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Operator
Please stand by. We're about to begin. Ladies and gentlemen, welcome to the Agilent Technologies Q1 2023 earnings call. My name is Beau, and I will be coordinating your call today. If you would like to ask a question following the presentation, you may do so by pressing star 1 on your telephone keypad. I'll now hand you over to your host, Arneet Ahuja, to begin the conference. Arneet, please go ahead.
Beau
Thank you, Bo, and welcome everyone to Agilent's conference call for the first quarter of fiscal year 2023. With me are Mike McMullen, Agilent President and CEO, and Bob McMahon, Agilent Senior Vice President and CFO. Joining in the Q&A after Mike and Bob's comments will be Jacob Tyson, President of the Agilent Life Science and Applied Markets Group, Sam Raha, President of the Agilent Diagnostics and Genomics Group, and Porig McDonnell, president of the Agilent Cross Lab Group. This presentation is being webcast live. The news release for our first quarter financial results, investor presentation, and information to supplement today's discussion, along with 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. 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 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. Our guidance is based on forecasted currency exchange rates. During this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risk 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 risk and other factors. And now I'd like to turn the call over to Mike.
Mike McMullen
Thanks, Parmeet. And thanks, everyone, for joining our call today. The Agilent team delivered an excellent start to 2023, exceeding both top and bottom line expectations. Q1 revenues of $1.76 billion are up 10% core. Agilent's broad-based portfolio and resilient growth model are on a full display during the quarter, with growth across all end markets and geographic regions. Operating margins of the quarter are 27.1%, up 80 basis points. Earnings per share of $1.37 are up 13%. Let's now take a closer look at our first quarter performance, starting with end market highlights. Chemical and advanced materials led the way for us, with another outstanding quarter. delivering 14% core growth with strength across all geographies. The strength in our pharma business continues and is up 11% with both large and small molecule growing nicely. This is on top of 17% growth last year. Our environmental forensic business grew 12% while the academia and government and the food markets both grew 8%. On a geographic basis, China once again led the way. Our China team continued their record of strong execution, overcoming any disruption associated with COVID, and delivered 13% growth during the quarter, exceeding our expectations. In Europe, we also delivered stronger-than-expected results, growing 10%. The Americas posed a solid result with 8% growth. Looking at our performance by business unit, the Life Sciences Applied Markets Group delivered revenues of $1.03 billion. up 11 percent core. LSAG delivered growth across all end markets and regions. Our LC and LC-MS platforms continued their strong performance during the quarter, growing faster than the market at 16 percent. Demand in the chemicals and advanced materials end market continues to be strong, particularly for materials used in manufacturing semiconductors and batteries. Our spectroscopy business grew more than 20 percent in the quarter, And we continue to strengthen our position and spectroscopy across multiple end markets. In Q1, we announced the deployment of the InSight 200M. This system is used at checkpoints throughout the London Heathrow Airport to efficiently provide enhanced security and ensure passenger safety. The Agilent Cross Lab Group posted revenue of $381 million in Q1. This is up 13% core, as the team continues to take advantage of record instrument placements over the past two years, along with continued growth and attach rates. The CrossLab team's deep knowledge of customer lab operations continues to drive consistently high levels of customer satisfaction. The breadth and diversity of our product offerings is driving record renewals for support contracts. At the same time, our enterprise services business continues a strong momentum, driving growth and converting competitive accounts. The Diagnostic Jointness Group delivered revenues of $342 million of 5% core. Our pathology-related business formed well, with double-digit growth led by the Americas and Europe. NASD closed another strong quarter, growing 22%. Our train B manufacturing expansion remains on track to come online mid-calendar year. In January, we announced an additional $725 million expansion of our NASD facility that will double our oligo manufacturing capacity. And two weeks ago, we were pleased to have the Governor of Colorado join us at our groundbreaking ceremony at the Frederick site. In addition to organic investments, we continue to invest externally in new technologies and partnerships. In the quarter, we welcomed the Aveda Biomed team into Ashland, further enhancing our genomics capabilities. Novita is an early-stage life sciences company designed to assist clinical researchers using NGS approaches to study cancer. We also continue to partner with new technology platform companies to drive our solutions in the marketplace. This quarter, we announced a partnership with Akoya Biosciences to combine our companion diagnostic and IHC workflow expertise with their solution to drive multiplex tissue assay development for biopharma. In addition to these business group highlights, Agilent was again recognized among the top 100 most just companies in the U.S. by Just Capital and CNBC. As part of this announcement, we are very proud to be the leader in the medical equipment and services industry for our treatment of employees and focus on customer relations. The Agilent team navigated challenging market uncertainties in Q1 and yet once again produced excellent results It was a great start to the year. Q1 was another outstanding example of the work we've done to build a resilient company with multiple growth drivers. Those growth drivers created through targeted investments that aim to expand and enhance our business' high growth areas are the heart of our build and buy growth strategy. As we look ahead to Q2, we remain confident in the strength and resilience of our business. We have an unstoppable One Agilent team that continues to execute at an extremely high level and is well prepared to deal with any challenges they face. Given the strong start to the year, we are raising our full-year core revenue and EPS guidance while also keeping a close eye on macroeconomic conditions. Bob will provide the details and overall outlook, but overall, we remain convinced our strategic focus and unmatched execution capabilities will continue to drive strong results. Thank you for joining us today. And now, Bob, over to you.
