Agilent Technologies, Inc.

Good day, ladies and gentlemen, and welcome to Agilent Technologies' first quarter of 2019 earnings conference call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be provided at that time. Should anyone require operator assistance during today's conference, please press star and zero on your touch-tone telephone. And as a reminder, today's conference is being recorded. I'd now like to hand the conference over to Ankur Dhingra, Vice President, Investor Relations. Please go ahead.

Thank you. and welcome everyone to Agilent's first quarter conference call for fiscal year 2019. With me are Mike McMullen, Agilent's President and CEO, and Bob McMahon, Agilent'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 Agilent CrossLab Group. You can find the press release, investor presentation, and information to supplement today's discussion on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures. 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-on-year. References to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of January 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. And now I would like to turn the call over to Mike.

Thanks, Ankur, and thanks for joining us on our call today. I'd like to start by welcoming Ankur to his first earnings call as our Vice President of Investor Relations. While Ankur is new to this role, he is not new to Aspen, excelling in senior leader level finance roles for over 16 years. I believe many of you on this call have already met Ankur, but in case you have not, I want to reiterate a key theme he is sharing. We remain committed to sustaining excellence in our IR team and maintaining a strong relationship with you, the investment community. We miss Alicia, but are very pleased to have such a capable successor in Ankur. Now, on to the Q1 results. 2019 is off to a strong start. The Agilent team continues to deliver excellent results with both revenues and earnings exceeding our guidance. Q1 revenues totaled $1.28 billion. This represents 6.1% core growth against a tough Q1 2018 compare. Our performance is highlighted by double-digit growth in both our Agilent cross lab and diagnostics and genomics group. From an end market perspective, Our results are led by a double-digit growth in the pharma, clinical and diagnostics, and environmental and forensics markets. Our Q1 operating margin is 23.1%, an increase of 120 basis points from last year. Our Agile Agilent programs are driving process and productivity improvements, while we also continue to invest for the future. This is our 16th consecutive quarter of the Agilent team improving year-over-year operating margins. Our Q1 adjusted EPS of $0.76 is up 15%. This is $0.03 above the high end of our guidance. The combination of strong top-line growth and increased margins is driving continued double-digit growth in our EPS. Now, looking at results across our businesses, our life sciences and applied markets grew 1% on a core basis against a very tough compare of 11% growth last year. Demand remains strong in the pharma, and environmental forensics markets. We continue bringing to the market innovative new offerings to fuel future growth. Earlier this month in Japan, we strengthened our leadership position in gas chromatography with the global launch of two innovative new instruments, our new 8890GC, replacing our flagship 7890GC offering, and an all-new mid-range 8860GC. In addition to leading analytic performance, reliability, and robustness, these two smart connected instruments offer several compelling new digital capabilities, including remote connectivity. Customers can now remotely control the instrument, monitor the status, and perform diagnostic tests to provide a new level of convenience for busy lab managers and chemists. With our intelligent predictive technology, we can also provide our customers with system health alerts or autonomous monitoring of instrument performance, allowing them to avoid unscheduled downtime and maximize laboratory productivity. These are just great examples of our digital lab strategy in action. Complementing the introduction of the Intuvo GC in 2016, we now have the most complete and compelling gas chromatography portfolio in the industry. While early in the global launch of these two new offerings, customer response is very positive. We continue to strengthen our fast-growing cell analysis business. Building from our beachhead acquisition of Seahorse Bioscience in 2015, we acquired Luxo Biosciences last year, adding new cell assay capability. We continue to invest in the fast-growing cell analysis market space. Earlier this quarter, we opened a state-of-the-art cell assay development facility in Cork, Ireland. We also acquired ASEO Bioscience in Q1, adding highly complementary new products to our cell analysis portfolio. The acquisition of ASEO Bioscience increases the relevance and impact we can have with our customers in this quickly evolving space. LSAG's innovation leadership again received external recognition as we drive for increased market share in molecular spectroscopy. The analytical scientists ranked the Agilent 8700 LDIR system as a 2018 top innovation. This groundbreaking imaging spectroscopy system takes a new approach to chemical imaging for customers in the pharmaceutical, biomedical, food, and material science markets. The system delivers greater speed and clarity, enabling faster, more informed decisions for customers. These new products from our LSAG team further strengthen an already impressive lineup of instrumentation and software. We are very well positioned for continued market share gains. Our Agilent Cost Lab group delivered excellent results, growing 10% on a core basis in Q1. Demand was broad-based across all end markets and regions, which speaks to the strength of our customer value proposition. Our ACG team continues to expand our digital capabilities to the lab and improve the customer experience. we introduced e-subscriptions to allow customers to set up recurring consumable orders online. This provides customers the ease and convenience of not having to place repeated orders. We also launched a smart alert subscription service for the GC install base, providing lab managers with alerts on instrument maintenance needs based on actual applications and sample volume. Over the past several years, ACG has worked diligently to on expansion of our portfolio, building outcome-oriented solutions, and enabling our online business. Our Q1 results are reflective of all the ACG team's work to date to bring these capabilities to market and set us up well for continued growth in the future. The Diagnostic and Genomics Group delivered exceptionally strong results this quarter with 12% core revenue growth. Demand was strong across all businesses and regions. Our pathology-related businesses, which comprise roughly half the diagnosing genomics business, excuse us for one second, grew low double digits in the quarter. Importantly, we continue to partner with our customers in efforts to fight cancer. This quarter, we expanded our portfolio in high-volume cancer diagnostic testing. In Europe, we launched the first PD-L1 PharmaDX kit on the Docco Omnis automated platform. We are also working on bringing this PD-L1 assay anomalous to the U.S. and other markets. Our NGS-related business, again, grew double-digit this quarter. The NASD business is also very strong. Our plans to bring the second facility online to expand production remain on track. We anticipate the initial production of GMP-grade APIs by the end of fiscal 2019 with a tier of revenue contributions in FY20. Looking at Ashland's performance on a geographic basis, the Americas led with high single-digit growth, and we saw low single-digit growth in Europe and China. As we expected, China's Q1 growth rate is lower than our expectations for full-year growth. This is owing to an extremely tough compare versus a 19% core growth last year. As you know, there's been a lot of conversation about the China market. While there are some puts and takes within the markets we serve, our view is is that the overall market demand remains solid. Now, turning to the company outlook, the total company outlook, our Q1 results, coupled with our current view of market conditions and Agilent's strong execution capabilities, helped to deliver a strong 2019.