Agilent Technologies, Inc.

Good day, ladies and gentlemen, and welcome to Agilent Technologies' fourth quarter of a 2018 earnings conference call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be provided at that time. Should anyone require operator assistance during today's call, please press star and then zero on your touchtone telephone. And as a reminder, this conference is being recorded for replay purposes. I would now like to hand the conference over to Alicia Rodriguez, Vice President of Investor Relations. Please go ahead.

Thank you, James, and welcome everyone to Agilent's fourth quarter conference call for fiscal year 2018. With me are Mike McMullen, Agilent's president and CEO, and Bob McMahon, Agilent's senior vice president and CFO. Joining in the Q&A after Bob's comments will be Jacob Tyson, president of Agilent's Life Science and Applied Markets Group, Sam Raha, president of Agilent's Diagnostics and Genomics Group, and Mark Doak, president of the Agilent CrossLab Group. You can find the press release and information to supplement today's discussion on our website at www.investor.agilent.com. While there, please click on the link for financial results under the financial information tab. You will find an investor presentation along with revenue breakouts and currency impacts, business segment results, and historical financials for Agilent's operations. We will also post a copy of the prepared remarks following this call. Today's comments by Mike and Bob will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year over year. References to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and acquisitions and divestitures within the past 12 months. Guidance is based on exchange rates as of October 31st. We will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. Before I turn the call over to Mike, I would also like to share my plans to retire at the end of January and making this my last conference call as Agilent's Vice President of Investor Relations. I've enjoyed working with many of you over the years, but as Mike says, the best is yet to come, and so it is also true for IR. And now I'd like to turn the call over to Mike.

Well, thanks, Alicia. And hello, everyone. Thank you for joining us today. Before I cover our financial results, I want to thank Alicia for her years of service and wish her the best in her retirement. Alicia has superbly led Agilent's IR team for the past eight years. She has set a high standard for her professionalism, integrity, and transparency in her engagement with the investment community. Thank you, Alicia. You are the best, and will be missed by me. You can see it's a bit of an emotional day for all of us and our Agilent team, and I'm sure by the audience on today's call. This quarter, we are reporting our strongest quarterly results since the 2015 launch of the new Agilent. We are ending the year with a terrific quarter. Our revenues, profitability, and earnings per share are significantly ahead of expectations. Now, some of the specifics. Q4 revenues grew 9% on a core basis to $1.29 billion. This exceeded the high end of our guidance by more than $30 million. Double-digit end-market growth in pharma, environmental forensics, along with continued strength in our chemical and energy business are driving results. Geographically, our China business is up sharply with 16% growth for the quarter. For the year, the Ashland China team delivered double-digit growth and achieved a major milestone, crossing over $1 billion in business for the first time. Q4 adjusted operating margin is 25.2%, up 190 basis points from last year. This is our 15th consecutive quarter of the Ashland team improving year-over-year operating margins. Q4 adjusted EPS of $0.81 is $0.07 above the high end of our guidance. Compared to last year, this is an increase of 21%. In addition, we took advantage of marketing conditions to purchase $86 million in stock during the quarter. For the full year, stock repurchases stand at $422 million, underscoring the confidence we have in our future performance. I am also pleased to report that the Agilent Board has just approved a new $1.75 billion share repurchase plan. This quarter, performance caps off an excellent 2018. Our strong quarterly performance translates into full-year core growth of 7.1%. Our highest annual growth rate since the launch of the new Agilent. Total reported revenues grew to $4.9 billion. We continue to deliver improved profitability while investing for growth. For the year, Adjusted operating margin is 23.1%, up 110 basis points over last year. Our earnings per share are up 18% for the year to $2.79. The numbers tell the story. A strong team delivering yet another stellar annual performance. Let's now look at the quarter by business groups. Core revenue grew a healthy 9% for LSAG, our life science applied markets group. Product strength is broad-based driven by mass spec, chromatography, and cell analysis. We continue to introduce innovative new products. We are strengthening our molecular spectroscopy portfolio with the launch of the Agilent 8700 laser direct infrared chemical imaging system. This is a breakthrough in both chemical imaging and spectral analysis. We also introduced the CARI 3500 UV-Vis system. the first significant advancement in UV-Vis architecture in decades. We continue to build out our cell analysis business. We just closed the acquisition of ASEA Bioscience. ASEA is a provider of cutting-edge cell analysis instruments and will expand our cell analysis portfolio. The Ashland Cross-Live Group delivered strong 9% core revenue growth. Demand was excellent across both services and consumables. We continue to invest in our portfolio and extend our customer reach. We completed the acquisition of Prozyme, expanding our offering in the biopharma marketplace. We also acquired our South Korean distributor. This acquisition expands our direct customer engagement and further builds out ACG's service business in the market. The diagnosing genomics group grew 5% on a core basis. Strength in our NASD and genomics businesses drove the quarterly results. In a significant win, Agilent has been selected by Unilabs to be a preferred partner for the pathology business. Unilabs is one of the largest European diagnostic testing lab providers. This announcement is another strong testament to the advantage of Agilent's standing workflow solutions. Before I leave DGG, I want to provide an update on the construction of our new NASD API production facility. We remain on track for the initial production of GMP-grade APIs by the end of fiscal year 2019 with material revenue contributions in FY20. Overall, it was a great quarter, capping off an excellent year delivered by the Agilent team. A few final comments before I turn the call over to Bob. Agilent's shareholder value creation model is fully activated. First, we are executing an innovation-driven growth strategy that is delivering. Second, we continue to focus on improving profitability with our Agile Agilent initiatives. Finally, we are actively leveraging our balance sheet to drive acquisitions of fast-growing, innovative companies while also returning cash directly to shareholders. We have transformed Agilent into a growth company and are focused on delivering superior earnings growth. We just delivered our highest growth and profitability since the launch of the new Agilent. Since then, our adjusted CAGR EPS is up 17%. Our business is also less cyclical today, with non-instrument sales making up over 56% of our total company revenue. If economic challenges would arise, our business is now less dependent on capital equipment purchases. Looking ahead to 2019, while acknowledging current trade discussions, we are expecting market conditions to remain solid. The Agilent team is laser focused on sustaining our strong growth into 2019 and beyond. We have momentum. I keep telling the Agilent team the best is yet to come. Thanks for being on the call, and I look forward to answering your questions. I will now hand off the call to Bob. Bob?