Frederick
Thanks, Mike, and good afternoon, everyone. In my remarks today, I'll provide some additional details on revenue in the quarter, as well as take you through the income statement and other key financial metrics. I'll then finish up with our updated full-year guidance and initial guidance for the second quarter. Unless otherwise noted, my remarks will focus on non-GAAP results. We are extremely pleased with our Q1 performance. It was a very solid start to the year. Q1 revenue was $1.76 billion, exceeding our expectations. Revenues were up 10% core and 5% on a reported basis. Currency was a five-point headwind, which was an improvement from the beginning of the quarter, while the M&A contribution was as we expected. Pricing for the quarter was higher than the full-year forecast, also as we expected. Now I'd like to share some additional detail on our end markets. Results in our largest market, pharma, were again very strong. Pharma grew 11% following 17% growth of last year. Performance was solid across both small and large molecules. Small molecule grew 12%, while large molecule grew 9%. And as Mike mentioned, chemicals and advanced materials also continue to be very strong, growing 14% during the quarter on top of 15% growth last year. The chemical and energy subsegments of the market are doing well, while the advanced materials market continues to deliver outsized growth. Semiconductors and batteries are driving demand, helped by government investment in this area. The food market grew 8% during the quarter, driven by double-digit growth in China. The environmental and forensics business grew 12% led by the Americas, as increased testing for PFAS chemicals drives customer investment in this area, and recently approved U.S. legislation leads to broad spending in the environmental market. Our business in the diagnostics and clinical market grew 4% versus 11% growth last year. Pathology led the way for us here, partially offset by industry-wide challenges in the genomics market. And the academia and government market was up 8% led by LCs and services. Regionally, Europe and Asia showed strong results. On a geographic basis, the China team delivered 13% growth and Europe grew 10%, both exceeding expectations. The Americas had another solid quarter coming in at 8% in line with our expectations. Now let's turn to the rest of the P&L. First quarter gross margin was 56.5%, up 40 basis points from a year ago. The gross margin performance, coupled with good cost discipline and SG&A, helped drive our operating margin to 27.1%, up 80 basis points from last year. Below the line, our tax rate was 13.75% for the quarter, and we had 297 million diluted shares outstanding, both as expected. And putting it all together, earnings per share were $1.37, up 13% from a year ago. In summary, Q1 ended with 10% core top-line growth and 13% earnings per share growth, a very good start to the year. Now, some metrics on cash flow in our balance sheet. In Q1, we generated $296 million in operating cash flow, up 16% versus last year, while investing $76 million in CapEx. CAPEX spending continues to be driven by our scale-up of our Train B manufacturing line and other capacity expansion projects. In the quarter, we returned $142 million to shareholders through $67 million in dividends and by repurchasing shares worth $75 million. We also announced we're increasing our dividend by 7%, along with a new $2 billion share repurchase authorization continuing our successful balanced approach to capital deployment. Our balance sheet continues to remain healthy as we ended the quarter with a net leverage ratio of 0.8. Now let's move to our revised outlook for the year and the upcoming quarter. The macroeconomic environment remains dynamic, and interest rates and currencies continue to be volatile. However, given the good start to the year, we are increasing our full-year revenue to a range of $7.03 to $7.10 billion. This increase updates our full-year core revenue guidance to a range of 5.5% to 6.5%, increasing the midpoint of our guidance to 6%. We've also seen the dollar weaken against major currencies in the first quarter, although it has remounted somewhat in February. And as a result, the full-year guide reflects $100 million of favorable currency movements since our initial guide in November. And for the full year, we still expect currency to be an almost 300 basis point headwind to reported growth. In addition, we're also raising our full-year EPS guidance to a new range of $5.65 to $5.70 per share. And lastly, given the recently announced NASD expansion to double our oligo manufacturing capacity, we are updating our forecasted capital spending for the year to $500 million, up $200 million from our guidance at the beginning of the year. Now, turning to Q2, we expect revenue in the range of $1.655 to $1.680 billion. This represents core growth of 6% to 7.5% and reported growth of 3% to 4.5%. Currency is expected to be a headwind of 3.1 points, while M&A will contribute 0.1 points of growth in Q2, which is consistent with Q1. Second quarter non-GAAP earnings per share are expected to be between $1.24 and $1.27, representing growth of 10% to 12% versus the prior year. I'm pleased with how the team has delivered in the first quarter. We are focused on the things we can control. Our team is driving strong execution in the marketplace, And coupled with our broad portfolio of products and services, we expect to continue to grow faster than the market as we go through the year. Thanks for being on the call. And now I'll turn over things back to Parmeet as we take your questions. Parmeet?
