still have that. And we haven't seen any material write-offs in any of those things.\\nSo, I think people think about it and go right to instrument, but there's a big component of services and consumables there, too, that will continue to be kind of the gift that keeps on giving.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great. Thanks. That's really helpful. And then two more questions from me on C&E.\\nSo, last quarter, you listed the C&E guide for the year at high single digits to low double-digit growth.\\nSo, can you give us an update on if that outlook has changed at all given the 9% growth this quarter? And then, kind of diving deeper into C&E.\\nSo, you and your peers have touched on battery testing being an opportunity in that segment, and it's really starting to get some increasing traction.\\nSo can you walk us through that market opportunity and how meaningful that could be over time?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nSo,, our guidance for C&E hasn't changed. We were in line with the expectations for Q3 despite kind of the pushout of some of the China-related business.\\nIf you can -- GC and GC/MS have probably a higher concentration into the chemical and energy business. And actually, we still grew 9%.\\nSo, we're expecting to see a nice rebound into Q3 and Q4, primarily Q4 as that business comes back, and they're still on track to that double digit.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Bob, I think it's fair to say it wasn't just C&E in China. It also was C&E globally where our product is provided by China for those customers.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And I think in terms of the areas around battery and technology and clean energy technology, and I would throw in kind of semiconductor in that and some of the capacity expansion.\\nSo on the battery technology, those are emerging areas that we've talked about for the last several quarters here. It's still an emerging technology. There's only a handful of battery manufacturers right now, but they are significantly increasing capacity around the world.\\nAnd so, it's a several hundred million dollar kind of market opportunity today and growing quite substantially.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Josh Waldman with Cleveland Research.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"I think one for you, Mike, and then one for Bob. Mike, just want to expand on the instrument backlog questions. I mean, curious if you could provide a bit more context on the backlog strength.\\nJust trying to get a sense on how much of this is a reflection of stronger orders versus potentially a function of tighter supply, maybe even the China GC facility shutdown in fact.\\nYou talked on biopharma strength. Are you seeing order -- instrument orders from more cyclical accounts like applied and industrial also run ahead of expectations?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think the story -- the headline story here is transitory impact on backlog build for an element of a COVID-19 lockdowns in China. But the big story -- the big macro story is orders continue to outpace revenue, so strong instrument demand across our two largest markets. And I can recall some of the questions we got earlier this year about, hey, what's the upside in your plan. We said, we think it sits in our two largest markets, pharma and C&E. And that's actually what's happening.\\nSo -- and I think we've probably got a little bit larger backlog build right now in C&E just because of the need to be able to deliver GCs from our Shanghai factory, albeit we were able to shift some of our production to our site in the U.S., and that's continuing to ramp. But again, I think the macro story here is really strong overall market environment for orders. And we're feeling really good about our ability to meet our customers' expectations on deliveries. We see customers continue to be satisfied with their relationship with Agilent.\\nI think you saw me try to hit that in my closing comments. And then as Bob mentioned, we monitor very closely the level of order cancellations and continue to be delighted with where that stands.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Hey Josh, this is Bob to kind of build on that. If we kind of peeled the onion back and looked at the backlog for LSAG, it's significantly above where it was last year. It's hard to peel out. There have been some longer delivery times because of logistics, but I would say the majority of it is demand-driven. It is not because it's longer delivery times. I mean, even if you took the $50 million to $55 million out -- yes. Even if you took the $50 million to $55 million out, it's still significantly higher than what it would be historically. It's a record backlog even if you take the kind of the onetime $50 million to $55 million China deferral out.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Okay. And then, Bob, can you bridge us to the new EPS outlook? I mean you beat Q2 guide by $0.01 at the high-end raise, the full year by $0.03.\\nJust curious how strong organic growth and other variables like share repo, FX and margin are being accounted for in the new guide.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. It's a good question.\\nSo, it's $0.01 for Q2 beat and basically $0.01 for Q3 and Q4 with the share repurchase helping us by a couple of points, offset by FX. I would say, it's a prudent guide.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Oh, prudent guide.\\nOkay.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We had to get that prudent in today. Didn't we, Bob?\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Jack Meehan with Nephron Research.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I just wanted to keep going on chemical and energy.\\nJust first, how much of the manufacturing headwind was in this end market, maybe versus food or environmental or elsewhere? I'm just guessing the underlying was a lot stronger than the 9% headline for the end market.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nYour intuition, Jack, is spot on. We didn't -- for purposes of looking at this, we looked at it more on a technology stand rather than kind of end market. But if you look at most of it actually being in China, that's where most of the impact was. And that is a market that's over-indexed to food, chemical and energy and pharma. Those were the 3 biggest markets. Environmental and forensics does have an impact there as well, but it's probably less so than the other three that I just talked about.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I do recall we had some larger European orders in C&E that will be filled later because we couldn't get GCs to them this quarter -- this past quarter.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Got it. That's helpful. And then, just following up on NASD.\\nJust the expectations in the back half of the year.\\nYou guys are the masters of eking out additional capacity and what you have today with Train A and the Frederick site. But is the expectation kind of revenue is more flattish from here for the remainder of the year? And then, just a quick clarification for Train B, talked about 2023.\\nI think previously, you said end of this year, just don't know if there's any -- I'm reading too much into that, but just any comment on the time line would be great.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, do you want to take the first one?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I'll take the first one, yes.\\nSo I think if we look at what we have been able to do in Q2, it was very strong growth. it is slightly better than flattish as we've kind of tapped out -- as we're maxed out right now in capacity. But as you point out, the team continues to do a fantastic job to bring out new capacity. I will say that we do have a shutdown -- a planned shutdown in Q3 as we're doing some of the installation of Train B, which will temporarily depress the revenue there. That's built into the guide.\\nAnd so, there may be a slight sequential downturn, but that's all part of the overall plan.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Jack, as I mentioned in my prepared remarks, we had a chance -- actually, Bob and I and Sam had a chance to actually go down and spend time with the team to see firsthand does a great job there to thank them for their work. And they've really done a great job both winning new business as we looked into '23 but also meeting -- also supporting a major expansion of our production, which we've been referring to as Train B. And to answer your question, I would say is, first of all, there's no changes to our outlook in terms of 2023 revenue. We do think it's not likely that we'll start production this calendar year.\\nSo, it's most likely early calendar 2023. We've had some great support from the construction teams are supporting our effort here, but also have experienced some COVID-related to supply chain issues. But as you can imagine, Jack, we also were prudent in our initial outlook for 2023.\\nSo, don't read into that anything beyond the fact that it may take us a little bit longer to get the plant up and running, the new capacity up and running, but our revenue outlook for 2023 remains unchanged.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Super. And Mike, you said prudent now a couple of times but was just wondering, could you confirm, is the best still yet to come?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely. Thank you, Jack. The best is yet to come.\\nWe\\u2019re Agilent. Right after this call, I'll be doing an earnings call video for the Agilent team and that might close.\\nSo -- and thank you very much for that, Jack.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Daniel Arias with Stifel.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Bob, I just wanted to maybe follow up on that pricing question and ask if there are areas in the portfolio where the backlog or the lead times are long enough to where you sort of need to go back and requote pricing for the current environment. Or is that not something that you really have in play? And if it is, how successful might you be in doing that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I'll look to my colleague and Jacob, but we don't requote when we price.\\nSo we commit to the pricing at the time that the quote was valid or the order.\\nAnd so, what we're seeing here is, if we take pricing in January, we just started seeing some of that flow through in the late second quarter just given the backlog.\\nSo, if we take pricing now, it's really in terms of anticipating you'll expect to see it sometime in late Q4, really into 2023.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You can write, Jacob?\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"And then, maybe just on NAS -- oh, sorry, Jacob. Yes.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No, no, I was -- just sorry about that.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"I was just going to ask one about NASD and just sort of the way that the order book is building out for 2023. Is that more a reflection of where backlog is for NASD or just the acceptance time lines that you have customers talking about at this point?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sam, why don't you speak to that? I know you spent time with Brian on the exact question.\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Happy to. Well, listen, I mean, the backdrop of the market continues to be a strong demand. And we're seeing that both, from existing clients that we have for materials we're making for them right now but as well as new programs. And we are seeing a lot of interest from new pharma clients as well.\\nSo, when you look at 2023, it's very healthy demand.\\nIn fact, we've already sold a very significant part of our capacity for 2023 and already working on opportunities for 2024 and beyond. And that's just the cycle and the maturity and I think the positive outlook for this segment and our leadership in it.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I was going to say, hey, Dan, just to build on what Sam is saying, I mean, this is really a class effect. I mean when we think about kind of the therapeutic areas and the proof of now several new products that are on the market, this is really -- you're seeing multiple big pharma and mid-cap pharma looking at therapeutic areas with this technology.\\nAnd so it is really something that we're a leader in. We're building capacity aggressively. And it is really more a function of the market demand as opposed to anything from our standpoint of capacity. If we add more capacity, we'd have more revenue.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"So, just to maybe put a bow on that, incremental orders that are coming in now, is it possible for those to be delivered in 2022? Or are those 2023 deliveries just by virtue of what you're saying on capacity?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. We're pretty much capped on 2022.\\nWe have all the business we're able to process this year.\\nSo it's really about 2023 and beyond at this point.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question comes from Catherine Schulte with Baird.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"I guess, first one on NASD, and then I have a follow-up on M&A. But with NASD, clearly, a lot of interest there, a lot of demand from customers.\\nI think one of your main customers has a PDUFA date coming up in July. How do you think about evaluating capacity expansions even beyond Train B? And what should we be expecting to hear from you guys on that front?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. We're actively working on the answer to that question right now.\\nSo nothing yet to share, but I can assure you there'll be more -- there's more letters in the alphabet than A and B.\\nSo you can expect us to continue to invest and expand this business.\"}, {\"speaker\": \"Catherine Schulte\", \"content\": \"All right. Perfect. And then, you mentioned in your comments -- yes.\\nYou mentioned your comments continuing to actively look at M&A opportunities. Can you just give us your latest thoughts there in terms of appetite and of size and substantial hurdles that you would be applying?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think our appetite remains the same in terms of as part of our Build and Buy growth strategy. We've indicated previously that we have an appetite to do a larger M&A that we done historically. We've talked about it being multiples of the BioTek acquisition. It's really just a matter of making sure we find the targets that make the most sense for us strategically, and of course, making sure they create value for our shareholders. And we have remained disciplined through all the hype of the -- of what we experienced last year with the SPACs and IPOs coming out, et cetera.\\nI think the market is still -- is now becoming a little more rational in terms of -- and I say a little bit more rational in terms of price expectations, albeit not everybody has forgotten what they thought they once were or were 6 or 7 months ago, Bob.\\nSo we remain very active nothing to announce, but this remains a priority for the Company. But we're not going to do deals just to do deals.\\nWe have to do deals that makes sense for our shareholders.\"}, {\"speaker\": \"Operator\", \"content\": \"There are no further questions registered at this time. And that concludes the Q&A session. I'll pass the conference back to Parmeet to conclude the call.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Selena. And thanks, everyone, for joining. With that, we would like to wrap up the call for today. Have a great rest of the day.\"}, {\"speaker\": \"Operator\", \"content\": \"That concludes the Agilent Technologies Inc. Q2 2022 earnings conference call. Thank you for your participation.\\nYou may now disconnect your line.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2022-08-17
year: 2022
quarter: Q3