Thank you, Mike, and good afternoon, everyone. I am very pleased to be talking with you today on my first earnings call as Agilent CFO. Before I get started, I want to echo the comments Mike made and say thank you to Alicia. In my time here, she has been a great partner to me, and I truly wish her the best in retirement. She will be missed. Now, moving on to the financials. In my remarks, I'm going to provide some additional detail on revenue, walk through the fourth quarter income statement, touch on a few other key financial metrics, and then I'll finish with our financial guidance for 2019. Unless otherwise noted, my remarks will focus on non-GAAP results and percentage changes will be on a year-over-year basis. As Mike mentioned, we delivered a very strong fourth quarter to finish an excellent fiscal year. Revenue for the quarter was $1.29 billion, with core revenue growth of 9%, exceeding both our guidance and expectations. For the full fiscal year, our core revenue growth was 7.1%, a very strong performance. As Mike spoke to the group's performance for the quarter, I will provide some additional details around our end market and regional performance. Overall, the market environment is positive, and based on our channel reach and product offerings, we saw broad strength across most end markets. Pharma, our largest end market, was up 14% with double-digit contribution from all business groups. Both the small molecule and biopharma segments performed well. Traditional areas of strength, as well as newer areas of strategic focus, such as cell analysis, and a strong performance at NASD contributed to the result. Chemical and energy grew an impressive 7% against a very strong comparison of 15% core growth last year. We continue to see positive ongoing market investment in this area. Balanced gains in both LSAG and ACG were driven by strength in spectroscopy, LCMS, supplies, and services. Demand from materials characterization applications continue to drive robust ICP-MS growth. Environmental and forensics grew 17% ahead of expectations, with good demand across major regions. Growth was balanced across both end markets. Forensics saw notable demand for cobalt Raman spectroscopy and environmental for LC-MS and ICP-MS. Academia and government reported 10% growth, as funding environments stabilized, while diagnostics and clinical grew 1%, and food was flat as expected against a tough 10% comparison. Geographically, we also saw broad-based strength. China grew by 16%, accelerating from the 10% core growth we saw in Q3, and as Mike mentioned, passed the billion-dollar mark in sales for the year in the fourth quarter. Other Asia and Japan grew by 12%, and Europe and the Americas had solid mid-single-digit growth. In addition, we continue to be pleased with the revenue contribution as non-instrument revenue contributed 56% of the total in Q4. Looking forward, we see non-instrument revenue growth outpacing instrumentation, driving an increasingly recurring revenue stream. Now turning to the rest of the P&L. Q4 gross margin of 57.8% increased 170 basis points compared to the prior year. This was due to product mix and volume, as well as our order fulfillment and supply chain organization continuing to do an outstanding job driving cost savings using our Agile Agilent approach. Operating margin, including adjusting for the Keysight billings, was 25.2%, up 190 basis points due to higher gross margins and top-line leverage on operating expenses, even as we invested more in R&D. This led to non-GAAP earnings per share of 81 cents in the fourth quarter, an increase of 21% compared to the prior year, and more than double the rate of revenue growth. Now, before moving to FY19 guidance, I want to touch on a few additional financial metrics. We continue to generate very strong cash flows. This quarter, free cash flow was $336 million, and for the year, we generated over $900 million in free cash, exceeding our commitment. In Q4, we returned $133 million to shareholders, buying back 1.3 million shares for $86 million and paying out $47 million in dividends. We also completed the Prozyme and YoungIn acquisitions, With Yongin, we expanded our direct sales and service capabilities in South Korea. For the fiscal year, we returned $613 million to shareholders, buying back 6.4 million shares for $422 million and paying out $191 million in dividends. As Mike mentioned, we closed a record number of acquisitions in 2018, deploying $516 million. We ended the year with $2.2 billion in cash and $1.8 billion in debt, and we just closed on ASEA Biosciences last week. So we are starting 2019 where we left off in 2018. All in all, we entered 2019 with healthy end markets, good momentum in the business, and a very strong balance sheet. Now let's turn to our non-GAAP financial result guidance for the full year and first quarter of 2019, beginning with our full year guidance. we expect 2019 to be a strong year overall, but before I get into the actual numbers, let me mention a few important points. First, we anticipate currency will be a headwind in 2019. Based on exchange rates as of the end of October, we expect currency will reduce reported sales growth in 2019 by roughly 220 basis points, translating into roughly $110 million negative impact for the full year. For comparison, our 2018 reported sales growth benefited by 210 basis points from currency. Now, partially offsetting the currency impact will be a larger contribution from recent M&A, including the recently closed ASEA Biosciences acquisition. And in addition, starting in fiscal 2019, we adopt a new accounting standard, which changes how we present pension expenses and benefits on the income statement, in effect, reclassifying certain amounts to other income and expense, While this has no impact in net income, we do expect this will reduce forecasted operating margins in FY19 by roughly 40 basis points. As we move through the year, we will provide a restated 2018 to provide an apples-to-apples comparison. And lastly, we are taking a different approach in setting guidance ranges that include both upsides and downsides. So, I would encourage you to model to the midpoint of guidance at this stage. Now, for the full year, We are expecting revenue to range from $5.13 billion to $5.17 billion in fiscal 2019, representing core growth of 5% to 5.5% and associated reported growth of 4.4% to 5.2%. Currency is estimated to negatively impact growth by 2.2 percentage points, with M&A contributing roughly 1.6 to 1.9 percentage points of growth for the full year. Now on to our EPS guidance. For the full year, we are forecasting a range of $3 to $3.05 per share. Adjusting for the negative currency, this translates to 9% to 11% growth in EPS and a 7.5% to 9.3% on a reported basis. Included in this guidance is roughly $4 million per quarter in tariffs. This is slightly higher than the estimate we provided last quarter, and it was related to List 3. A few other metrics as you build your models. Embedded in our forecast is modest operating leverage after accounting for the pension adjustment. We are also expecting the total of interest income, interest expense, and OINE to be $10 to $15 million in net expense, inclusive of pension and Keysight billings. Guidance is based on a full year tax rate of 17%, down a point from 2018, and diluted shares outstanding of approximately $322 million, flat to Q4 of this year. We expect operating cash flow of between $1.1 billion to $1.15 billion, and capital expenditures of roughly $175 million. As previously mentioned, the Agilent Board has authorized a $1.75 billion repurchase program, and we plan, at a minimum, to offset dilution throughout the year. We will also continue to look for M&A, like ASEA and other recent tuck-ins, and have the financial flexibility to be opportunistic in share buybacks as well. And finally, we have announced raising our dividend by 10%, continuing a streak of double-digit increases, providing another source of value to our shareholders. Now turning to Q1 guidance. For Q1, we're expecting revenue to range from $1.265 billion to $1.28 billion, representing reported growth of 4.4% to 5.7%, and core growth of 4.5% to 5.5%. Please remember that we are going up against a very tough Q1 comp last year where we grew 10% core. First quarter 2019 non-GAAP earnings are expected to be in the range of $0.71 to $0.73 per share, which is roughly 9% to 12% X currency and 7.6% to 10.6% reported growth. Now, before opening the call for questions, let me conclude by saying we are very pleased with the financial results and the continued hard work and focus of the Agilent team laying the groundwork for future growth and as we enter 2019 with strong momentum. With that, I will turn it back to Alicia for Q&A.

