Agilent Technologies, Inc.

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 speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. And now I'd like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Jody, and welcome everyone to Agilent's conference call for the second quarter of fiscal year 2020. I hope that all of you and your families are safe and healthy. On the webcast today are Mike McMullen, Agilent's President and CEO, and Bob McMahan, Agilent's Senior Vice President and CFO. Joining for the Q&A after prepared remarks will be Jacob Tyson, President of Agilent's Life Sciences and Applied Markets Group, and Sam Raha, President of Agilent's Diagnostics and Genomics Group, along with Poreg McDonald, 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-over-year, and revenue growth will be referred to on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. 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 obligations 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, everyone, for joining our call today. I want to add my best wishes as well and hope that you and your families are safe and healthy. I'm pleased to have, importantly, Donald, our president of the Agilent Cross Lab Group, joining us for the first time today. As I mentioned last quarter, Mark Doak has retired from the company and Porek is now leading ACG. I know you enjoy getting to know Porek better in his new role. I'm glad he can be here with us on the call. Last quarter, Agilent was among the first to discuss the business impacts of COVID-19. Since then, much has changed as COVID-19 is now a global pandemic. The world's a very different place than it was back in February, but what hasn't changed is the attitude and execution of the Agilent team and our unwavering focus in four key areas. Let me first talk about how we are protecting our people. Our top priority is ensuring the health and safety of the Agilent team. Early on, we entered a global work-from-home policy and severely restricted travel. We implemented new work practices and safety protocols for our manufacturing teams and service engineers visiting customer laboratories. The team is really stepping up. True to the Agile mission, our response to COVID-19 is driven by our commitment to our people and our customers. It should be no surprise then that our second area of focus is an unwavering commitment to our customers. We are and have been open for business. From the early stage of the pandemic, we took decisive action to secure our global business operations. We are using innovative and more efficient ways to support our customers. from leveraging our digital capabilities to promote technical assistance, to urgently delivering Bravo liquid handler systems for their COVID-19 test, or providing live online guidance to keep labs functioning. We're doubling down on reference to support our customers. This is especially true as their needs change and evolve. Our third focus area is taking quick and decisive action to preserve a strong P&L and balance sheet. When we experienced significant disruption to business activity in late March, we made changes in our supply chain, logistics, and business operations. This ensured continuity of order intake and our ability to deliver products and services to our customers. We also didn't shy away from taking swift action to reduce expenses. We quickly put in place a cost management program while reprioritizing and sustaining our growth investments. As we continue to sharpen our plans, we will not put our future growth opportunities at risk. Bob will share more details, but the top priority is monitoring our liquidity and cash flow. We have taken actions to ensure a strong balance sheet and financial flexibility. The positive impact of our approach shows in our Q2 results. In the midst of the spread of the global pandemic, the Agilent team delivered Q2 revenues of $1.24 billion. This is flat on a reported basis and down a little less than 2% on a core basis. Our Q2 operating margins of 22.4% are up 50 basis points. We posted earnings per share of 71 cents during the quarter, flat versus our results a year ago. Before covering additional Q2 detail, a few comments on our fourth key area of focus, our continued prioritization on growth. Our building and buying growth strategy remains firmly in place while we are taking decisive action on our cost structure to respond to the COVID-19 impact. We are continuing to prioritize investments in fast-growing markets such as biopharma that deliver incremental growth and help us create a more resilient business. When we all come at us on the other side, agile will be poised for growth. Our Q2 pharma growth is being driven by the strength of our biopharma business. This is a direct result of our building and buying strategy in action. Our approach to investing for growth continues to serve us well and will be a major factor in helping us emerge in the current environment stronger than ever. An example of our approach to continually assessing our growth investments is the decision we made regarding our cancer diagnostic strategy and the laser gen sequencer development program. Given change in the marketplace, we believe we can now capture future growth in the NGS diagnostic space without the need for our own sequencer platform. As a result, we made the decision to shutter our sequencer development program. We are redirecting our investments with the valuable intellectual property we've created into areas of higher interest. Despite this program change, we remain optimistic about continued growth in NGS cancer diagnostics. Let's now take a closer look at the quarter as well as the future outlook in today's COVID-19 world. Last quarter, our attention and revised outlook was focused on our China team, customers, and business. As COVID-19 spread to other parts of the world in the second quarter, the situation changed. During February and March, our overall business was up about 1%. However, in late March, we faced significant disruption in business activity as Europe and the Americas restricted access to facilities. Our China business is recovering better than forecasted. We posted 4% core growth in China with increasing strength throughout the quarter. In fact, in April, China posted strong growth while all other geographies experienced declines. We expect the China growth recovery to continue throughout the year as lab operations and investments continue to resume. The near-term outlook in Europe and the U.S., however, remains challenging, particularly for new equipment purchases across most end markets and non-COVID-19 diagnostic testing. Some quick highlights across our businesses. Both DGG and ACG delivered core growth. DGG's 5% growth is driven by NASD, up 35% as the ramp of that business continues as planned. ACG was up 1%. Our LSAG business declined 7% as customers curtailed equipment purchases, although we did have pockets of growth in biopharma, cell analysis, and COVID-19 testing and research. From an end market perspective, pharma grew 5% in the quarter, followed by a 4% growth in diagnostics and clinical. The food market continues recovery with a modest 1% growth driven by China. Our environmental forensic business is down 1% for the quarter. In Q2, academia and chemical energy are the end markets that are most impacted, down 16% and 10% respectively. We expect continued pressure in these markets throughout the rest of the year, although we are seeing some pockets of growth in chemical production regionally as some customers shift supply chains. Looking forward, we expect Q3 to be the most challenging quarter of the year, with gradual improvement during the course of the quarter and continuing into Q4. As a key player in the life science industry, ASIN also has an important role to play in the fight against COVID-19. Before closing, I'd like to share a few thoughts on our COVID-19 offerings. While the COVID-19 virus is negatively affecting our overall growth rate this time, Agilent is supporting several aspects of COVID-19 research and testing, along with therapeutic and vaccine development. In Q2, this resulted in a one-point tailwind of growth, primarily in providing instrumentation. There is potential that this will become a more meaningful tailwind in future quarters. To address this, we have mobilized a cross-Agilent team to maximize support to customers around the globe fighting the virus. These offerings range from instrumentation such as automation, PCR, and microplate testing to consumables and components necessary for testing, as well as lab support to these customers. As we enter Q3, I want you to know that the global Agilent team is energized and remains focused on supporting our customers and driving growth. We have taken swift and decisive actions to ensure a continued strong P&L and balance sheet. We remain a diversified, resilient company with a bias for speed, execution, and growth. Thank you for being on the call. I will have a few closing comments after Bob speaks, and then we look forward to taking your questions. And now, Bob, you're up.