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Good afternoon. Thank you for attending today\\u2019s Agilent Technologies Q3 \\u201822 Earnings Call. My name is Tina, and I will be your moderator for today\\u2019s call. [Operator Instructions] I would now like to pass the conference over to our host, Parmeet Ahuja with Agilent. Please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Hannah and welcome everyone to Agilent\\u2019s conference call for the third quarter of fiscal year 2022. With me are Mike McMullen, Agilent President and CEO; and Bob McMahon, Agilent Senior Vice President and CFO.\\nJoining in the Q&A after Mike and Bob\\u2019s 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\\u2019s discussion along with a recording of this webcast are available on our website at www.investor.agilent.com. Today\\u2019s comments by Mike and Bob will refer to non-GAAP financial measures.\\nYou will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year, 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 exchange rates as of July 31.\\nAs previously announced, beginning in the first quarter of fiscal 2022, we implemented certain changes to our segment reporting structure.\\nWe have recast our historical segment information to reflect these changes. These changes have no impact on our company\\u2019s consolidated financial statements.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company\\u2019s recent SEC filings for a more complete picture of our risks and other factors. And now, I\\u2019d like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Parmeet and thanks everyone for joining our call today. In the third quarter, we once again demonstrated the strength of our diversified business and the unstoppable One Agilent team. We delivered an excellent quarter, significantly exceeding our revenue and earnings expectations. Revenues of $1.72 billion are up 13% core. This is on top of 21% core growth in Q3 of 2021.\\nThird quarter operating margin of 27.5%. Operating margins continue to expand and are up 150 basis points from last year. Earnings per share of $1.34, up 22%.\\nOur strong results in Q3, coupled with orders continuing to outpace revenues, highlight the ongoing strength of our diversified business. The momentum in our business continues, and we once again raised our outlook for the year.\\nLet\\u2019s take a closer look at our Q3 results. From an end-market perspective, our results were once again led by strength in our two largest markets, pharma and chemical energy.\\nOur largest market, pharma, grew 16% versus 27% a year ago. Within pharma, both the biopharma and small molecule segments grew double-digits. The momentum in our C&E market segment continues with Q3 growth of 22%. This is on top of 23% growth a year ago. The C&E market is being fueled by demand in chemicals, along with strong secular demand and ongoing investment within the advanced materials space.\\nWe are also very pleased to achieve double-digit growth in the food and environmental and forensic markets with both markets growing 11%. In our last call, I shared our belief that the business impact of the Shanghai COVID-19 lockdown would be transitory. I also expressed that we remain confident about the ongoing strength of our business in China. In Q3, the China delivered 29% growth. These stellar results were driven by continued strong end-market demand, coupled with the faster-than-expected recovery of production and shipment activity following the end of the Shanghai area lockdown.\\nWe are also very pleased with its results, which highlights the customer focus, drive and outstanding execution of the Agilent China team. Strength in Americas continued as we posted another quarter of double-digit growth on top of 32% growth last year.\\nOur European business grew 6% against 23% last year despite a 2 point headwind for the curtailment of our operations in Russia.\\nIn terms of business unit performance, the Life Science and Applied [Technical Difficulty] revenues of $1.02 billion, up 18% on a core basis. Growth was broad-based but continued strong demand for our LC and LC/MS offerings, where we posted high 20s growth.\\nOur spectroscopy business grew low 30s driven by strength in the advanced materials market. Chemistries and consumables, cell analysis and our GC business each delivered double-digit growth in the quarter. LSAG\\u2019s end-market growth is broad-based with particular strength in the pharma and chemical and energy markets.\\nOur pharma results were driven by strength in the biopharma segment, which grew more than 20%. We had an excellent showing at the recent ASMS conference, introducing several important LC/MS and GC/MS instruments and biopharma workflow solutions. These innovative and intelligent LC/MS and GC/MS systems have been designed to make the lives of our customers easier. To build an instrument intelligence and a higher level instrument diagnostics helped maximize system uptime and improve lab productivity by allowing operators to focus on their analysis rather than their instruments.\\nIn addition, we introduced an industry-first hydro in net source for GC single-quad and GC Triple-Quad instruments, enabling customers to seamlessly migrate from helium as a supplier gas to lower-cost hydrogen. And rounding out the list of new products announced at ASMS, we introduced the mass Hunter BioConfirm 12.0 software, an integrated compliant workflow, targeted at the fast growing oligo-based therapy development market. These new products have already been well received by customers and represent the latest addition to Agilent history of leadership in mass spectrometry.\\nOur LSAG business also won some important awards during the quarter, including the 6560c i-Mobility LCT system, winning the Scientist Choice Award for Best New Spectroscopy product. Earlier this month, we also strengthened and broadened our advanced materials and biopharma portfolio with the acquisition of PSS, Polymer Standard Service, a leader in polymer characterization.\\nWe are extremely pleased to welcome the PSS team and their technology to the Agilent family. The Agilent CrossLab Group posted services revenue of $359 million. This is up 10% core. We grew 10% core even as lab activity continues to ramp in China. Growth in services was again broad-based across services contracts, preventive maintenance, compliance, education and informatic enterprise services. Strong instrument placements and increased connect rates continue to be a driver for our service business as customers continue to see value in our ACG offerings.\\nAnother critical important factor on our results is the scale and execution capability of Agilent\\u2019s world-class global service delivery organization in service of customers to meet their needs. Agilent was seen as the trusted company to work with among our global customers. The Diagnostic and Genomics Group delivered revenue of $340 million, up 3% core. This is diverse compare a 37% growth last year. The solid results in our clinical cancer testing and NGS businesses were partially offset by COVID testing headwinds in a Q PCR portfolio.\\nIn addition, the DGG business in China continues to ramp from the COVID-related shutdowns there. NASD revenues were up modestly in line with expectations.\\nAs we noted last quarter, Q3 included the impact of a planned shutdown, our oligo manufacturing line in Frederick, Colorado. The shutdown of Frederick was for both routine maintenance and development of key elements of our Train B.\\nOur new manufacturing line have increased our capacity $150 million plus when fully ramped.\\nWhile we continue to make good progress in the construction of Train B, we have seen some supply chain-related delays and are now targeted a midyear 2023 go-live, a slight delay. We see continued strong demand for oligo-based therapies as the number of approved drugs continues to increase and the pipeline of drugs in development are targeting disease states with larger patient populations.\\nWe are more confident than ever in the long-term trajectory of the market and our business.\\nIn addition to these highlights, I\\u2019d like to also point the recent release of Agilent\\u2019s 2021 ESG report.\\nWhile we\\u2019ve always published our progress in sustainability and addressing societal needs, this year, we\\u2019ve taken our approach to the next level. We address these issues a new format that for the first time that looks specifically at our progress in the areas of environmental, social and governance issues. We hope you have a chance to review our progress in ESG by checking out the report on the Agilent website, learning more about how we\\u2019re executing our mission to advance the quality of life. Agilent\\u2019s Q3 results again point to the strength of our diversified business and the outstanding execution ability of the Agilent team.\\nWe continue to bring innovative, differentiated new offerings in the marketplace. Acceleration in digital orders growth continues as well as new customer acquisition.\\nIn addition, as we started 2022, we undertook a bold move to create One Agilent commercial organization to further drive customer focus and growth. The strength in our portfolio and the continued strong execution by our One Agilent commercial organization make a powerful combination, and you see it in the results we\\u2019re delivering. Customer satisfaction hit another all-time high this quarter.\\nWe continue to outgrow the market.\\nAs a result of our strong Q3 performance and continued momentum, we\\u2019re once again raising our full year revenue and EPS guidance. Bob will share more of the specifics. It\\u2019s an exciting time at Agilent with the best yet to come. Thank you for being on the call today. And now I will hand the call off to Bob. Bob?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Thanks Mike and good afternoon everyone. In my remarks today, I will provide some additional details on revenue in the quarter and take you through the income statement and other key financial metrics. I will then finish up with our guidance for the fourth quarter and fiscal year. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nWe are extremely pleased with our Q3 performance. Results were above expectations, and we expect that strength to continue in the fourth quarter. Q3 revenues were $1.72 billion, up 8.4% on a reported basis and up 13.2% core. FX was a 4 point headwind to growth or $76 million. Pricing for the quarter contributed over 3 points of growth year-on-year and improved sequentially. The performance was broad-based as all end markets and regions grew during the quarter.\\nAs we mentioned last quarter, the COVID-related lockdowns in China deferred an estimated $50 million to $55 million in revenue from Q2, and we forecasted that revenue would be recovered during the rest of the calendar year.\\nOur team in China did a fantastic job ramping production and shipments faster than expected following the shutdowns. We estimate over half of that deferred total was delivered in Q3, exceeding our expectations.\\nGiven the strong performance, we now expect the remainder will be delivered in Q4, which is an acceleration from our thinking from last quarter. The acceleration of the COVID-related shutdown recovery in China contributed to an already strong Q3 for the company.\\nFor perspective, we estimate the total business grew double digits, excluding the accelerated recovery.\\nAs Mike mentioned, earnings per share of $1.34 were up 22% from a year ago, representing strong incremental flow-through of the better-than-expected revenue growth. This performance is against our most difficult comparison of the year as EPS grew 41% in Q3 of last year.\\nNow let me dive a little deeper into the end markets.\\nOur largest market, pharma, was up 16%, exceeding our expectations. Biopharma grew 18% and small molecule was up 14%. Biopharma is a focus area for us and now represents 38% of our overall pharma business.\\nWe expect that ratio to continue to climb over time.\\nIn addition, all 3 business groups grew double digits in the pharma segment. And our LC portfolio continues to perform very well, growing 25% in this important market for us. Chemical and energy continued to show strength, growing 22% during the quarter, driven by the chemicals and advanced materials segment of this market. We saw strength in plastics and packaging for chemicals and ongoing demand in advanced materials coming from the markets for semiconductors and batteries. In the food segment, we achieved growth of 11% on top of 12% growth a year ago. Strength in the food market was led by the Americas and China.\\nOur environmental and forensics market also grew 11% during the quarter, driven by the Americas and China. In the Americas, we saw increased funding to support PFAS testing, while China experienced faster-than-expected recovery post the Shanghai shutdowns for GC and GC/MS. The academia and government market grew 5% on top of a 12% comparison last year, in line with expectations. And rounding out the review of our end markets, our business in the diagnostics and clinical market grew 2% against a very strong 28% compare versus last year.\\nWhile not material at the Agilent level, this market did experience some headwinds associated with COVID-related revenues being lower than last year.\\nExcluding this, the growth would have been mid-single digits in this quarter. On a geographic basis, China led the way with 29% growth driven by underlying demand and a faster-than-expected recovery following the COVID-related lockdowns. And looking forward, demand in China continues to be very strong. The Americas grew 11%, another strong showing, and Europe grew 6%, which exceeded expectations.\\nNow turning to the rest of the P&L.\\nOur team continues to execute at a very high level.\\nThird quarter gross margin was 56.4%, up 50 basis points from a year ago as pricing actions, volume and productivity helped to offset inflationary pressures tied to ongoing supply chain challenges and higher logistics costs. Operating expense leverage, driven by the strong top line and continued attention to cost management, helped to deliver very healthy margin improvements.\\nOur operating margin was 27.5%, up 150 basis points from last year. Below the line, our tax rate was 14% for the quarter as expected, and we had 299 million diluted shares outstanding.\\nLooking at cash flow and our balance sheet. We generated operating cash flow of $326 million in the quarter while investing $82 million in capital expenditures during Q3, driven by our NASD expansion.\\nDuring the quarter, we also repurchased $323 million worth of shares. We paid out $62 million in dividends in Q3, returning a combined total of $385 million to shareholders in the quarter. Year-to-date, we have purchased over $1 billion of shares.\\nGiven the ongoing strength of the business, we believe this is a very good investment.\\nOur balance sheet continues to remain healthy with a net leverage ratio of 1.\\nNow let\\u2019s move to our outlook for the full year and the fourth quarter. We now expect revenues for the full year to be in the range of $6.75 billion to $6.775 billion. This takes into account our Q3 results and an improved outlook in Q4, partially offset by an additional $40 million headwind associated with the strengthening of the dollar. This represents core revenue growth of between 9.9% and 10.3%.\\nWe are also raising our EPS guidance for the year to a range of $5.06 to $5.08, representing 17% growth year-on-year. This translates to Q4 revenue in the range of $1.75 billion to $1.775 billion. Core growth is expected to be in the range of 10.3% to 11.8%, while exchange rates will be a 5-point headwind, and M&A will contribute 0.1 points. In closing out our Q4 guidance, non-GAAP EPS is expected to be in the range of $1.38 to $1.40, up 14% to 16% versus the prior year. This is based on a 14% tax rate and 299 million diluted shares outstanding. The Agilent team once again performed extremely well in Q3, delivering strong results, driving excellent execution and building a strong foundation for the future.\\nOur diversified business and most importantly, our team have put us in an excellent position to again deliver strong results in Q4. And now back to Parmeet, as we take your questions. Parmeet?\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks Bob. Hannah, if you could please provide instructions for the Q&A now?\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] The first question is from the line of Matt Sykes with Goldman Sachs. Please proceed.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Hey, good afternoon, Mike and Bob. Congrats on the quarter. Thanks for taking the questions.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon, Matt.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Maybe just starting on LSAG, where you had a really good quarter, just interested to know, one, what drove the operating margin expansion in the quarter relative to your expectations last year? And then specifically, I know it was broad-based strength across instrument categories, but was there one or two areas that really surprised you to the upside where you feel is either underappreciated or could see continued momentum in the back half of the calendar year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo I will take the first part of that and we will jump in and have Bob and Jacob add their thoughts here as well.\\nSo, I think relative to the strength and why the operating margin was so high is one is, I think we have been \\u2013 we rightly benefited from the leverage impact of having those higher-than-expected revenues. But more importantly, we have been working on the pricing side and really ensuring that we are receiving the value for our offerings. And Bob, I think we are well over 3 points of price appreciation overall for the portfolio in LSAG, I believe.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That\\u2019s correct. That\\u2019s correct.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And we are \\u2013 as you may have picked up in my script, it was across the board a great quarter for LSAG and across all product categories. But Jacob, I think a couple really stood out for you, didn\\u2019t they?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes.\\nI think, as we know, we continue to do really well in the LC/MS space, but this quarter is really a spectroscopy that was standing out.\\nWe have \\u2013 especially in our atomic spectroscopy field we have really seen a lot of momentum based, of course, on the dynamics in the markets, but also the innovation that has been created over the past years. And I think we really see the impact of that these days.