Thank you, Bob. James, will you now open the phone lines for the Q&A and provide the instructions?

Of course. Ladies and gentlemen, if you would like to ask a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from queue, you may press the pound key. As well, we do ask that you please limit yourself to one question and one follow-up to allow all participants in queue to get their questions by. And once your question has been stated, if you would like to please place your line on mute just to prevent any background noise during response. Once again, that is star then one to ask a question. Our first question comes from Tycho Peterson with JP Morgan. Your line is now open.

Hey, thanks. I'll be the first to congratulate Alicia. It's been great working with you. I guess for either Mike or Bob, I'm wondering if you can maybe help us put some parameters around the guidance for next year, either by end market or segment. Can you maybe just talk to whether, like, for example, food can get back to growth post the China restructuring, and how should we think about C&E? You know, it did moderate a bit against the tougher comp, but, you know, how do you think about the setup for that next year?

Hey, Tyco, I'm in the room. This is Mike, and Alicia really appreciates your remarks, and I Bob, I think maybe you can provide a little color on Tycho's question.

Yeah, thanks, Tycho, and a pleasure to speak with you. In terms of the end markets, I think we still see nice end market growth across all the markets. When we think about the various markets, pharma we would expect leads the way, probably faster than the overall company growth. But we are expecting growth throughout all of the end markets. So we expect a return to growth in food, for sure. but also continued performance across all of the businesses or all the end markets. And really, we expect kind of broad-based growth across the end markets as well as our divisions.

And is there any implication for the Unilab deal on DGG for next year, or how does that flow through?

Yeah, Tycho, I think it's just one more proof point that we think we can continue to grow the business, both in terms of winning some big deals, but also as the PDL1 expands in terms of various cancer states being able to be treated by the Keytrudas and Opdivos of the world. So just more of a proof point to say this is why we have confidence we can continue that growth trajectory.

Okay, and then just lastly, can you comment on the cell analysis portfolio today with ASEA and Seahorse? I'm just wondering whether there are kind of revenue synergy opportunities here, or how do we think about the portfolio and the ability to kind of penetrate the single-cell market a little bit further?

Yeah, Tyco, I'm going to make a few opening comments here and then pass it over to Jacob. But as you know, we made our first foray into cell analysis with our Seagrass acquisition, and we really were attracted by the growth in this space as well as what Agile can bring to really accelerate the growth of acquired assets in this space. And we're super pleased to have ASEA and the ASEA team as part of Agile, but I'm going to turn it over to Jacob, and you can share your perspective as well.

Yes, absolutely, Mike, and I'm as excited as you are, perhaps a little more even, since it's in my business. So as you say, we started into the cell analysis business with the Seahorse acquisition, followed by Loxel, and now here recently with Aseer. And all acquisitions gives us a very differentiated position in the cell analysis business, where Seahorse is really a technology that allows for measuring the up and down regulation of metabolism based on oxygen consumption, We now have ASEER Flow, the flow cytometry, which is a great way and a very easy way of doing cell characterization, identification based on the phenotype. And where this position in the market is that it's very easy to use and we allow many different labs that today feel it's very difficult to work with flow cytometry to really start to get their hands around that. And finally, ASEER has the Accelogen platform. which is a great way of measuring cell survival viability through impedance measurement. So those three different modalities really gives us a strong position, especially in the immune oncology and CAR-T, where basically the ability to measure live cells and how they operate under different conditions is going to be key for the insight in CAR-T and immune oncology. So you will see us continue to invest into this business, but I'm very pleased where we are today.

I can see the excitement we have on just further expanding out the cell analysis business, and I think this is a perfect example of how a company coming into Agilent with this great innovative new product can really benefit by the scale of Agilent.

Okay. Thank you.

Thank you. Our next question comes from Ross Mukin with Evercore. Your line is now open.

Good afternoon, and congrats, guys, and Alicia, it's always been a pleasure. Maybe let's talk China. So if I look at some of the color you gave on a segment basis, it seems like not only did the segment outperform, but it was pretty broad-based. I mean, you called it, I think, in the presentation academic as well as some of the more traditional pieces of what we think about your China business being. So maybe just give us a feel for the cadence in that business for next year and sort of the underlying assumptions and how you're thinking through some of the macro noise and whether or not tariff or anything else will impact the sort of demand curve on maybe the non-life science business next year.

Yeah, happy to do so, Ross. I think you anticipated some of my response, which really was broad-based. I mean, We were delighted with the numbers, 16%, double-digit for the entire year. But we saw a strong growth in pharma, academia, which is really the China government's really focus on doubling the number of what they call the first-class universities, so a very robust funding environment. You saw the overall numbers for environmental and forensics. I mean, a lot of that was being driven by investments in the environmental space by the Chinese government. We're seeing strong growth in the aftermarket, continued strength in chemical energy, and signs of return to growth in the food segment. So the overall view of China was very positive for the quarter. As we look at next year, I think Bob and I were talking about this earlier, we're embedded in our guide assumptions as high single-digit growth in China for next year. And despite all the noise that's out there, what's really happening on the ground is a lot different. Chinese customers want to buy the most innovative tools for their work. They want to support the government-led initiatives, and areas such as investments relative to healthcare for the citizens are getting funding, and we are one of the preferred choices for those customers. So despite the noise in the environment, the environment remains solid.