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nI think it was a real race to see who had the highest growth, right, spectroscopy or LC/MS. They both did extremely well.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great. And then maybe just as a follow-up, I know Europe \\u2013 yes, I just say for a follow-up. Can you hear me?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, yes, yes.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Yes, sorry.\\nJust for a follow-up on Europe, 6% growth.\\nI think getting a lot of questions on just the spend environment in that region. What are you seeing there? And are there any kind of concerns you might have in terms of demand either from the currency fluctuations or just overall demand in certain end-markets within Europe?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sure, Matt.\\nSo we posted a 6% growth rate \\u2013 core growth in the third quarter, albeit there was actually 2 points of headwind for the containment of our Russian operations.\\nSo really it was high single-digit, 8%, on a restated basis. And Europe clearly is a watch area for us, but we haven\\u2019t seen any significant signals of movement to the downside.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think, Matt, to build on what Mike is saying, I think in particular we continue to see very strong growth in our pharma business and that really is a global phenomenon. And \\u2013 but we also saw very nice growth in our chemical and energy businesses as well.\\nAnd so as Mike mentioned, it is a watch area, but the demand \\u2013 from what we are seeing in the health of the order funnel continues to be there.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Great. Thanks very much.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. The next question is from the line of Brandon Couillard with Jefferies. Please proceed.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Hey, thanks. Good afternoon. Mike, could you elaborate just on the core order growth that you saw in the third quarter? And given the strength of order momentum over the last several periods, how does that inform kind of your initial thoughts on \\u201823? I mean, should we still think about 5% to 7% still being relevant? And then Bob, should we expect normal 30% to 40% incrementals next year, any headwinds to consider, maybe the new ASP line?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Brandon, we are probably not ready to talk about \\u201823, but what I\\u2019ll leave you with is a couple of thoughts here, which is very clearly the business has momentum and/or even though we had the highest revenue quarter ever for Agilent in this recent third quarter, we still build backlog both globally and also in China.\\nSo, our orders that exceeded our revenues in those.\\nSo, it sets us up nicely, I think for \\u201823, but we\\u2019ll get to \\u201823 guide when we get there.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And I think, Brandon, on your core incrementals, I mean, I think that if you look at historically, that\\u2019s where we have been. Obviously, we do have some startup costs in \\u201823 for NASD and we will spell those out when we get to the numbers. But I don\\u2019t think that there is going to be anything fundamentally different on an incremental basis going forward.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Okay. That\\u2019s helpful. And then on the NASD Train B line, Mike, you said it was pushed out a little bit in terms of the launch timeline. Is that like 1 or 2 months? I thought the plan was already mid next year. And could you elaborate a little more specifically on kind of where the supply chain issues exactly what those are that are kind of pushing the delay?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think you got the right timeframe in there, which is a month or two. It\\u2019s really been sort of specialized steel that\\u2019s required.\\nSo, I actually had a chance to see it myself, where you go into a room or you are \\u2013 the steel pipe fitters are working and they are getting the area ready. They can\\u2019t close things off, because they are missing one valve or something.\\nSo we have had bits and pieces that have been missing that actually caused us certain delays. I mean, the team has been all over.\\nI think the global supply chains are pretty well publicized, but we thought it was \\u2013 we thought we should in the spirit of transparency let you know we are still on track for revenue coming out of the facility in \\u201823, but maybe a month or two later than you thought initially.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And I think, Brandon, there is one more important piece.\\nI think based on what we know today, we still expect to be at capacity at the exit of FY \\u201823 as well in terms of the ramp up.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Great. Thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"The next question is from the line of Vijay Kumar with Evercore ISI. Please proceed.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Hey, guys. Congrats on a really strong quarter here. Hi, Mike. Thank you. Congrats on the print. And one maybe on the guidance here, Q4 at the midpoint is 11% organic.\\nYou guys just said 15%. The comps will get easier for Q4. I am curious sequentially, when you think about it, is the change just because of the cadence of how the China deferred revenues were recognized more in 3Q versus Q4? Can you just talk about the sequential assumptions here for the 4Q guidance?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Vijay. And again, we are very, very pleased with the print.\\nSo thanks for the feedback. And Bob, we didn\\u2019t use it in our script, but I think the word prudent may apply to our Q4 guide as well.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"That\\u2019s right. Yes.\\nI think, Vijay, if you think about kind of the moving pieces within China, what we did was we pulled forward some of the revenue that was deferred into Q3, but we also pulled Q1 revenue into Q4.\\nSo, Q4, I would say we didn\\u2019t have a material change one way or another. We actually feel very good that we are going to realize that full $50 million to $55 million here in the fiscal year versus having it bleed a little into Q1. And as Mike said, I mean we are not out of the woods, certainly in supply chain challenges and COVID situations.\\nAnd so we thought at this point in time, a double-digit core growth is very good but also prudent, as Mike said.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"I love that word prudent. Maybe one on some of the moving parts for \\u201823, Mike and I am not asking for a guidance, but if I look at pricing contribution, I think we started the year at 100 basis points.\\nWe are running at 300 basis points.\\nI think that pricing should continue until it annualizes until mid of next year.\\nYou did mention orders coming in about revenues. What is the backlog conversion? Is that a 3-month or a 6-month or a 12-month visibility that you have from backlog, any impact from NASD? And sorry, on C&E very strong, but obviously, with the macro, should we perhaps be prudent for \\u201823?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo, great question, Vijay.\\nSo I think I\\u2019d like to \\u2013 the headline here was as way Bob closed off his prepared remarks, we are building a strong foundation for the future.\\nSo, we have got \\u2013 we had record revenues in Q3 yet we still build backlog.\\nAnd some of that backlog obviously will carry into \\u201823. And we \\u2013 it\\u2019s probably a 3 to 6-month visibility for sure on the revenue coming from the backlog. And Bob, I don\\u2019t see that. And we agree with your thesis around pricing and the impact it will have on our \\u201823 business as well. And Bob, maybe you want to add to...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. The only thing \\u2013 I think you are spot on, Vijay. I would say there is not a material change right now in terms of how we are thinking about NASD. And if I think about the various pieces there, they certainly set us up for a good momentum going into FY \\u201823.\\nNow there is still some unknowns in terms of kind of the macro environment, but we are expecting to have a stronger than normal backlog. We certainly have that right now and are expecting to continue that into \\u201823. And then obviously, pricing is continuing to anniversary and I would expect it to be a higher contributor to growth next year, all things being equal.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Understood. Thank you, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Vijay.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. The next question is from the line of Puneet Souda with SVB. Please proceed.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Hi, Mike and Bob. Thanks for taking the questions.\\nSo, first one just LSAG, obviously, a very strong quarter and I mean, obviously, congrats on the quarter here. When you look at the 25% growth that you are seeing in LC overall, the order book being strong, can you maybe just characterize sort of from an end-market perspective, it seems like biopharma continues to do well. But geographically, can you just characterize \\u2013 is this contribution from biopharma China in the quarter and how should we think about the sort of order book? Can you maybe characterize the order book more geographically? And do you expect this \\u2013 again in line with sort of some of the other questions as sort of how should we think about this order book flow through \\u2013 flowing through into 2023?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Puneet, you packed in a lot in that one question. But we\\u2019ll try to address it.\\nSorry, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I was just saying, maybe you want to take that, Bob. But I think the answer was really across the board. I mean both \\u2013 I mean clearly, biopharma and pharma, our portfolio is doing really, really well there. And as I mentioned to the team the other day, we just got the most recent auto report, which shows market share movements. And as my Danish colleagues like to say, it was green as a Danish forest. Did I get that right, Jacob? So...\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"That\\u2019s right. That\\u2019s right, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"It was across the board, but I think it\\u2019s the same story holds geographically well.\\nSo it really is a nice global story. But I think it\\u2019s more than just pharma. I know you\\u2019re getting some good C&E growth, right, for \\u2013 in the advanced materials, LC/MS. We posted some really good numbers in food and the environmental market, which also are big users of LC and LC/MS.\\nSo I think it was really a broad-based story there, if I remember correctly, Jacob.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Correct, Mike.\\nI think we\\u2019ve really seen good performance across the board, as you\\u2019re saying, Mike. And we are also seeing that the customers are really interested in our full solutions.\\nI think PFAS is a good example of where we see a lot of interest right now both right now, but also where we see some of the big builds that is coming through in U.S. where PFAS have a prominent exposure.\\nSo we expect to continue to see momentum in that space.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I think, Puneet, just to build on what Mike and Jacob were saying, I think one of the things you\\u2019re really seeing come out in Q3 is just the strength and breadth of our portfolio. And why we haven\\u2019t talked about spectroscopy a lot in the past, it continues to be a very important part of our portfolio and solution set. And I think it fits nicely across multiple end markets. And the LC and LC/MS get a lot of headlines, but we\\u2019re more than just an LC and LC/MS business.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it. Thanks for that. And then just \\u2013 I\\u2019ll keep it simple for my follow-up. Polymer Standards acquisition, can you characterize sort of what\\u2019s the contribution this year? And how does that enhance your offering for columns and sort of biomolecules? And should \\u2013 how should we think about that overall \\u2013 acquisition overall fitting into the LSAG group?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You want to take the first piece of that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Yes, I\\u2019ll \\u2013 it\\u2019s not a material business. We estimate that\\u2019s less than $10 million annualized today. That\\u2019s the 0.1% that we built into our guide for Q4. But more importantly, I think strategically, I\\u2019ll let Jacob talk about the merits of the portfolio and how we think it\\u2019s going to continue to drive growth for us.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Thanks for that. And we have a long-standing relationship with PFS, so we knew exactly their strength. And we\\u2019ve been very impressed with what they have done in the polymer business for the \\u2013 for a long period of time. And particularly, our interest was intrigued when we also see polymer science going from advanced material into biopharma, where we see a lot of opportunities. And PFS have done a wonderful job using our instrumentation together with their columns and also an informatics pack they have built to really go after a segment of the market and also the expertise in the field. They have more than 500 application nodes within this field.\\nSo we can really leverage that with the strong presence we have across the globe to really accelerate that business opportunity that has been up over the past decades, really.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Got it.\\nOkay, great. Thanks, guys. Congrats again.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thank you. Appreciate it.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. The next question is from the line of Rachel Vatnsdal with JPMorgan. Please proceed.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Hi, thanks for taking the questions and congrats on the nice quarter.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Rachel. Thank you.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"The first up on China \\u2013 thank you, Mike. Yes. Great to hear that some of that catch-up in China was pulled forward there. And then you also pointed to double-digit growth in the region for that ex acceleration recovery.\\nSo first off, can you just walk us through specifically what drove that pull-forward on the catch-up from lockdown? And are you seeing an acceleration of demand catch up in China? And then second, how are you thinking about that longer-term growth within China because that we source of upside for the year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Great.\\nSo I\\u2019ll start, Bob, here.\\nSo I\\u2019d have to say it was an extraordinary effort of our team in China. I mean people sacrificed and worked tremendously hard. We had people coming into our factories and living at the factories. They slept and worked at the factories for the entire period of when before you couldn\\u2019t really get out beyond \\u2013 back to your local community.\\nSo they did that for several weeks both in our logistics operations as well as our factories. And that allowed us to get our global GC production going as well as the import/export of our products as well.\\nSo I have to say it really was extraordinary effort of the team that made that happen. And we\\u2019re very optimistic about our ability to continue to grow well in China. In Q2, I think we talked about a greater than 20% order rate. We posted a number of 29% growth in Q3. Yes, we still built backlog in the third quarter in China.\\nSo I think we\\u2019re well positioned for the fourth quarter. And Bob, I said that probably does represent a level of upside potentially with things continuing to develop as we hope. The wildcards from my perspective are how much money could come into the segment from government stimulus. I know they\\u2019re talking about some of the things we haven\\u2019t seen any specifics.\\nSo that would be something that would be there on a positive. But again, our demand really is coming from the core private sector, commercial sector around pharma and C&E. We think those things are sustainable.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Exactly, Mike.\\nI think you mentioned Q2 kind of order growth rate, and Q3 was in that same range.\\nAnd so we\\u2019re seeing very strong demand and been able to do a fantastic job of ramping up that capacity, and we expect that to continue into Q4.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great to hear. And then last one for me, just on the C&E segment.\\nSo 22% growth is quite impressive, and that growth has really continued to accelerate in recent quarters in that end market.\\nSo how should we be thinking about that longer-term outlook for C&E, especially given some of the macro dependence on that portfolio?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Well, we think that the structure of this marketplace has changed over the last few years. And yes, that\\u2019s still a segment that\\u2019s tied directly to what happens to the global GDP situation. But we had \\u2013 it in my comments, there\\u2019s secular demand happening here, particularly in advanced materials when there\\u2019s investments being made in battery technology, more sustainable materials, semiconductors, onshoring of production.\\nSo we think those trends are here for a number of years.\\nI think our view is the sector has probably got a higher growth rate than we viewed it having a couple of years ago because of the secular aspect of growth in C&E. And Bob, what else might you add there?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I think \\u2013 as you said, I think one of the things that I think is really important, don\\u2019t take \\u201822 and take \\u2013 build it into your model because we don\\u2019t think that, that growth rate is going to continue. We certainly are pleased with it. But I think the other more important piece is we have a very strong right to win in the C&E business.\\nWe\\u2019re a leader in this space and feel good about our portfolio. And as Mike said, this is an area that we are seeing kind of a renewed sense in some of these areas that we do think that has many years to come in terms of investment.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I\\u2019m going to use an undisputed leader in the space.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I won\\u2019t disagree.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks for the question, Rachel.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great, thank you.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. The next question is from the line of Derik De Bruin with Bank of America. Please proceed.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Great. Thanks for taking the question. This is Mike Ryskin on for Derik. I want to follow-up on your comments on price.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Mike.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Hi, guys.\\nYou sort of indicated that price continues to sort of grow as you go through the year. Is that a factor of the timing of when orders are converted to revenues and when you\\u2019re recognizing those revenues? So it\\u2019s just more of a dynamic of that? Or is this an incremental price increase that you\\u2019re building in as you go through the year? And just alongside that, any comments you could take in terms of reception to price? Any pushback or any particular areas where are you able to take more versus last? Just sort of give us an update on the pricing dynamic as you go through the year.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Hi, Mike, this is Bob. I\\u2019ll take that ear. It\\u2019s the former.\\nAnd so when we take price, it takes some time to get through the backlog.\\nAnd so we\\u2019re seeing the price realization from the orders that \\u2013 the price increase that we took back in the beginning of the calendar year. And really, what we\\u2019re trying to do is cover our costs. And we\\u2019re seeing increased logistics costs and increased material costs.\\nAnd so we\\u2019ve taken it across the board, but also recognizing where the costs are higher, we\\u2019ve taken those prices up higher.\\nWe haven\\u2019t really heard any pushback, I think, as evidenced by our strong order growth. And then also we look very closely at cancellations or \\u2013 within our order book, and that continues to be very low.\\nAnd so I think our customers understand why we\\u2019re having to raise prices because of the inflationary environment. And I think to date, we\\u2019ve been able to actually generate more price than I think we anticipated at the beginning of the year.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Okay. Great. And then a follow-up.\\nYou\\u2019ve commented on the balance sheet that you\\u2019re getting the leverage lower and lower. I\\u2019ve done a couple of deals here and there in the past couple of years with the defended to be on the much smaller side.\\nSo could you talk about your willingness to lever up a little bit to put a little bit more of that capital to work? And if so, what are the types of assets you\\u2019re looking for? Sort of are sellers willing to engage in this market? Or is the \\u2013 how are things proceeding on that front \\u2013 on the BD front? Thanks.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think we\\u2019ve been public about being willing to take on bigger deals than what we have had historically.\\nI think we\\u2019re still \\u2013 we have the benefit of having a very strong balance sheet.\\nWe\\u2019re going to first invest in our business. We think that that\\u2019s the greatest opportunity, but we\\u2019re always out on the lookout for M&A. And as you said \\u2013 I would say the pipeline continues to be healthy. The dynamic has certainly changed in the last 9 months, particularly on the public market side, and I think there\\u2019s some good assets out there. It\\u2019s probably taken a little longer on the private market side, which is where we tend to focus our efforts. But I can tell you that we have \\u2013 the beauty of our model is that we have organic growth first and M&A as kind of an adder on top of that.\\nAnd so it is something that we\\u2019re continuing to look at and would be not uncomfortable levering up a little higher than where we are today for the right deal and if the economics work.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely, Bob.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Is that 3x to 4x lever or...\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I\\u2019m not \\u2013 that\\u2019s pretty rich. But I think it all depends on what the right asset and what it looks like.\"}, {\"speaker\": \"Mike Ryskin\", \"content\": \"Got it. Thanks.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nNext question is from the line of Josh Waldman with Cleveland Research. Please proceed.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Thanks for taking my questions.\\nJust two for you guys.\\nFirst, Mike, wondered if you could provide more context on the supply chain situation, how supply and cost to track versus your expectations over the last 90 days. Have you seen any relief on supply? And then it sounds like you built backlog in Q3. Curious whether your fourth quarter guide assumes any work-down in the backlog given recent order rates?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo I\\u2019ll let Bob handle the second question, and I\\u2019ll start with the first one.\\nSo supply chain challenges are still out there, but our team continues to do an excellent job navigating them, getting the material that we need for our customers.\\nWe continue to have very, very low order cancellation rates is something we watch like a hawk. And I think we\\u2019re managing the price changes.\\nSo I think in the early days of things, we were kind of surprised at what things would cost on the market for chips and others, but I think we\\u2019ve now found ways to work that and then offset that with some of the pricing actions that we mentioned earlier.\\nSo I think if anything, it\\u2019s probably trending in a more positive direction, albeit is still challenging out there.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. And I would say \\u2013 on the second question, Josh, I would say, first and foremost, demand continues to be very strong in our marketplace.\\nAnd so we\\u2019re expecting order growth to continue in our fourth quarter.\\nAs you know, that typically is one of the larger quarters that we have for our sales organization and certainly for our customers as well. That being said, I would expect maybe some slight degradation in backlog just given, again, the deferral that we\\u2019re talking about within China. But don\\u2019t interpret that as us seeing anything slowing in the marketplace.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Got it. And then kind of along those lines, wondered if the group has any initial thoughts on pharma budget flushing this year given the strength in orders from these accounts. Curious at this point if you\\u2019re getting any indication that maybe the strength in the order book is reflecting pull-forward or just not seeing that yet?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Josh, I\\u2019m going to pass this call over to Padraig. He\\u2019s the closest to what\\u2019s going on.\\nAs you know, he heads up our one commercialization addition to running our ACG services business.\\nSo Padraig what\\u2019s your thoughts on that?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. No, I think it\\u2019s pretty steady, Mike.\\nWe\\u2019re not seeing any pull-forward at this point. And of course, the team are very focused on key end-market workflows where we have the best chance to meet the customer needs.\\nSo we\\u2019re seeing a very steady-state order rate with not much pull-forward.\"}, {\"speaker\": \"Josh Waldman\", \"content\": \"Got it. Appreciate it.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you.\\nNext question is from the line of Jack Meehan with Nephron Research. Please proceed.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thank you. Good afternoon.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Good afternoon.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I wanted to ask about the chemical and energy \\u2013 good afternoon.\\nSo the chemical and energy acceleration, my first question is on the chemicals customers.\\nSo your commentary sounds pretty bullish. There has certainly been some headlines from some of the big European chemical players that have been a little bit more mixed though.\\nSo it would just be great to get your perspective on how you feel about the durability of that customer class and kind of squaring your view versus what we might be hearing from others in the market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. That maybe more regionally specific to Europe, where we did see a level of growth a little bit slower than we\\u2019ve seen in the Americas and China.\\nSo I\\u2019d say that\\u2019s probably more regionally specific. And as we mentioned earlier on the call, Europe remains sort of a watch area for us because of, obviously, obvious challenges in that region right now. But I think we think it\\u2019s pretty durable right now. I mean, I think \\u2013 remember, the chemical piece is going into some of these supply chains as fabs go up and other things.\\nSo it\\u2019s fueling some of the efforts in the advanced materials area. Bob, I know that you and Jacob looked at this a little more closely. I don\\u2019t know if there\\u2019s anything else you\\u2019d add to that?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"No.\\nI think you\\u2019re spot on, Mike. I mean if we looked across the \\u2013 all regions grew in C&E as, Mike, you were saying, but Europe was below the average.\\nAnd so \\u2013 but I think over time, that investment in some of these areas, we think, is ongoing demand.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Great. And then it was only a week ago, the CHIPS and Science Act got signed into law. I\\u2019m not sure if you have any early perspectives as to what this might mean for Agilent.\\nIf you could call out kind of the businesses that you think could benefit from some of the funding that\\u2019s going in? And can you just maybe call out what did the advanced materials business grow this quarter? Thanks.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo I\\u2019m going to \\u2013 I\\u2019ll let Bob handle the second question. He\\u2019s got more numbers on the pages than I do in front of him. But relative to the recent enactment by Congress, we see some real upside for us. And we actually were just talking about that before this call.\\nI think the big debate is when is it actually going to release. But Jacob mentioned earlier PFAS. There\\u2019s \\u2013 what we can see there\\u2019s some funding in there for PFAS, which will help our LC/MS and GC/MS business and then tied to the chips, both the upstream and downstream side, the semiconductor fabs that play right into spectroscopy strength that that we mentioned as well. And Jacob, perhaps you want to add a few other things.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes.\\nI think, I mean, actually, even though spectroscopy and GC are the big winners in the \\u2013 related to the CHIPS Act, we actually see across the board. It\\u2019s both the mass spec business, also the LC/MS that Mike was mentioning and then, of course, a lot of our consumables also.\\nAnd so we see a lot of opportunities here.\\nI think both the CHIP Act, but also the other bill, the \\u2013 what\\u2019s it called, the...\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Inflation.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"And the Inflation Bill here, all of them are driving some of our technologies.\\nSo we see a lot of opportunities in that.\\nNow it all comes down to timing here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"And the answer to your last question, it was above 30%.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Thanks. Super. Thank you, guys.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. The next question is from the line of Elizabeth Garcia with UBS. Please proceed.\"}, {\"speaker\": \"Elizabeth Garcia\", \"content\": \"Hey, guys. Thanks so much for taking the question. Congrats.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Elizabeth. No problem. Thank you very much.\"}, {\"speaker\": \"Elizabeth Garcia\", \"content\": \"Yes. Great.\\nSo maybe I just didn\\u2019t catch it, but I know there was the planned shutdown this quarter for NASD. But just thinking about kind of how we should think about kind of close this quarter and then maybe sequentially as we head into the next quarter, in 4Q?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, you and Sam want to tag team on this one?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nSo we had a planned shutdown this quarter, expect return to strong growth in Q4 for NASD.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Sam, I don\\u2019t know if you want to add some comments about what you\\u2019re seeing on the market as well?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. Yes. Thanks, Mike, and thanks for the question. I mean, listen, it was a good quarter. We had the planned shutdown you already heard about. But I want to note that we are very pleased with the trend that we\\u2019re seeing that increasingly these very therapeutic oligos that we\\u2019re working on that the treatment modalities beyond the more rare indications are expanding into diseases for larger populations.\\nFor example, you might have seen just the recent news from Alnylam that reported favorable results on their Phase 3 study for patisiran. And this is for patients with ATTR for cardiomyopathy. And as Alnylam\\u2019s supplier for the API and patisiran, we\\u2019re of course, excited.\\nWe also think this is indicative of just generally the trend that we\\u2019re starting to see in the promise of therapeutic oligos. And our book of business remains strong as we go into the quarter and as we will go into next year.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Sam. I probably should elaborate a little more, Elizabeth, on the routine.\\nI think it\\u2019s also important understand why we were shutting down, right? It\\u2019s both for routine maintenance but also a critical milestone in the construction of Train B.\\nSo we tied the infrastructure together.\\nSo that\\u2019s why we\\u2019re speaking with confidence about our ability to get revenue in \\u201823.\"}, {\"speaker\": \"Elizabeth Garcia\", \"content\": \"Great. Great news. And I guess just one more for me thing on the theme of kind of biopharma.\\nSo you kind of \\u2013 you\\u2019ve announced the collaboration with APC for real-time process monitoring.\\nWe also had announcement Merck around downstream PAT. It would be great to kind of get your thoughts around the space and kind of the work you\\u2019re doing here.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Yes. I\\u2019ll make some high-level comments, and then maybe, Jacob, you want to provide some specific as well.\\nSo we love this space. And we\\u2019ve been putting a lot of our investments over the last several years targeted at the biopharma space. And you see it reflected now in the growth rates and actually how we\\u2019re shifting the mix of our pharma business both in the lab but also plays outside the lab. And Jacob, I know you\\u2019ve got a lot of interesting things happening there.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Thanks for that, Mike. And we are very interesting in the bioprocessing space, especially from the unlatent perspective, where we truly believe that the \\u2013 that instruments will start to move into the manufacturing. Historically, we have had in the small molecule space, the QA/QC sitting in a different lab. And now we see the opportunity to bring adline online LC and LC/MS technologies into the bioprocessing space itself or manufacturing space itself. And hence, we have decided and we have made collaborations with leaders in that space, Merck being one of them, where we\\u2019re developing, of course, based on our individual strength new solutions to address that. But we\\u2019re looking at the multiple partnerships in this space here, and we\\u2019re really bullish around that.