And maybe on the margin side, obviously, you know, all of the volume absorption in the quarter, just given how much you beat the the revenue piece by obviously health. But it feels like still underlying a lot of what you've been doing across the business is flowing through on both the gross margin and OpEx line. And so maybe give us a feel for how much you think of sort of the margin outperformance kind of came from maybe just the underlying revenue strength versus maybe some of the other actions you're doing and, you know, that in the context of some of the investments obviously you're going to be making next year into LaserGen.

Yeah, Ross, as you know, it's more than just volume that drove the margin expanses, as you noted. And I just leaned over to Bob. My guess is it's probably two-thirds volume, one-third OPEX and specific gross margin initiatives. So as I noted in my call script, we have a whole series of what we call agile initiatives, which continue to drive efficiency and much more effectiveness inside the company and A lot has been focused on the gross margins of late, but also we're going to apply a lot of this, and we've been applying this to our OPEX as well. And, again, I would underline just the importance of our digital transformation. We're under really is going to continue to allow us to drive improvements here. So when I came into the role a couple years ago, I wanted my margin expansion not to come just from volume, and that's been our mantra and our formula since we started the new Agilent four years ago, and it will continue to be our approach as we move forward. Bob, anything else you'd add? You may want to hit your mic here.

Yeah, I was going to say, I think the other thing, if you look at the various groups, each one of the groups actually improved their profitability in the quarter, which is nice, broad-based performance. And so it's not... It's not just one business or one product that's driving the profitability. It really is across Agilent.

Yeah, that's a great build, Bob. And one of the things that we noted to our board last week when the board meeting was what we've been doing on the gross margins of our service business as well, which is we often think about the margins being relatively stable and flat there since it's such a high labor content in terms of delivery. But marketer's team has really been driving efficiency with new tools and approaches. So It really was broad-based improvement across all three groups.

Awesome. Thanks, guys.

Thank you.

Thank you. Our next question comes from Jack Meehan with Barclays. Your line is now open.

Thanks. Good afternoon and reiterate as well. Good luck, Alicia. I enjoyed working together. Just as my first question, I wanted to dig in a little bit more on the LSAC performance. I know one of the products that was flagged out was LCMS. I was curious if you could give us an update on the Oltevo launch there and just where you think you're seeing that resonate in the market.

Jacob, I think I'll let you answer this question since it's one of those good news answers. Why don't I pass it over to you, Jacob?

Yeah, absolutely. Thanks for that question. And, I mean, it's kind of a very straightforward story is that Altivo continues to outperform our expectations. We see our customers, especially where we started out here by building applications in the food and environmental sector, And they have been very happy with what they see. In the end, you can actually, with the size of it and the performance, you can actually place three Altiva in the same place as you previously could do with one Marspec, which gives a lot of opportunities in many of the labs that actually are lacking space. But on top of that, we have done a lot to simplify and improve the software and also the usability as such. We start to see now also the pharma accounts are really interested in taking on Naltivo. But the mass spec story and the performance is beyond Altivo, and we see a lot also in our 6545 XT bioconfirm, where we now see on the biopharma side that we start to see a very strong uptake on that. So it's really broad-based that we see that our robust, reliable instrumentation is picking up in the market. Very excited about the mass spec. But there's a lot of other elements into the overall LSD business. The ICPMS is also doing strong. LC continues to come back with great momentum. So overall, we are really right now firing on all cylinders.

Great. Appreciate all that feedback. Just as a follow-up, I wanted to get a status update on the Colorado facility. Just help if you could parse out some of the language from the prepared remarks a little bit more. Are you assuming the revenue lift starts more in fiscal 20 at this point. And then just on the CapEx side, you know, how much is within the $175 million guide is being attributed to the facility there? Thanks.

Yeah. Jack, happy to answer the question. I'll take the first one and then pass the second one to Bob. So the language in the script was just to reaffirm to the audience that we're on track as planned. And the The construction is actually complete. We're now in the process of validation. We just had a review late last week on the status. And we will get revenue in 2019, but what we were just showing was the big pop-up when you get the full year is going to be 2020. Yeah.

Hey, Jack. Good afternoon. This is Bob on the capital side. And just to build on what Mike was saying, we do expect some revenue contribution here. But as we've said consistently, the big revenue uptick is in 2020. And in terms of the capital of the $175, most of the capital has been spent at the Frederick site already. There is some additional, but most of that has come down. And the $175, the majority of that is still actually the base business. Now, recall, that's higher than perhaps it would have been earlier because of the acquisitions that we've acquired. So we've acquired some capital associated in expansion plans there.

By the way, Bob, I probably also should have mentioned, specific to our second site, our original site, which is Boulder, we actually have found some ways to work the efficiency of efforts there, and we're actually planning to get more volume out of there in 2019 than in 2018. That's right. So our growth in NASD is not solely dependent – on the Frederick site. Great. Thanks for all the color, guys.

Thank you. Our next question comes from Steve Willoughby with Cleveland Research. Your line is now open.

Hi. Good afternoon, and thanks for taking my question. I guess a couple of things. First, just on tariffs, Mike, you made a comment about $4 million a quarter, just to be enough slightly. I was just wondering, is that including any impacts from you know, pricing or supply chain that you're doing as a potential offset? And then I have one follow-up.

Oh, yeah. Hey, Steve, thanks for the clarifying question. And, Bob, I'm going to go ahead and take a shot at this. And if you need a course, correct me, please, go ahead. But what we're trying to quantify was the actual impact of incremental duties after all the mitigation efforts. That does not include anything else we may be doing relative to pricing. So that's not a complete drag on the P&L. It's all baked into the guide for next year. But we've also instituted some other broad-based actions to mitigate that as well. But that was just trying to isolate the specific amount of the net incremental duties to the company.

You got it.

Did I get it right, Bob? You got it right. All right. Thanks.

Sure. And then, Bob, just a quick follow-up question. I guess just another clarification. I guess two things, really. Within the 5% to 5.5% core growth guidance you're providing, what is your assumption for the incremental revenue from the NASD business in Colorado? And then just making sure I heard you correctly in terms of operating margins, including this pension accounting change, what is your assumption for operating margin expansion next year, excess 40 basis point headwind?

Yeah, so on the NASD, you know, what I would look at, what I would think about that is looking at NASD in total, and the total growth rate is still there. So, you know, rather than looking at it as a street because we've actually found incremental volume out of the existing plant. So we are expecting growth in NASD next year, consistent with what we shared back in the summer.