\"}, {\"speaker\": \"Elizabeth Garcia\", \"content\": \"Thanks so much.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. The next question is from the line of Patrick Donnelly with Citi. Please proceed.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Hey, guys. Thanks for taking the question.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hi, Patrick. Sure.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Mike, maybe one for you \\u2013 hey, how are you? Maybe one for you just on China specifically in terms of the linearity of the quarter. Can you just talk about \\u2013 I mean it sounds like things clearly picked up as we went, obviously, on the supply side and you guys kind of got back online. Can you talk about the demand environment as well? Obviously, you guys are the only ones who have kind of a full July in the quarter.\\nSo just curious what kind of ramp you saw throughout the quarter. And then again, as we work our way through August here, I mean, it certainly seems like the order growth has been encouraging. But maybe just talk about how things trended there throughout the quarter kind of going into this quarter.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Great question. Yes, sure. Happy to do so.\\nI think it\\u2019s a great question. And I\\u2019ll pass my response into two areas: orders and revenue.\\nSo I think I would say the order intake throughout the quarter was there. It was linear, smooth, no, no big lumpiness and the fact that what we saw in the second quarter as well.\\nSo now as you know, the revenue side has been a different story because the ability to get product in and out of China as well as produced in China was affected by the COVID-19 shutdowns. And that\\u2019s where we saw maybe a slower start first few weeks of Q3, but then the team\\u2019s efforts really started paying off when we were able to get back into our facilities.\\nSo I think the ramp rate of revenue had looked at a little different profile throughout the quarter. And Bob, I don\\u2019t know if you\\u2019d add anything?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. No, that\\u2019s exactly right. I mean if you think about the months in our quarters, May was very light.\\nAs we talked about, we were ramping up, and I think we exited May at like 25% capacity. And then the teams really started kicking in in gear as the COVID restrictions started to ease. And July was very strong as they not only got the production up to full capacity, but then were able to not only satisfy existing demand, but also some of that deferral bring it in.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And they were really focused on meeting the expectations of our customers who wanted the product. And as I mentioned earlier in my earlier comments, we had teams working a lot of overtime, working in the factories over the weekend.\\nSo really some heroics that got us back on track.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Yes. It\\u2019s encouraging to hear. And then, Bob, maybe one for you just on the margin side.\\nYou talked about pricing a few times on the call. Can you just talk about, I guess, the flow-through to the margin side? You basically said it\\u2019s offsetting some of the increase in costs. Maybe just talk about the give and take on that front in terms of pricing increases, the cost increases and how we should think about kind of that algorithm going forward on the margin piece.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes.\\nI think if you looked at our 150 basis points year-on-year, it was roughly 50 basis points in gross margin and then 100 basis points of leverage on the SG&A OpEx side. And I think if you looked at that, there was some productivity.\\nAs I mentioned, price probably would have kept things flat. And then the other 50 basis points were a benefit of some productivity that the OFS team did and then the volume. That\\u2019s the thing that really \\u2013 I think really helped drive a benefit in gross margin is just the amount of product that was able to be produced through the factories.\\nAnd so that I think \\u2013 think about pricing as covering our costs. And then if those incrementals around better-than-expected revenues drove the margin improvement on the gross margin side. What I would say is we continue to leverage the OpEx side to drive our productivity as a company overall.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Helpful. Thank you, guys.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. The last question is from the line of Tim Daley with Wells Fargo. Please proceed.\"}, {\"speaker\": \"Tim Daley\", \"content\": \"Hi, everyone. Thanks for the time.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Sure, Tim.\"}, {\"speaker\": \"Tim Daley\", \"content\": \"Quickly, wanted to touch back on NASD here.\\nSo if we\\u2019re just thinking about when we\\u2019re past the Train B build-out, things have kind of normalized a bit, you\\u2019re starting to leverage those investments and upfront costs here, what\\u2019s the clean run rate margin profile to think about in that business, I guess, initially when we get past that capacity build-out here?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And Tim, that question brought a smile to Bob\\u2019s face. I\\u2019ll let him answer that.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"I would say very good. I\\u2019ll leave it at that.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"The company average, right?\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. Yes.\"}, {\"speaker\": \"Tim Daley\", \"content\": \"Alright. I can work with that. And then a quick one here on capital allocation.\\nSo another strong quarter of buybacks.\\nJust thinking about the go-forward outlook, how should we be sizing this in our heads? The $1 billion, you\\u2019ve already hit in \\u201822 with a quarter left to go. Is that a good base for the out-years? Just kind of \\u2013 just general thoughts on the capital allocation hierarchy as some assets are probably getting a bit cheaper and more attractive here.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"Yes. I mean, I think our methodology really hasn\\u2019t changed.\\nI think what we do is invest for growth first internally, and then we look for value-accreting M&A. But if there isn\\u2019t anything imminent, we\\u2019re also not going to keep cash on the books. And if I looked at historically, we\\u2019ve generated roughly 2% of earnings per share growth kind of below the line through share repurchase. And I think that that\\u2019s probably a fair way to look at it going forward. But in terms of \\u2013 to be very clear, our priorities are investing for growth internally and then M&A before we would do share repurchases. And we\\u2019re also committed to continuing to grow our dividend as well.\"}, {\"speaker\": \"Tim Daley\", \"content\": \"Alright. Great. That\\u2019s it from my end. Thank you.\"}, {\"speaker\": \"Bob McMahon\", \"content\": \"You quite welcome.\"}, {\"speaker\": \"Operator\", \"content\": \"There are no additional questions waiting at this time, so I will turn the call back over to Parmeet for closing remarks.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Hannah, and thanks, everyone, for joining. With that, we would like to wrap up the call for today. Have a great rest of the day.\"}, {\"speaker\": \"Operator\", \"content\": \"That concludes today\\u2019s call. Thank you for your participation.\\nYou may now disconnect your lines.\"}]"


companyname: Agilent Technologies Inc.
symbol: A
date: 2022-11-22
year: 2022
quarter: Q4
json_transcript:
  "[{\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, welcome to the Agilent Technologies Q4 2022 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 of Investor Relations. Mr. Ahuja, please go ahead.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thank you, Bo, and welcome, everyone, to Agilent's conference call for the fourth quarter of fiscal year 2022. 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 fourth 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. 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 exchange rates as of October 31.\\nAs previously announced, beginning in the first quarter of fiscal 2022, we implemented certain changes to our segment reporting structure.\\nWe have recast our historical segment information to reflect these changes. These changes have no impact on our company's consolidated financial statements. Please note that we have changed the name of the Chemical & Energy end market to the Chemicals & Advanced Materials end market. This change better reflects the mix of business in this market. It does not affect financial reporting in this quarter or prior quarters.\\nWe will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. And now I'd like to turn the call over to Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Parmeet. And thanks, everyone, for joining our call today. In the fourth quarter, the Agilent team continued its strong performance. We delivered an excellent quarter, significantly exceeding our revenue and earnings expectations. Revenue of $1.85 billion is up more than 17% core.\\nOur strong top line performance helped deliver fourth quarter operating margins of 29.1%. The operating margins continue to expand despite the inflationary environment and the strengthening dollar and are up 260 basis points from last year. Earnings per share of $1.53 were up 26%. These Q4 results mark an outstanding finish to another strong year for Agilent\\u2019s fiscal 2022. The full year revenue of $6.85 billion, we delivered core revenue growth of 12%. This is on top of core revenue growth of 15% in 2021.\\nOur operating margin continued to increase and a 27.1% for the year, up 160 basis points. Earnings per share of $5.22 per share, up 20% for the year. Rx result this year highlight the ongoing strength of our diversified business and shine a light on the multiple growth drivers we put in place over the years. They also continue to demonstrate the outstanding execution capabilities of the Agilent team. Throughout the year, we navigated market uncertainties, inflation, COVID-related shutdowns and supply chain and logistics constraints.\\nOur strength is broad-based with all three business groups growing double digits for the year. All major geographies and regions grew double digits in FY '22 after adjusting from our exit from Russia. This was highlighted by China leading the way, growing 18%. From an end market perspective, all markets expanded led by excellent growth in our two largest markets, Pharma and Chemical & Advanced Materials. All in all, it was an extremely good year for Agilent.\\nLet's now take a closer look at our fourth quarter performance, starting with end market highlights.\\nDuring Q4, our performance led by 20%-plus growth in three of our six end markets. Pharma, our largest market, posted 20% growth on top of 21% in Q4 last year. The Chemicals & Advanced Materials business grew 27%. We saw robust demand in chemicals, along with secular growth in semiconductors, batteries and other advanced materials. The food market also grew 20% on a strong end-of-year demand in China that have been previously delayed by COVID-related shutdowns. On a regional basis, China led the way for us with stellar 44% growth as demand remains strong. Business activity continued to recover and the Agilent team worked quickly and effectively to start working down the backlog including delivering remaining shipments deferred due to the Shanghai COVID related shutdown in Q2. Europe also exceeded expectations by delivering double-digit growth in the quarter, coming in 14% higher than a year ago, with broad strength across our markets, highlighted by low 20s growth in pharma.\\nLooking at our performance by business unit, the Life Science and Applied Markets Group continued its outstanding performance and posted revenue of $1.12 billion. This represents growth of 22% with the instrument business growing 24% and our Consumers and Applied business growing 15%.\\nWe also saw excellent low 30s growth in our LC/MS instruments business as our solutions continue to resonate with customers. LSAG was able to build our leadership implied markets with spectroscopy growing in the low 20s and the GC and GC/MS business growing in the low 30s.\\nIn addition, Agilent is doing its part to help customers monitor and manage microplastic in the environment as we released the latest version of the 8700 LDIR chemical imaging system. This unique system has been optimized specifically for the analysis of microplastics in environmental samples. The ads on Agilent CrossLab Group posted revenue of $381 million in Q4. This is up 14% core with broad-based strength across our entire portfolio of offerings. Pharma and Chemicals & Advanced Materials both grew mid-teens for ACG. On a regional basis, China led the way with high 20s growth as business continued to recover. ACG also delivered double-digit growth in the Americas. ACG has delivered double-digit growth for us every quarter this year, and our engagement large enterprise customers continues to accelerate. Through its deep understanding and insights into lab operations, the ACG team continues to build strategic partnerships and long-term relationships that maximize customer value and provide ongoing demand for services and support. The Diagnostics and Genomics Group delivered revenue of $352 million, up 8% core. DGG's results were led by strong growth in the low 20s for NASD.\\nAs expected, our NASD business delivered high quarterly revenue on a sequential basis given the plant shutdown last quarter.\\nOur genomics portfolio also posted solid results, growing low teens and pathology grew mid-single digits. On a regional basis, DGG also delivered mid-20s growth in China.\\nIn addition to these business group highlights, during Q4, Agilent was recognized by the World Economic Forum Global Lighthouse Network as a world leader in advanced manufacturing. Agilent's manufacturing facility in Singapore received this recognition for deploying innovative technologies at scale in the manufacture of scientific instruments, driving productivity, while advancing sustainability. Also, we are extremely pleased to announce a new multimillion-dollar partnership with Delaware State University, a leading historically black university. The work we will do together with DSU is geared towards increasing the number of underrepresented students entering stem fields.\\nIn addition, Agilent is certified as a great place to work by the Great Place to Work Institute in more than 20 countries and regions around the world during the quarter. This recognition distinguishes Agilent as a top employer based on an independent survey of its global workforce. Recap in 2022, we had another very successful year, not only on delivering excellent financial results, but building for the future.\\nWe continue to drive innovation focused on supporting our customers and executing our Build and Buy strategy to outgrow the market. The Agilent team continues to deliver.\\nWe have built a resilient company with multiple drivers for growth and target investments focused on high-growth areas.\\nWe have an unstoppable One Agilent team that can take on any challenge and execute at an extremely high level.\\nAs we look ahead to 2023, we believe these qualities are a winning formula for continuing to deliver in an increasingly uncertain economic environment. Bob will now share more detail on the quarter and the year along with our initial view on expectations for fiscal year 2023. After his remarks, I will rejoin to add some final comments and perspective. 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 will 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 2023 and the first quarter. Unless otherwise noted, my remarks will focus on non-GAAP results.\\nWe are extremely pleased with our Q4 performance and finished the year on a very strong note, exceeding our expectations on both revenue and earnings per share. Q4 revenue was $1.85 billion, up 17.5% core and 11.4% on a reported basis.\\nDuring the quarter, we saw the dollar continue to strengthen. Currency exchange rates were a 6.2 point headwind to growth or $103 million. The contribution from M&A was as expected, adding 0.1 point to reported growth.\\nOur performance was again broad-based as all end markets and regions grew during the quarter. Orders also grew again during the quarter, while outstanding execution from our order fulfillment and supply chain teams enabled us to start working down our record backlog.\\nAs we enter FY '23, our backlog is still elevated and helps provide good visibility and confidence in our outlook going forward.\\nNow I'd like to share additional details on our end markets. Results in our largest market pharma were very strong. This market represents 37% of Agilent's revenue and grew 20% in the quarter. Biopharma grew 18% and small molecule was up 21%.\\nLooking forward, we expect the pharma end market to grow high single digits in FY '23. Chemicals and Advanced Materials led growth for us during the quarter at 27%. This compares with 11% growth in Q4 of last year. All three submarkets, Chemicals, Advanced Materials and Energy had strong growth in the quarter. All regions grew as well, led by China. Demand continues to be driven by investments in advanced materials, driving secular growth opportunities in batteries, alternative energy and semiconductors.\\nWhile not immune to macro uncertainties, we believe these secular drivers in Advanced Materials will continue, helping to drive mid-single-digit growth for this market next year. We delivered growth of 20% in the food market led by China as our results continue to benefit from the recovery of revenue delays due to COVID-related shutdowns in Q2.\\nDuring FY '23, we expect the food market to normalize and grow in the low single digits after two years of very strong growth. The Environmental & Forensics market posted 18% growth with particular strength in the Americas. This result was driven by increased governmental spending helping to drive technology refresh for newer applications like PFAS testing. Europe and China also posted impressive double-digit growth in the quarter. We see PFAS-related funding and demand continuing to be a driver for this end market and expect mid-single-digit growth next year.\\nOur business in the diagnostics and clinical market grew 6% against an 11% compare last year. Growth was led by Europe and China, while Americas grew low single digits.\\nWe also expect to see mid-single-digit growth in this market in FY '23. The Academia & Government market grew 3%, led by continued strength in our service business. This market grew 3% overall for the year as well; and looking forward, we expect similar growth in 2023. On a geographic basis, China led the way with phenomenal 44% growth in Q4, driven by underlying demand across multiple end markets and our continued ability to quickly recover deferred revenue from Q2.\\nAs we have discussed the last two quarters, the COVID-related lockdowns in China earlier this year deferred an estimated $50 million to $55 million in revenue from Q2 into future quarters. This recovery started last quarter, and our team in China continued their outstanding work to ramp production and shipments quickly in Q4. We've now fully worked through this deferred revenue a full quarter earlier than originally anticipated back in Q2, a true testament to the entire team. We estimate this recovery had a mid-single-digit positive impact to China's Q4 growth.\\nSo even excluding this, our business performance in Q4 was very strong.\\nNow looking ahead to next year, we expect China will continue to be a key growth driver for us. And as Mike mentioned, Europe grew a very solid 14%, which exceeded our expectations.\\nWe also posted 8% growth in the Americas, driven by Pharma, Chemicals & Advanced Materials and strong growth in the Environmental & Forensics market, partially offset by Academia & Government. And lastly, the rest of Asia grew 12%.\\nNow turning to the rest of the P&L.\\nOur team continues to execute at a very high level. Fourth quarter gross margin was 56.3%, up 40 basis points from a year ago. Volume leverage, along with pricing, helped overcome continued inflationary pressures and higher logistics costs.\\nOur operating margin was 29.1% in Q4, up 260 basis points from last year. Below the line, our tax rate was 14% for the quarter as expected, and we had 298 million diluted shares outstanding. Putting it all together, earnings per share were $1.53 for the quarter, up 26% from a year ago, as Mike mentioned.\\nSo in summary, Q4 ended with 17% core top line growth and 26% EPS growth, a very strong finish to the year, where we had revenue growth of 12% and EPS growth of 20%.\\nNow some metrics on our cash flow and balance sheet. In Q4, we generated operating cash flow of $448 million, while investing $70 million in capital expenditures. The CapEx spending is driven by our continued scale-up of Train B for our NASD expansion. And in the quarter, we also paid out $62 million in dividends and repurchased shares valued at $135 million.\\nFor the year, we returned almost $1.4 billion to shareholders through $250 million in dividends and a bit more than $1.1 billion in share repurchases. And as we've indicated before, given the ongoing strength of the business, we believe these share repurchases represent a very good long-term investment.\\nOur balance sheet continues to remain healthy as we end the fiscal year with a net leverage ratio of 0.8.\\nNow let's move to our outlook for the upcoming fiscal year and first quarter.\\nNow looking forward to 2023, we entered the year with business momentum and a very healthy backlog.\\nWe also acknowledge the increasingly uncertain macro environment, rising interest rates and currency headwinds and have reflected that in our thinking based on what we know today.\\nFor fiscal year 2023, we expect revenue in the range of $6.9 billion to $7 billion as we have significantly greater currency headwinds since the last we spoke. Core growth is expected to be in the range of 5% to 6.5%, in line with our long-range goals. Currency will negatively affect reported growth by 430 basis points or roughly $295 million during the year based on fiscal year-end rates. And to help with your modeling at a business group level, this revenue guidance assumes mid-single-digit core growth for LSAG, mid- to high single-digit growth for DGG and high single-digit growth for ACG. And despite the ongoing currency headwinds and a continued inflationary environment, we are expecting operating margin expansion for FY '23.\\nNow below the line, we expect $40 million to $50 million of net expense, a tax rate of 13.75%, which is slightly below this year and 297 million shares outstanding. Fiscal 2023 non-GAAP EPS is expected to be in the range of $5.61 to $5.69. This range represents a growth rate of 7.5% to 9% versus the prior year and incorporates an estimated 4 percentage point headwind due to currency net of our hedging activities.\\nWe are also expecting $1.4 billion to $1.5 billion in operating cash next year and CapEx of roughly $300 million based on currently approved expansion projects, primarily Train B for NASD.\\nWe have also announced raising our dividend 7%, providing our shareholders with another source of value. And finally, for Q1 2023, we expect revenue in the range of $1.68 billion to $1.70 billion. Core growth is expected to be in the range of 6.8% to 8%, while currency will be a 6.6 point headwind to reported growth. This outlook for the quarter incorporates the impact of the timing of Lunar New Year this year.\\nFirst quarter 2023 non-GAAP earnings per share expected to be between $1.29 and $1.31. Mike will speak to this further in just a minute, but our diversified business model and the strength of our team are key assets for Agilent. These two elements produced an outstanding Q4 and a full year 2022 and they have put us in an excellent position to again deliver strong results in the coming year. And now I will turn the floor back over to Mike for some closing comments. Mike?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Bob. Today's results are a strong indication that Agilent has the right growth strategies, the right team and right culture to continue delivering strong results.\\nOur customers know we are reliable, resilient and extremely quick in reacting to meet their needs. The Agilent team continues to work hard to earn their trust.\\nLooking ahead, we are all seeing increasing economic uncertainty.\\nHowever, this company and team have built to successfully navigate any economic challenges we may encounter. Throughout the pandemic, we have stated that Agilent will emerge as a stronger company. Today's results are yet another proof point that we are well on our way in this journey, and we're not done yet.\\nWe continue to prioritize investments in growth.\\nWe are a resilient company with multiple growth drivers and unmatched execution capabilities. I'm quite confident we will continue to react quickly to changing conditions and deliver at a high level. Thanks for being on the call. And now I will turn things back over to Parmeet as we take your questions. Parmeet?\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Mike. Bo, if you could please provide instructions for the Q&A now?\"}, {\"speaker\": \"Operator\", \"content\": \"[Operator Instructions] And we'll take our first question this afternoon from Vijay Kumar of Evercore ISI.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Congratulations on a really impressive finish to the year here. Mike or Bob, maybe if I could start with the high-level fiscal '23 guidance question. 5% to 6.5% organic for the year, that's coming off of some tough comps. Maybe just talk about your assumptions for end markets which you're expecting for forma chemicals and advanced materials, et cetera.\\nJust given your commentary on orders and backlog, it looks like the start 5% to 6.5%, it seems reasonably conservative.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Why don't you take that?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Vijay, yes, I appreciate the comments on the end of the year. And as we mentioned, we're moving into FY '23 with momentum. And really, what we've seen across our business in FY '22, we are expecting to continue into FY '23. Broad-based business results really led by our two largest markets, Pharma and Chemicals & Advanced Materials. And when we think about those, those are both in the mid- to high single-digit growth range and with growth in the other areas as well. We're expecting all of our markets to grow and really given some of the secular drivers that we've seen this year and continued strength in the pharma business.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Hey, Bob, I would just add, too. This is our initial guide for the year. We're at the top end of our long growth model in terms of the long-term growth aspirations we laid out at our last [AID] coming off two straight years of double-digit growth. And its initial guide of the year, Vijay. And you probably hear a few times they were being prudent given the increasing economic uncertainty out there. But I would point out that if you look at the core growth rate assumptions, the Q1 '22 guide is actually higher than the full year number.\"}, {\"speaker\": \"Vijay Kumar\", \"content\": \"Mike, I appreciate the prudent comment. And if I could just have one follow-up on. On margins, that EPS guide came in about Street models despite FX headwinds, it looks like coming in about Street models. What are you assuming for pricing inflation? And what's implied from margin expansion in the guide?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"You want to take that, Bob?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Yes.\\nSo we ended Q4 in a very good position here with a little over 4% and that has ramped throughout the year, and we're forecasting roughly about a little over 3% in price next year across our book of business. And we are assuming margin expansion, Vijay, next year. And when we look at that 7.5% to 9%, what we are seeing is kind of unprecedented strength in currency. And we do hedge, but our hedges become less effective over time. And we're -- that's absorbing a 4-point headwind.\\nSo if you added that back in, it would be closer to 11.5% to 13% EPS growth.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Matt Life with Goldman Sachs.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Appreciate it. Maybe I just want to dig a little bit more into the margins.\\nYou guys mentioned operating margin expansion expectations for next year. But maybe talk a little bit about where you see those drivers coming from, maybe on a segment basis or an end market basis? Where do you feel there's more upside to expand those margins at the group level and where the impact will be felt?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I think what you would see is a continuation of what we've been able to do this year. And what we've been able to do is cover the increase in costs associated with the inflation through the pricing activities, but then really leveraging our operating expenses. And you saw that in full display here in where we did have operating -- gross margin expansion, but you also saw a majority of the margin expansion in the operating expense. And I think that that's 1 of the benefits that we have through the investments that we've been making in digital over time, as Mike mentioned, as well as the continued effort around the One Agilent focus.\\nSo I would expect us to continue to see that I do think that the scale that we have across our businesses will continue to provide benefits next year, certainly, as we drive more business into our service organization. I do think that we will continue to be able to leverage that footprint. And then if you look at the higher growth areas that we've been investing in, in the instrumentation side of the business, those are our more profitable businesses. And we are also looking to continue to attach -- increase our attach rates both on the services but then also consumables, which are 1 of our highest profit. And I would say in Diagnostics, the DGG business, we are facing kind of some of the start-up costs with our Train B next year. But if you peel the onion, I would say, fundamentally, our business is performing very well there as well in '23. And I would expect margin improvement outside of kind of some onetime start-up costs that we would have in bringing that train up and running in the second half of the year.\"}, {\"speaker\": \"Matt Sykes\", \"content\": \"Got it. Then maybe a question on the Chemicals & Advanced Materials.\\nYou guys made a comment in the slide deck about increased demand in the energy business during Q4. Could you talk about the drivers behind that? And what your expectations are, specifically for the energy market as we move through '23?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo we really wanted to make sure that it was clear that across all three segments of the CAM segment, we saw growth. And what you're seeing going on here is a lot of investments in the HPI industry given the strength of their businesses.\\nSo -- and I'll have Jacob jump on this as well, I think their businesses with the ability to invest and they have a lot of deferred investments over the years, but also a lot of new money going into renewable and green energy initiatives as well.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, I think you're right, Mike.\\nI think we're seeing, as you mentioned, there has been some pause in the capital equipment investment over the years, and we're definitely seeing that coming back.\\nSo -- and both in the HPI, but also in the renewable energy, we continue to see a lot of strength, and we believe that will continue forward.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, we're expecting that trend to continue into '23.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, we'll go next now to Puneet Souda of SVB Securities.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"Mike, Bob, thanks for taking the question. I mean to say this is impressive as a quarter is an understatement in the sort of uncertain times.\\nSo first of all, congrats on the quarter. Mike, so on China, impressive results there. Can you just parse that out a bit? I know you talked about gas chromatography delays were there, and those are -- it looks like they're fully booked in this quarter and the revenues booked or food is also impressive. Could you maybe talk about the order book visibility you have in China and your growth expectations there going forward despite the Lunar Year? And also, what is the longer-term expectation for overall growth in China, just given the multiple end markets that are working so well for you in the quarter?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure, Puneet. Happy to respond and Bob and I probably can have tag team on this. But again, thanks for your earlier comments, brought a lot of smiles in the room here. Yes, we were quite pleased with the results for China, not only in the quarter but for the year. And I think it's important to know the 44% print we had in Q4 wasn't just about catch-up from deferred revenue due to the COVID; and again, shutdowns. And again, it points to the fact that when you do see those types of things happen, eventually, the business does materialize. We didn't lose any business.\\nI think the strength of the business continues to be there across multiple end markets, really been led by pharma, chemical. And then we think that the food market will probably normalize to kind of the traditional growth rates in China. But expecting pharma and the CAM marketplace to be strong, in particular, a lot of -- we expect a lot of business on the renewable energy and HPI side in China as well.\\nSo that Advanced Materials segment, we've been talking a lot about, we think is going to sustain the growth in China in '23. But I think we're kind of looking at maybe high singles for China for next year. Is our initial thinking?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, that's right. And Puneet, I would say the strength that we saw in Q4 in China was really across the board across all the major technology platforms within the instrument business. The consumables business was incredibly strong as well. And then the services business, if you recall back in Q3, we said that activity hadn't fully come back, was fully back in Q4.\\nAnd so we saw very strong there. And not to forget, DGG. We had double-digit growth in our Diagnostics and Genomics business as well.