And in terms of margins, what I would say – I'd also say that's also been very customer-driven because customers have one batch at the one site would prefer us to kind of finish the work there as opposed to going midterm into the other sites. That's right. That's right.

And in terms of the operating margin expansion, what I would say is after adjusting for the 40 basis point reduction, we are still expecting some modest improvement in operating margins. So what that would tell you is it's greater than 40 basis points.

Sure. Thank you.

Thank you. Our next question comes from Paul Knight with Jannie. Your line is now open.

Hey, Paul.

Hi, Mike. Hey, how are you? Good. Could you talk about, you know, as you think about that January Lunar New Year, you know, and the effects you expect out of the way holidays are rolling out, how we should think about the first quarter specifically. I know there's usually been a little bit of noise around, you know, how calendars lay out.

Yeah, Paul, thanks for the question. So it's my hope one year as CEO not to be talking about the Chinese Lunar New Year, and 2019 may actually be that year. So as you know, in 2018, it caused a lot of seasonality swings between quarters and also prior year compares. The way it's laying out this year, it's happening in the same period of time as it happened in 2018. So, Bob, I think we're not really expecting anything unusual this year from the timing of the Chinese Lunar New Year.

That is correct.

And then lastly, I don't know if this question was put in, but how should we think about tax this year and also going forward even beyond FY19?

I think Bob's got a really good story here, so why don't you talk to him about what's going to happen in 19? Already we know?

Yeah, thanks, Paul. So this year in FY18, we ended the year roughly at 18% effective tax rate. We're guiding to 17% in FY19, and we're working on plans to continue to improve that going forward.

Okay, thank you.

Thank you. Our next question comes from Patrick Donnelly with Goldman Sachs. Your line is now open.

Great, thanks. Mike, maybe one for you. You know, we've seen continued news flow in some of the bigger build-outs from chemical companies in China. Can you just talk through the market's demand there? I know chemical and energy is an area you've been pretty bullish on historically in that region. So where are we in the process of some of those bigger projects building out capacity in GC, some of the other areas you act as a supplier in?

Yeah, Patrick, happy to share my insights here. So I have been bullish on the growth prospects of China as it relates to the chemical energy market for, I think, good reason, because we have some pretty good insight in terms of the projects that are underway. And as I mentioned, I think, in a prior call, a lot of this is not only to support their economic growth, but also is what they view as an element of national security to continue to invest in the coal to chemical plants to really reduce their dependency on imported natural gas, for example. So we've seen the projects. They have a multi-year program. I think we're probably in the third or fourth inning of what looks to be a multi-year build-out of plant capacity. And this is really important for our GC business, as you mentioned, Patrick, because that actually is the tool of choice. And Jacob, I know you just got back from from a trip to China. And are you hearing the same thing from the teams?

Yeah, absolutely, Mike. It's really just a repeat that there are plenty of opportunities in China right now with larger HPI installations coming in here also in 19 and 20. So I think there are great opportunities in front of us also in that space.

So I guess the message here, Patrick, is not over yet. So we think we've got a few more years of really solid growth in this segment of the market in China.

You know, I think, hey, Patrick, this is Bob. Maybe just to build on that, obviously, as Jacob and team laid off groundwork for putting in the instrumentation, I think Mark and his team around the chemistries and the supplies business also continue to drive very strong growth in China. So I think it's a multi-phased opportunity for us as we go forward. And so we're really excited about that.

Great. Thanks. And then, Bob, maybe now that you've been on the seat for a few months, can you just talk through kind of initial impressions, maybe a particular focus on the margin side? You obviously came in to a nice, clean balance sheet. We've seen some activity there between the dividend increase and the bigger share repo, the historical trend. But maybe just on the margin side, given some cost-saving initiatives have been in place for a few years, what opportunities have you seen conference-level and continued expansion opportunities going years out?

Yeah, no, thanks, Patrick. You know, I think one of the things that I've been very pleasantly surprised with is the amount of rigor and discipline that the organization actually comes through. We probably under-market the Agilent approach externally, but I think the teams are very operationally focused, not just on cost savings at the gross margin line, but really through, you know, increasing productivity and efficiency across the organization. What I would say is that there are still – several big opportunities as we go forward, obviously still focused on gross margin. But Mike mentioned the digital aspect to this. And this has a multifaceted approach. Not only does it enable us to actually do business easier with our customers and actually drive some stickiness, it also is going to be driving efficiencies in our customer service, you know, cost per order dollar activities and so forth. And so as we think about that, driving, I'd see multiple layers, levers there. And, you know, I think there's opportunity to continue to do that as well as continue to reinvest some of those proceeds in R&D. So very excited about the things going forward. Great. Thank you.

Thank you. Our next question comes from Dan Arias with Citigroup. Your line is now open.

Afternoon, guys. Thanks. Mike, I wanted to follow up on the expectations for growth in food this year. How far along are you at this point in working through the government reorganization headwind in China? Have you fully come through on the other side there, or are you still working through some things?

I think you're talking specifically to China, yes. By the way, one thing you should also, when you look at our food numbers, Europe was relatively flat against the double-digit compare. So I know we're going to I know your question was focused on China, but that's also some of the geographic dynamics in the fourth quarter. Albeit said, we think the business will be growing again in 2019. You may recall, I think it was the second quarter, I talked about two sets of reorganizations. One we thought would happen faster, which was the environmental one, which is done. And you can see that pop in some of the growth rates we had. And relative to the food ministries, we expected that to take, take longer to get that side of the reorganization done. I think it's still holding true to form, which is we're anticipating that kind of taking through the rest of this calendar year. That being said, we also know some of the money is starting to move to the Tier 3 and Tier 4 cities, and we've been actively building up our channel there over the last several quarters to ensure we can capture the growth. So I guess the message here is still developing as we thought a few quarters ago.

Not done yet. Yeah, I would agree with that, Mike. And what I would also point to is if you look at the performance of our China business, it's accelerated quarter on quarter. So I don't want that to be lost after just posting a 60% year-on-year growth rate for the total company.

Thanks for that reminder, Bob.

Yep, that's helpful. Okay, and then if I could just go back to the guidance range just to make sure that I have it correct. It looks like you tighten things up relative to where you were at the analyst day. So I'm curious if you can just sort of hone in where you feel like you're maybe 50 bps better at the low end, and then it seems like things are going pretty well. And you called 6% prudent at the analyst day, so why trim at 50 bps at the top of the range?

This is a reminder, at the analyst day, we actually didn't guide for 19. We were really just trying to illustrate that was really about what our – our margin expansion might look like at different revenue levels. But I think relative to our guide, Bob, I think we're actually feeling very, very positive about it. I think we came out stronger this year than we did last year. So what else would you add to that?

No, I think that's right. I think when we think about core growth of 5% to 5.5%, that's faster than what we're expecting the overall market growth to be. So we're feeling bullish about our ability to continue to not only through launching the new products that we talked a little bit about, but also continue market execution across our businesses. And, you know, as we mentioned, it will probably be led by, you know, the pharma in China areas. But, you know, we're expecting solid growth across all of our end markets as well as geographies.

Okay. Thanks a bunch.

Was that helpful?

Sure was.

Thank you. Thank you. Our next question comes from Dan Leonard with Deutsche Bank. Your line is now open.

Hello. So first question, can you elaborate more on timeline for the share repurchase and any target capital structure you have in mind?

Yeah. Hey, Dan. This is Bob. I'll take that. We're thinking about it in two ways. One is obviously As I mentioned, doing something throughout the course of the year to maintain our share count at roughly 322 million shares, and then we'll be opportunistic, similar to what we had done in the fourth quarter. It's still a little early for me to actually come out and give a target in terms of capital structure, but what I can tell you is I'd expect us to continue to be very active in the M&A market, and I think we have an opportunity to optimize the strong balance sheet more effectively going forward.

Okay. And then just to follow up on your forward-looking commentary on end markets, so how should we think about in regards to pharma where you expect strength in 2019, how should we think about the sensitivity if capital markets were to clam up here, if at all? Would Agilent be sensitive to that or just walk us through your thinking on that front?

Yeah, great question. My view is what's powering the investments in pharma? It's really all about investments to improve the human condition. It's all about investing in new classes of drugs, new therapies, whether it be the biopharma, whether it be cell therapies, various gene approaches that are going on there. We see a new class of drugs such as the RNA-based therapeutics. So We think they're fairly resilient, if you will, to those kind of economic headwinds, if in fact they would occur. And I also would just remind you, particularly in our pharma space, how much of our business is non-instrument related. So we have a very large recurring revenue business really centered around our ACG business.

Okay. Thank you.

Happy. Happy to do so.

Thank you. Our next question comes from Derek DeBreen with Bank of America. Your line is now open.

Hi. Good afternoon.

Good afternoon, Derek.

Hi. Alicia is one of the only other New Mexicans on Wall Street that I know. I'm going to miss you. So a couple of questions. So when you look at your segments for 2019, The implied sort of organic core growth rate you're looking for is something around 3% to 4% for LSA, mid-single digits for diagnostics, and then 7% to 8% for ACG. Is that a good way to sort of look at it?

Yeah, what I would say is you're in the ballpark.

Okay. And one of the key questions we're getting from a lot of investors is, obviously, as the macro has been choppy, there's a lot of angst about how businesses perform during during a downturn. I mean, obviously, you're a heck of a lot less cyclical than you once were. But I guess, could you sort of think about how the current portfolio will perform during, you know, a steeper recession? Be sort of like back-tested what you've got now and sort of think about where it would have grown, you know, in a tougher time?

Yeah. Sure, Derek. You know, I think you point out, make one very good point, which is the portfolio of the business is a lot different than it was a few years ago. In fact, I was sort of anticipating I might get this question. That's why I saw a comment I made in my script. If economic headwinds would occur, it's a different company. By the way, we're not at all predicting that's, in fact, going to be the case. And I would say that it would probably follow a fairly similar pattern that we saw a few years ago, mainly impacting the replacement cycle in certain industries, most likely the the chemical market. But a lot of the areas where there's money being spent on research, I would think that it would be fairly resilient. I don't remember the exact numbers, but that would be kind of my top of mind thinking on that.

Yeah, I think maybe to build on that point, Mike, as I look at the business and the characterization, obviously the product portfolio that we have today is very different than what we had before, and I think it's actually more focused on what customers need in terms of solving their problems. And so whether it be open lab where we're actually helping productivity and so forth or the cross labs group just in general, I actually, you could envision where you may have some impact on the instrumentation, but that potentially could be offset because you'd actually have more consumable usage going through as they're looking to keep their instruments longer and so forth or want them serviced. And so I think we're in a better position now than we've ever been. And as we think about where our growth is coming from, it's coming from the fastest part of our business, or I should say is growing, is in fast-growing markets like cell analysis that we talked about before, which is going to be less impacted, I think, in that just because of research and the pace of innovation, our ACG business, and then obviously our diagnostics and genomics group as well.

Right. I mean, just that I was sort of, when I was talking about the segment growth, I was noticing that back in 2015 and 16 when oil was softer, you basically were growing LSAG in the 3% or 4% range. So I'm just assuming that, you know, you're already building some sort of, you know, some conservatism in the numbers just given just historically how that, you know, what the conditions were for the business at that time when those businesses were growing that size.

I think just a bunch of things, Bob. Yeah. Yeah. Thanks. Thanks, Eric.

Thank you. Our next question comes from Steve Bashaw with Morgan Stanley. Your line is now open.

Hi. Thanks for taking the questions. Just a couple trying to dive a little deeper on points that have been raised. I think first maybe on margins. Bob, there have been some questions asked about some of the specific points on the margin progression. from 18 to 19. But as I take a step back, there are actually a lot of moving parts when I think about Lasers and spending, the impact of M&A, spending on NASD, the accounting change you flagged in FX. I mean, any chance you have a view on what core operating margin expansion is next year to give people a sense for what a jumping off point might be for fiscal 20? Because, hey, it's never too soon to start thinking about 20, right?

Yeah. Yeah. Gee, I haven't even finished the call for the initial FY19, but I'll give it a shot. You know, what I would say is there are a number of moving pieces. Obviously, we've got a full year of LaserGen built into the plan. That being said, you know, we're still guiding full-year operating margins to grow, despite that important investment. And then we've got NASD as well and some of the headwinds around the FXs. But when I look at operating margin incremental, so this is not necessarily core, but this would be just looking at the incrementals. In FY19, they're very consistent with kind of how we exited FY18. And, you know, what I would say is, you know, we're focused on continuing to drive operating margins, but also, most importantly, earnings growth.