\\nSo it was really broad-based. And you talked about visibility, orders continue to grow in China. And we have very good visibility in -- certainly into the first half of this year. And as we think about the secular growth drivers, those are still in place.\\nIf you think about the investments that are made in technologies around the biotechnology areas, but increasingly actually in advanced materials and some of the secular drivers around batteries and lithium-ion production and so forth. And we would expect that to continue into next year for sure.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Bob, I just have to think to your comment about the DGG business.\\nJust a reminder, Puneet as we came into this year, we created a unique structure as part of our one commercialization to have all of our China businesses we put into one single leader. Really, the idea was to add scale to the parts of our business, which we felt underrepresented, and you saw the payoff already starting to happen with the growth rate in DGG, for example.\"}, {\"speaker\": \"Puneet Souda\", \"content\": \"That's great.\\nJust quick one on pharma. I mean this was the first quarter in a long time when I saw small molecules growing faster than biomolecules. Can you elaborate a bit what's behind that dynamic?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I thought it was really good newsprint because we've been talking lately about that while we still continue to believe that biopharma large molecules will have the inherently higher growth rate, we've also been pointing the fact that the small molecule will continue to have growth. And I think it speaks to some of the strength of particularly our LC and LC/MS business in small molecule. And Jacob, I'll have you add a few comments here in a second. I wouldn't overread too much in that particular quarter. It's just one quarter.\\nI think we would expect to continue to see over time a differentiation in the growth rates between biopharma and small molecule, but small molecule by no means is dead and it's an opportunity for growth. And I think we've got a great portfolio there, Jacob.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Right, Mike. Oh, sorry, I was on mute here.\\nSo sorry, this was Jacob coming with some comments. But you're absolutely right, Mike.\\nWe continue to see the small molecule being -- while it's still the largest part of our business, of course, we see biopharma as a great opportunity, but we take the small molecule business very seriously and continue to build full workflow solutions for that, particularly for the LC and LC/MS space, and that's where the growth is coming from.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Thanks, Jacobs.\"}, {\"speaker\": \"Operator\", \"content\": \"We go next to now to Brandon Couillard from Jefferies.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"Mike or Bob, I can't remember.\\nYou mentioned the PFAS market several times in the prepared remarks. Can you just give us a ballpark size of how big that market is right now, maybe relative growth rates and whether it's primarily a U.S.-centric market or if it's developing in other parts of the world as well?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"So Jacob, how if you and I tag team on this? We're viewing this, I think, about a $200 million market, growing double digit. We think while there's -- a lot of the growth is centered in the U.S., there's also going to be very strong growth in the U.S. and perhaps some in China.\\nSo we actually see this as a sort of a global story with initial big legs in U.S. and Europe and the growing interest in China. But let me see if I got that right, Jacob?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, you're absolutely right, Mike. It's a huge market. And in fact, there was more than 4 billion put aside in the infrastructure build for PFAS testing, not only for analytical instrument, obviously, but overall for PFAS testing.\\nSo this is a great opportunity. And it's particularly a great opportunity for us as this requires -- it's very high-sensitivity instruments you need and you have run very easily into issues in your sample, perhaps you don't take that very seriously.\\nSo really building out the flow solutions and have something that works every time. We spend a lot of energy on that. And in fact, we have a solution now that lives up to all the EPA regulations and our customers just love it because it's just plug and play, and it works very well for them for very sophisticated ways of doing business here. And on top of that, while most of the opportunity sits in the LC/MS space. We're also starting to see the GC/MS as an opportunity to look at testing of PFAS molecules in the year and all the volatile, so which speaks extremely well to our opportunity.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Thanks, Jacob, for those build. And this is the first time in my tenure where that we've seen this kind of money coming in, in the U.S. marketplace with the government support.\\nSo it's a very encouraging trend, and we think that trend is going to be with us into '23.\"}, {\"speaker\": \"Brandon Couillard\", \"content\": \"That's great. Then a couple for Bob.\\nJust number one, can you just quantify the Lunar New Year impact in the first quarter on a year-over-year basis. And then with supply chain loosening, which it sounds like they are, what are the implications for that in terms of working capital as you move through the balance of the year?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Brandon, thanks for the questions. Yes, the Lunar New Year is roughly a little over 0.5 point impact year-on-year for headwind had in our first quarter. It starts in mid-January this year versus the first of February last year.\\nAnd so -- and for those that will come back to us in the second quarter. And then I think in terms of supply chain, -- it is -- we think it is improving, but it's not back to kind of pre-COVID levels, both on the standpoint of being able to get products to customers, but also procuring raw materials and the costs associated with that. We do think that that's going to improve over time. I would say I wouldn't expect any changes -- any material changes certainly in the first half of the year and then maybe some slight changes as we get into the back half of the year. But -- we do think it is improving, but we've increased our stocks of critical supplies. And I don't think it will go back to pre-COVID levels in terms of how we're running that just to ensure that we have the ability to flex when we need to if there were challenges around logistics across the world.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Daniel Brennan of Cowen.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"Congrats on the quarter. Maybe just the first one, just on LSAG.\\nAnother really impressive quarter with 24% growth on the instruments.\\nSo the mid-single-digit guide, obviously, you're up against tough comps, but it does reflect the notable slowdown from what you guys have been doing. And maybe just walk through a little bit of what kind of drove the strength this quarter kind of end market versus Agilent specific? And then is there just a healthy degree of conservatism baked in for the guide? Or is it really just tough comps?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I would say at the beginning, Dan, we're at the beginning of the year, there are uncertainties out there, as I'd repeat what Mike said, it's beginning of the year and that's a prudent guide. I would say that there's an element of tough comps, particularly in the second half of the year as we have been building -- taking down the backlog certainly in China, which was China just a deferral from Q2 into the second half of the year. But I would say, fundamentally, the demand is still strong. And I think across the end markets, our expectation is that the Pharma and Chemical & Advanced Materials markets will continue to lead the way for us with faster-than-expected growth, I think, in Environmental & Forensics for that PFAS testing.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Maybe just a couple of additional comments here, Bob, maybe Jacob, you have thoughts as well. But we continue to see improving market share.\\nSo the latest industry stats from -- showed us all green across all platforms.\\nSo that should bring to -- and any kind of debate on whether or not we're picking up share. But I also think it's kind of also recognize we've been in kind of an unprecedented environment here for a number of quarters in a row where we've seen instrument growth rates in 20s plus, 30 plus. A lot of it -- and we've been very transparent about this in all our calls that an element of that it's tied to an accelerated replacement cycle in some end markets, in some technologies.\\nSo we're thinking though, as we set up the guide for '23, we should assume some return to more normalized replacement rates in certain end markets but there's going to be growth there, but perhaps not at the same rate we've seen. And I don't know if you have any additional thoughts there, Jacob.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"No, I think we\\u2019re good, Mike.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Okay. Cool. I got it right. I'm 2 for 2 today.\"}, {\"speaker\": \"Daniel Brennan\", \"content\": \"And then maybe just a follow-up. I know you've already discussed in the Chemical & Advanced Materials, a really strong quarter. And then on the outlook. I'm just wondering for the mid-single-digit guide obviously, the Advanced Material portion is like 1/3 of that business. It sounds like that's expected to grow really strong. Maybe just give us a flavor for how you're thinking about the three subcomponents in the '23. And like is there anything baked in on the chemical side of the energy side that would reflect some kind of impact from a selling economy? Or just kind of how should we think about that mid-single digit.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I'm going to invite Padraig on this too because he's working with his team very closely on this. But we're taking a cautious outlook as it relates to the chemical industry in Europe, particularly -- and I want to separate that from what maybe happened relative to the HPI and renewable energies. But in the base chemical business, our large customers are having to work through higher input costs to their production.\\nSo we're assuming a cautious outlook from that particular segment in Europe. And Padraig I know you are from that part of the world, and I know that you've been talking to our team about this as well. Anything you'd add?\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes. No, I think it's cautious, Mike. And I think what we're seeing is that there's additional scrutiny being played on converting quotes to orders that we're seeing across, particularly in Europe. And of course, there's quite a lot of macroeconomic pressures there as well.\\nSo I think you're spot-on on that one.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"The only thing I would say, Dan, this is Bob, to add is this is an area -- sometimes people ask us, this would be an area of potential upside? If things continue the way that they are, there would be an opportunity for upside in this end market, given the strength that we're seeing.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Absolutely, Bob.\"}, {\"speaker\": \"Operator\", \"content\": \"And we'll go next now to Rachel Vatnsdal at JPMorgan.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"So first up on Train B. Last quarter, you guys said that there were some supply chain delays as you guys were building up that manufacturing line.\\nSo can you just give us the latest on timing if you're still on track for that to come online mid fiscal year.? And then thinking about beyond Train B, you guys have hinted at potential capacity expansions beyond this.\\nSo can you give us the latest on your thinking on those capacity expansions and when we could hear an update there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo Sam, why don't you take the first part, and I'll close with the second part?\"}, {\"speaker\": \"Sam Raha\", \"content\": \"Yes. It sounds good. Rachel, thank you for the question, and happy to report there haven't been any changes since we last spoke about Train B and timing. We're on track to go live in the middle of the calendar year coming up in 2023.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And at the risk of being repetitive, Rachel, we're on record saying that there's more letters than the alphabets in A&B.\\nSo we're focused on getting Train B up and running and have it generating revenue in '23. But at the same time, we continue to explore possible expansion plans, and nothing yet to announce yet, but stay tuned.\"}, {\"speaker\": \"Rachel Vatnsdal\", \"content\": \"Great. And then just one more follow-up on food.\\nSo food grew 20% this quarter. It sounds like some of that was from that China recovery and pull forward there. But all in, you're guiding to low single digits next year off of that two year stacked tough comps.\\nSo can you just walk us through how should we be thinking about the food market going forward? Do you think in 2024, it's going to normalize more at a low single digit? Or is this market really accelerated and the guide this year is just more on that typical comp.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, it's a good question. And this is Bob. And I would say it wasn't pull forward, it was catch up in terms of the growth rate here because it was -- as you know, Rachel, China has got a bigger proportion of the food market. And I would say it is a function of having two years of very strong performance there and so difficult comps. And I do think it is trending up with some of the investments that are being made there. But this still is a low to mid-single-digit grower.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think just to kind of reinforce our ability to hit that mid-single or low to mid-single-digit growth rates, we also see continued strength in the U.S., for example, where our cannabis testing business is part of what we reported, so, right Jacob?\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes, correct. And the cannabis business continues to do very well, and we see a lot of lab owners that is looking for us to come in and help them to equip the full laboratories.\\nSo that's a big opportunity for us. But also the alternative protein space is really picking up, both here in U.S., but particularly also in in Asia.\\nSo I do believe that is going to continue to be a secular growth driver for us in food.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Right. And I really wanted to make sure that we highlight those new secular growth drivers because a lot of growth historically has come from China. We're seeing actually a much more diversified mix of business as we move forward.\"}, {\"speaker\": \"Operator\", \"content\": \"We go next now to Derik De Bruin of Bank of America.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"So Mike, you said it\\u2019s an unprecedented environment for instrument demand and such. We've been covering these markets a long time, you and I and looking at these, and these are just numbers, which are really just amazing instrumentation numbers.\\nSo what's embedded for instrument growth in your 2023 guide? And how much of this is already covered by your backlog versus what's going to be new or have to get in through the year?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo yes, thanks, Derik. And you and I have been in this business for a while and eye-popping growth rates, that's why we love -- we've really been joining these growth rates. I do think there's elements in the market that actually have increased the long-term growth rates relative what we've seen in the past. But I think it's also fair to assume that some of these accelerated replacement cycle seen will start to moderate over time. That being said, Bob, I think we're looking at LSAG, what, in the mid-singles?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Mid-single. That's correct.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"And I'll let you pick the second part of the question there.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, yes.\\nSo it is mid-single digits. What I would say, Derik, is we're not going to disclose the amount of contribution for our backlog in there. But you can imagine that, that healthy backlog that we just talked about is primarily on the instrument side. It's just the way that we book business. And we have pretty good visibility into the first half of the year just given the way our order trends happened.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Got it. Can we talk a little bit about the academic market and what you're seeing there? Low single digits there in the quarter, low single-digit demand. How is that sort of like tracking relative to your expectations? I mean, I know you don't have a huge academic footprint, but I know your genomics business was actually doing -- they actually did -- was actually quite strong in the quarter.\\nSo I'm just wondering if you could sort of talk through what's going on in that market and sort of are you seeing any pressures there?