Okay. And then the second thing I wanted to see if I could get both of you, Mike and Bob, to talk a little bit about was guidance policy, guidance practice. You alluded in the prepared remarks to a hope that people would model at the middle of the guidance range. And I got a sense from the prepared remarks that you thought that there might have been a change or at least a need for there to be a perception of change the way you guys went about constructing the guidance for the year. It would be really helpful to hear you talk about how you went through that and why you think the middle of the range is the right thing. And then before I lose the podium here, I will echo the thanks for Alicia. Thank you for being so helpful for us as we ramped up on the story over the last few years.

Well, thanks, Stephen. I know Alicia has been enjoying all the great feedback from you and others today. And as you heard in my opening comments, we have mixed feelings about her moving on to her new role in terms of being a retired Mexican who used to work on Wall Street. I still have to answer the question. That's right. So, Steve, as you can see in our script, we were leading the witness a little bit. I think you picked up on it. So I'm going to make some initial comments and turn it over to Bob. So I think it's important to go back in time when we started the new Agilent. And I would dare say we really lacked credibility in terms of a company that consistently delivered results relative to expectations. So, Steve, DDA and I really set forth a philosophy that really ensured that we were being reasonable in terms of our outlook, but also that you could count on us to deliver. And we now have a track record of almost four years of doing that. But I do think it's time for an evolution of approach, and I think that's what Bob has brought to Agilent. And perhaps I wanted to share your thinking there, Bob.

Yeah, thanks, Mike. And I would agree. I mean, I think one of the things that we want to do is obviously continue to beat and feel comfortable about our forecast, but also recognize some of the potential upsides that we have, as well as acknowledge some potential downsides and try to shrink the gap. And that's what we've attempted to do here is to actually provide a little more color in terms of where we think the business is going in terms of performance, particularly when We've just come off of some very strong business, and we're forecasting strong end markets. And so, as Mike said, it's not a revolution. It's more of an evolution of the guidance to help, you know, and we've got a track record that gives us more confidence in our ability to operate under the new algorithm.

Thank you. Our next question comes from Catherine Schult with Baird. Your line is now open.

Hey, guys. Thanks for the questions, and congratulations and thank you to Alicia. You'll certainly be missed. First, for Mike, and maybe Jacob can comment on this as well. As you think about your innovation pipeline for fiscal 19, what gets you most excited? Should we be expecting to see the technology used in Oltego applied to some of your other platforms as well?

So I think we're, just like any parent would be, we're excited by all the members of our family. So we've got a lot of great new things coming on. I made a few announcements already on things that are happening on the molecular side, but I think we've got more coming, right, without sharing the specifics. So what would you say there, Jacob?

Yeah, I think I will not go out and destroy Christmas by go out and tell all the presents we have for you all the next year here. So I'm not going to speak directly to what is coming out, but what I can say is that I'm very proud and I'm very excited about the 19 on the NPIs that will come out there. I think we already started strong with the three NPIs that came out the first few weeks in the year here between the LDIR and the Cary 3500 and also the ICP-MS water analysis system and the ESI. So that was actually four. and there's much more to come. So I'm pretty pleased, but I won't speak to the specifics yet. You'll be positively surprised when you see it.

I would add, Catherine, to your comment about the technology leverage across platforms. In fact, that is the intent both for the Intuvo and the Altivo. In fact, we haven't really had an Intuvo question today, but I would just mention that I think we posted 14% unit growth in the Intuvo Intubo this past year as well.

Great. Very helpful. And then, Bob, you mentioned remaining active on the M&A front. So can you and Mike just comment on your appetite for potentially a larger acquisition and then what your key areas of focus would be?

Yeah. Okay. I've been happy to do so. I don't think there's really a new story here because what we've been saying for probably the better part of last year or so is that we've developed our own internal capabilities and then I think we've just augmented our capability here with the addition of Eric Gerber coming over to us from down at her. We believe that we have the ability to really deliver for our shareholders value on the M&A we do. And so I'm much more confident in our ability to tackle M&A and really make it part of the Agilent growth story. So we would be willing to take on larger acquisitions, As Bob mentioned in his earlier comments, there's plenty of room in the balance sheet. I think it really is more about having the right opportunities, and we will continue to remain very disciplined in terms of what we look at. But I think it's really limited. Our actions will be limited by availability of active targets as opposed to our willingness to engage.

Yeah, and, Catherine, what I would add to what Mike is saying is when we think about M&A, I think we're focused mostly on the three groups and the channels and the strength that we have to be able to leverage as opposed to creating a new land.

Yeah, that's correct. All right, great. Thank you.

Thank you. Our next question comes from Brandon Colliard with Jefferies. Your line is now open.

Thanks. Good afternoon. Hey, Brandon. Alicia, I echo the sentiments here. You'll be missed. Quick one for Sam Rett, if you can give us an update as to whether you're finished with the DACA rollout at Quest yet, whether those instruments have been fully transitioned and started scaling, and then secondly, if there's a plan to port the PD-L1 assays over to the OMNIS platform anytime soon.

I'm going to pass it right over to you, Sam.

Thank you very much for the question. We are, as you know, very pleased to have are in the business of Quest, and we're continuing to ramp. We have a significant percentage of that business where we've made conversions, but there's still work in progress, which is actually good news. That means increased opportunity for us. And in terms of your second question, absolutely. It is in our roadmap to continue expanding the menu of on OMNIS and having PDL-1 available on this is absolutely something that is within our plans. It's something that will happen in 2019. Super.

And then two quick ones for Bob. Well, the operating cash flow growth implies only about 3% growth in fiscal 19. Any one-timers to point out there? And then secondly, I think there was an asset impairment in the fourth quarter. Could you elaborate on where that was? Thank you.

Yeah, thank you. Thanks, Brandon. In terms of cash flow, yeah, I mean, I think, you know, it's prudent forecast right now at the beginning of the year. There were no one-timers really in FY18 or the fourth quarter other than the tremendous performance that we had, not only on the revenue coming in early part of the quarter and then also which enabled us to generate, you know, tremendous cash flows with our accounts receivable teams and so forth. So I think it will evolve as we go forward. In terms of the asset impairment, that's a small business within our DGG business, and we're still expecting it to grow, but not at the level that we had forecasted.

Very good. Thank you.

Thank you. Our next question comes from Doug Shankle with Cohen. Your line is now open.

All right, good afternoon. And first off, I know it's been said a bunch of times already, but thanks again to Alicia. We'll miss you. I want to start with a follow-up on an earlier chemical and energy question. Broadly, not just in China, what are you seeing amongst chemical and energy customers given the recent decline in oil prices and a bit more of an uncertain macroeconomic backdrop? And relatedly, what are you assuming for growth within fiscal 19 guidance across the chemical and energy subsegments, meaning breaking it down by chemical, refining, and E&P?

Hey, Doug, thanks. Happy to provide perspective on that. And as we've mentioned earlier, the oil price gets a lot of attention, but it really is the view of global growth that often fails. drives a lot of this market. But we're seeing a couple things going on here. Well, first of all, we're not seeing any change in customer buying behavior. In fact, we continue to see a lot of demand for replacement products. So the new generation of equipment tied to our open lab informatics portfolio really drives productivity. So customers are seeing an economic benefit So even in situations where perhaps there's some uncertainty about oil prices and economic growth, they want to invest because it helps the P&L by taking costs out of their structure. So we've seen no changes in buying behavior, and really the growth in chemical energy has been really broad-based. We talked a bit about China already, but again, I'm talking about the CapEx side of things. It's been really broad-based across all regions. And then, again, I would just say that our ACG business continues to do quite well here as well. And, Bob, anything else you'd add there?

Yeah, the only thing I would add, Doug, is in terms of your question around FY19, you and I can give that level of specificity into the sub-markets within the chemical and energy market. But what I would tell you is if we look at chemical and energy, we're expecting that business to grow slightly lower than what our core guide is. Mm-hmm.

Okay, that's great. And, Bob, maybe if I can, just as a follow-up, sneak in a couple guidance clarification questions. First, on the buybacks, which have come up a couple times, your stock seems pretty depressed relative to your strong operational performance and relative to peers on a valuation basis. And your balance sheet is very pristine. Your guidance assumes a flat share count in spite of the fact that you have plenty of cash on the balance sheet to get more aggressive with buybacks and still have room to do more and bigger M&A. I guess it's still unclear to me why you're not getting more aggressive with the pace and size of buybacks. Is this really a function of it just being pretty early in your tenure? And then I guess the second guidance clarification question would be, Just regarding the tax rate, your cash tax rate is still a lot lower than 17%. I'm just wondering if there's any opportunity or chance that ultimately the tax rate goes a lot lower than what your guidance incorporates. Thank you.

Yeah, thanks, Doug. You hit the nail on the head. I mean, it's still relatively early in my tenure as I'm trying to figure out all the various pieces, but what I would tell you is I think there's opportunity. Now, our primary use of cash is actually to do M&A, you know, after investing in the business and growth. And I think we've seen that, you know, starting with the work that we did in FY18 and then just starting here in FY19 with closing ACIA and so forth. But I do think we were opportunistic in Q4, and I think that there will be opportunities that we will If there are opportunities, I should say, we will capitalize on them in FY19.

And then in regards to the cash rate, I love this one, which is, yeah, Doug, there sure is a difference between our cash tax rate and our non-GAAP tax rate. And I think Bob and the team have brought down a point so far, but I think you're still looking at some things and – Yes, stay tuned.

We're not ready to commit. I'll tell you, stay tuned.

We're not done our work yet.

Great. Thank you.

Thank you. Our next question comes from Puneet Soda with Lee Ring Partners. Your line is now open.

Yeah, hi, Mike. Hey, Puneet. Thanks for taking the question. Obviously, Alicia, thanks for all of the help and really great working with you. So if I could touch first on, just wanted to clarify, how much of a contribution was USP regulation and LSAC, if you could quantify that? It seemed like in past quarters we had seen some significant contribution from ICP-MS. I just wanted to make sure we have that number for this quarter, too.

Yeah, I don't think we have that level of granularity in terms of specific numbers. What I can tell you is that it's been part of the story of a farmer growth, and I think that's fantastic. I should be a member, so a double-digit kind of growth.

Yeah, it was well in excess of, it was greater than 20%.

Yeah, we got a lot of tailwind from that regulation, so yes, that was good.

And what's your expectation there of how long of a tailback could be for USP longer term? Could you give us a sense of how many quarters or maybe years that this could last?

This would be just my guess, but I think we're not done yet. I think we expect it to continue into 2019.

Yeah, I think we saw a lot of great performance based on that regulation in 2018, and we will also see a tail end in 2019. But we have a lot of other things going on in ICP-MS, and we really see that technology being applied in more spaces now with the water regulations coming up. We have really made a nice workflow. I think that we can see a lot of opportunities there. But generally speaking, ICP-MS is just being a tool that will be picked up from many other opportunities. So I don't think that we are dependent on one part and one workflow, but we will see these great opportunities in 2019.

Got it. And then, Mike, on Intuvo, you pointed out the 14% unit growth here. Just wanted to get a sense of, you know, do you want to address broader applications here? My question is, would Intuvo evolve into another set of product, or should we expect, you know, maybe potentially a next-gen 7890 here along the lines which you have produced in past to address then the full market compared to the GCs that you have had in past? Thank you.

Thanks for the question. So I was trying to preempt the audience about it because we're really quite pleased with the pickup or really the double-digit growth, if you will, of the Intubo product because as we've said since launch, we knew it would be a measured adoption by customers because they really want to put the equipment through the paces and really be convinced that it actually does work as advertised and guess what it does. And now we're starting to see some really nice multiple unit orders coming in, particularly as it relates to mass spec. And at the risk of being Santa Claus or destroying Christmas or whatever, how Jacob said earlier, what I can tell you is that our plan is to leverage a lot of the core technologies that were developed in the Intuvo product for potential new versions of gas chromatographs. And we work really hard to keep the overall performance complete portfolio as competitive as possible. And as you know, the Intuvo covers only about 60% of the application space, so there's work to do on the rest of the portfolio as well.

Okay, got it. Thanks so much.

Thank you. I show no further questions in queue, so I'd like to turn the conference back over to Ms. Rodriguez for closing remarks.

Thank you, James. And on behalf of myself and the management team, I'd like to thank everybody for joining us today. If you have any questions, feel free to give us a call in IR. Thanks a lot. Bye-bye.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.