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo Bob, maybe we can tag team on this, and I'll start.\\nSo first of all, this is the one market that we always coming out of COVID said will be the slowest to recover, and that's still proven to be the case. We saw really, really good demand in China in Academia & Government and also good demand for certain aspects of our portfolio. But at the same point in time, a level of caution is around CapEx. NIH funding is not as robust as people had hoped.\\nSo we've tempered our outlook for '23 as kind of just a continuation of more and more of the same.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. And I would say, Derik, the growth that we had met our expectations right down the line; and as Mike said, stronger in places like China, and less so in the U.S. but it met our overall expectations. And that's kind of how we're expecting it in FY '23 as well.\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"And I have to ask the obligatory M&A question.\\nYour share is obviously a good choice right now, but anything peaking your interest, valuation starting to come in on some of the stragglers in the market?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo thanks for that, Derik. And as you know, we've got this Build and Buy growth strategy and one aspect of it is to look for opportunities for us to add great new businesses and team to Agilent through the use of our balance sheet. And as you may recall, some of our calls in the early part of '22, wow, these -- and finished out when these valuations were really out of site. And we saw that both in the public, but also in the private space. And things are starting to actually moderate down.\\nSo nothing at all to announce, but I'd say that the activities are -- we are very active here, and we're getting to places where you can see deals happening that would work for shareholders.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Jack Meehan of Nephron.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"I wanted to keep going on the instrument side. I was wondering if you could comment on cancellation trends.\\nSo just in context of the broader macro uncertainty, is that showing up anywhere in your instrument backlog?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, Jack, thanks for that question because one of the reasons why we have the confidence we have with the outlook we've guided to -- and when Bob talks about elevated backlogs, it's a healthy backlog. In that we have no significant change. There's no significant order cancellations, remain very low.\\nSo the orders we have in backlog will ship and we feel really good about the -- if you will, the quality of our backlog.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, Jack, just to build on that, the other piece -- the first piece of that would be our orders being pushed out, and we're not even seeing that either.\\nSo we're not seeing any push out of orders as well as any cancellations.\"}, {\"speaker\": \"Jack Meehan\", \"content\": \"Awesome.\\nOkay. And then kind of the other pressure area we've been monitoring is more in the bioprocessing side, just stocking trends at customers. I know you compete sort of adjacent to some of these markets on large molecule. Are you seeing any destocking activity in any of the markets that you serve?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"No, no. Thanks for that question, Jack, because we've been reading some of the print as well, and we're saying, well, that's really not what we all were seeing with our business.\\nSo you saw -- and Jacob, we posted what double-digit 15% growth in CSD. We saw low teens growth in the genomics area, which would be the area you might see those things.\\nAnd so it's not a concern for our ongoing business.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Patrick Donnelly of Citi.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"Maybe following up another one on the instrument side. I know you aren't going to give a hard number on the backlog.\\nYou did mention it was still elevated, Mike, and obviously gives us some good visibility into next year. I mean, any way you can frame kind of what it looks like today going into kind of a year compared to historicals? And then just on the order growth, what did that look like in the quarter? Obviously, the past few quarters, you called out outgrew revenue nicely. I'm just trying to get a feel for that, maybe if you have it on a geographic basis as well, that would be helpful?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, sure.\\nSo I think backlog remains up over historic exit levels. And that's why we very carefully chose the word elevated in our text to make sure that that you know there's more gas to left in the tank.\\nWhile we won't give you a specific growth rate, I will tell you that we again grew our orders in Q4 off a prior year double-digit compare. I do think it's also worth pointing out, though, we did see a different trend within the quarter.\\nSo -- and I think this speaks to our confidence around the year-end revenues because customers were ordering earlier in the quarter in like August and through September, really to make sure they got product by the fiscal year.\\nSo that was probably the only thing that we saw a little bit different than historical patterns, if I remember correctly, Bob? And then I think the story was pretty much across the board geographically.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. Correct. Correct.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Same story.\"}, {\"speaker\": \"Patrick Donnelly\", \"content\": \"That's helpful. And then maybe sticking on the geographic point. Can you just talk about Europe, what you're seeing there? I mean, there's been concerns about tightening capital spend just given the geopolitical environment, the energy side. Maybe what you're seeing there? And then maybe a second one on the order side.\\nJust the budget flush, you guys tend to have a decent look at it at this point. I know it's still a little bit away, but any early indications there would be helpful?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes.\\nSo relative to Europe, I think I'd just remind you, we had a 14% print in the quarter.\\nSo we really feel good about our performance relative to the competition in that part of the world. But this area is a watch out for us. The -- a lot of the economic -- future economic concerns are really sending around what may happen to the European economy, particularly with the energy prices that they're having to deal with and what does it mean for demand and the ability for our customers to have the profitable revenue streams they want for their business.\\nSo that's an area that we're watching, and that's why we've taken this prudent guide in for example, assuming what will happen on the chemical side of Europe.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, I was going to say there's really nothing -- it's an area -- as Mike, you said, it's an area that we're watching.\\nWe haven't seen any material change in the way things are operating there.\\nJust to add on that 14% was against a year ago that we did have revenue in Russia.\\nAnd so that 14% was even higher than that if you looked at it on a pro forma basis.\\nSo\\u2026\"}, {\"speaker\": \"Derik De Bruin\", \"content\": \"Great. And any quick thoughts on the budget flush would be helpful. I appreciate.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes, stay tuned. What I would say is, I mean, we have -- as Mike said, I think we did see some of that in our order book in Q4 given some of the extended delivery times that are still out there between us and the rest of the market. But we're not assuming any greater than kind of normal budget flush for the end of the year.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Correct.\"}, {\"speaker\": \"Operator\", \"content\": \"We will go next to Josh Waldman at Cleveland Research.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"A couple for you.\\nFirst, Mike, a lot of questions on instrumentation, so I'll ask on CrossLab. A nice quarter here. I wondered if you could talk through the drivers to the acceleration? Anything beyond just the comps? I mean are you guys seeing signs of higher adoption of contracted service, share benefit. Is this a category where maybe price is just now starting to come into the mix?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, absolutely.\\nSo I'm going to tag team with Padraig on this one, but I think all those factors are hitting, and we're going to talk about services, but I think it's important to know that between services and consumables, we actually crossed over the 30% connect rate for the first time in the fourth quarter.\\nSo we've been talking about the importance of connect rates going forward. And on the services side, which is where your question is centered is, we've seen an acceleration of growth. We hinted at some of the places we're doing really well at the big enterprise level. But Padraig, why don't you add some your thoughts on here? Because this is your business and a lot of good things happening here.\"}, {\"speaker\": \"Padraig McDonnell\", \"content\": \"Yes.\\nI think, Mike, as you said, touch rates continue to be very strong, and it's much more than a break/fix business and we see our contract rates actually growing at double digits, which is incredibly sticky with customers. And all key offering categories right from enterprise down to some of the preventive maintenance services we do are all very, very strong.\\nWe also see that, of course, we have a large installed base and being able to provide different solutions and services for that have been really great. I will close by saying that we had some very big wins in the enterprise service business, and that's where we really look about productivity of labs and how we help customers with their outcomes, and we're seeing that increase as we go through the quarter and through the year.\"}, {\"speaker\": \"Joshua Waldman\", \"content\": \"Then Bob or Mike, curious to get your updated thoughts on supply chain and what you're seeing from a component availability and cost perspective entering '23? And I guess, whether or not your guide assumes improvements in either of these or maybe if supply chain improvement could represent upside to the guide?\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I would say we have seen in the second half of this year, incremental improvements as we went through Q3 and Q4 that helped us allow us to increase our revenue here in Q4. I would expect that incremental improvement to continue into next year. But it's by no means back to kind of normal I think if it happens to improve, I do think that, that would be a good thing for us. And -- but we're not -- we're assuming kind of the same level of improvement that we've seen in the back half of this year moving into FY '23. I do think that some of the costs have come down but there we're still having to purchase things in the aftermarket to be able to ensure supply and deliver to customers.\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes, to Josh's question, if we get to a point where we don't have to go into that aspect of the market, that would be upside for us.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"That's right.\"}, {\"speaker\": \"Operator\", \"content\": \"We'll go next now to Dan Leonard of Credit Suisse.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"Mike, I have a follow-up on Europe.\\nSo when you're framing the possibilities for 2023, I hear you on the conservatism for the chemical industry. But what about other end markets? Does the macro uncertainty in Europe bleed into pharma or aca, gov or anywhere else?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"We think there's an element that will also be in pharma as well.\\nSo you're right. I was focusing specifically on the Chemical segment of Europe, but that's also part of the storyboard as well.\\nYou can manage large pharma accounts who are dealing with increased costs, trying to figure out what they want to do in 2023.\\nSo that's a watch area for us as well. But I will say, some of the other secular drivers that we talked about earlier, such as investments in renewable energy, there's a big push to make hydrogen more of a source of energy.\\nSo this plays right in the sweet spot of Agilent.\\nSo -- but we are cautious about the large accounts in Europe and what they may do in '23 in those two end markets.\"}, {\"speaker\": \"Dan Leonard\", \"content\": \"And then I have an unrelated follow-up.\\nOn the NASD business, can you be specific about what is your outlook for that business in 2023? And what might be your opportunity to expand the service offerings in that business beyond your traditional product offering?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"Yes. Sam you know might obviously take a lead on that just to kind of -- and then have Bob jump in here as well. I mean we're assuming that our new capacity for Train B comes online, mid-year calendar year, it starts and will reach I believe full capacity by the end of the year. And we do think there's further expansion opportunities both in terms of what we do already, but broadening the portfolio. But Bob, maybe you want to walk through some of the thoughts on the financial expectations.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. I mean we ended this year touching on roughly $300 million for that business, and we've talked about this Train B being $150 million plus of capacity when Mike says we're going to be at capacity at that run rate by the end of the fiscal year. And you could imagine that probably less than half of that is a ramp-up, but we would expect a strong growth here. And I would say Train B is primarily siRNA, although we do have early -- some growing business in CRISPR Therapeutics out of our existing facilities, and we expect that to continue to grow as well.\"}, {\"speaker\": \"Operator\", \"content\": \"We go next now to Dan Arias of Stifel.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Hey, Mike, just a question on GC/MS. 30% growth for the quarter is pretty robust.\\nFor '23, would you expect a little bit of a decoupling from LC/MS there just given that it feels like there's more -- a little bit more cyclicality on the GC side, maybe a little bit more pharma on the LC side? Or do you think those portfolios track similarly again?\"}, {\"speaker\": \"Mike McMullen\", \"content\": \"I think we've always felt -- and Jacob, feel free to jump in this. We've always felt that long term, we expected LC/MS to have higher growth rates than GC/MS. And I think we'd expect that to play out in the long run. I'm not sure about '23 because GC/MS plays really well in the advanced materials space. We've been talking about some of the secular drivers there. But also, as Jacob mentioned, PFAS is an area, too.\\nSo I don't know if we're going to see that much divergence in '23, but it's a great question. I haven't thought about it.\"}, {\"speaker\": \"Jacob Thaysen\", \"content\": \"Yes. Thanks, Mike. And we came out with some very nice innovations here at the ASMS on the GC/MS side, including the way that you can use hydrogen to measure or to as your carrier gas and set up the helium, which has been really nice pickup in the GC/MS space. And as Mike also alluded to, I think we are seeing a lot of opportunity in the Advanced Materials side, particularly in the lithium battery side, where we both see our spectroscopy portfolio combined with the GC, GC/MS is completely or really addressing some of the challenges there. And actually on top of that, you have LC that is a part of that equation as you also want to look at electrolytes in batteries.\\nSo I think we continue to see a lot of opportunities in Advanced Materials, but particularly for the GC, GC/MS side.\"}, {\"speaker\": \"Daniel Arias\", \"content\": \"Yes.\\nOkay. Interesting. And then, Bob, maybe just thinking about investments next year in the context of the growth that you're seeing this year, are there areas where you might add resources beyond what might just be expected given the uncertainty that's floating around? Seems like there's an opportunity to sort of improve your positioning at a time of strength, not sure if you're seeing it that way, though.\"}, {\"speaker\": \"Robert McMahon\", \"content\": \"Yes. No, we agree. And I would say it's -- we've been doing that over the course of this last year. And I would say one of the areas, obviously, we're building out the capacity in NASD that we've talked about extensively. But we're also significantly investing in places like digital and software. And we think that that's an area of increasing strength for us and would look to continue to invest incrementally there as we go into FY '23.\"}, {\"speaker\": \"Operator\", \"content\": \"Ladies and gentlemen, we have no further questions this afternoon. Mr. Ahuja, I'll turn things back to you for closing comments.\"}, {\"speaker\": \"Parmeet Ahuja\", \"content\": \"Thanks, Bo, and thanks, everyone, for joining. With that, we would like to wrap up the call for today. Have a great rest of the day.\"}, {\"speaker\": \"Operator\", \"content\": \"Thank you. Ladies and gentlemen, that concludes today's call. Thank you for joining.\\nYou may now disconnect.\"}]"