Beau
Thanks, Bob. Bo, if you could please provide instructions for the Q&A now. Certainly, Mr. Ahuja.
Operator
Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to withdraw your question. And when preparing to ask your question, please ensure your phone is unmuted locally. We'll take our first question this afternoon from Matt Sykes of Goldman Sachs.
Matt Sykes
Hi, good afternoon, Mike and Bob. Thanks for taking my questions.
Operator
You're quite welcome, Matt.
Matt Sykes
Maybe we'll start on ACG. Just given the quarter that it had and the comp it was facing, last year. You've talked in the past about areas of under penetration. I think China was a region you called out. Could you just maybe kind of give us a mark to market on where you feel from sort of an end market and regional standpoint, there's still a lot of room for that growth in ACG if we see it continue throughout this year and into next?
Mike McMullen
Yeah, thanks, Matt. First of all, I appreciate the recognition of the numbers we posted. And we think there's still a lot more opportunity in front of us. And I'm going to actually have a or provide a little bit more color on where those opportunities may lie?
Matt
Yeah, so look, I think the broad product offering across the hardware platforms where we've had a lot of value to customer operations has been broad-based. We certainly see a lot of our offerings, particularly around asset utilization and so on, being able to be used outside pharma and different industries, and we see that as an opportunity to grow. I think also, you know, given our big install base and our ability to attach in different markets and sectors is going to continue as we go through the year.
Mike McMullen
Yeah, I think we see a lot of opportunity, obviously, in China. That's one we flagged in the past. The other one that we were pointing to is, you know, A lot of the growth has historically been centered in the pharma space. We're seeing growing interest in the cam space as well. So I think from an end market perspective, you know, that's an area we would expect to see some more growth. And geographically, the China story still hasn't fully played out yet. And then again, I would just remind you, Matt, some of the points we made in the call, record renewals for support contracts and also clearly taking share on the enterprise level. Those attached rates we keep talking about are going up as well. So a lot to like here.
Matt Sykes
Great, thanks. And then maybe just kind of refresh us on your outlook for instruments. I mean, you've kind of guided to a mid-single-digit growth for the full year. Given that we're a little ways into this year, you probably have a little more visibility in that backlog. How are you thinking about sort of the back half for instruments overall?
Mike McMullen
Yeah, so first of all, let me, I'll tag you in a bit on this with Bob, but let's talk about the backlog first of all. I think it's very important to just remind the audience that the quality of our backlog remains extremely high. And you can see the great work of our team to work down the backlog, but we're not seeing any cancellations or anything pulling out of backlog. So that gives us a level of confidence around the revenues we can forecast. I think there really isn't anything new to talk about today, new news relative to the second half. We still remain, you know, we still want to acknowledge the uncertainty about the back half of the year. So really no new news here. Very consistent with what we talked about in November. I think you're going to hear a lot of us talking about normalization of growth rates, normalization of deal cycle times. So the funnels remain healthy. The deal cycle times are, I think, reverting more towards historical levels. And, Bob, I don't know if you have anything for that.
Frederick
No, I think you're right. I mean, I think, you know, obviously we had a very strong start to the year with double-digit growth from LSAG. We will go up against very tough comps in the back half of the year with, you know, the recovery of – the business. But as Mike said, you know, pleased with the very, very good start, but not anything material changed.
Matt Sykes
Got it. Thanks. Congrats on the quarter.
Brandon
Thank you very much. Thank you. The next to Brandon Couillard of Jefferies. Hey, thanks.
Brandon
Good afternoon. Thanks for taking my question. Sure, Brandon. Mike, I think you, I think you said China was up 13% in the quarter. That's a lot better than we've heard from some of your other counterparts. Could you unpack that a little bit for us? Could it perhaps have been due to the fact that you're one month later? Maybe talk about linearity in China through the quarter and if your outlook for the full year, which I think with high single business has changed at all.
Mike McMullen
Well, I'm glad you noticed, Brandon. And if you were in the conference room here, you see there's a lot of smiling in the room here because I'm really proud of what the team has done here. So I don't think it's all a timing issue. It's about execution and its ability of this team to execute because our teams were hit with waves of COVID during the quarter. But we know how to execute. We've also enabled our ability to interact with customers digitally. So while people maybe couldn't go to the office or couldn't go to customer sites, they were able to support the customer. So we were just delighted with the performance out of China in Q3. But I think it was a broad-based story. You know, we had growth and double-digit growth in pharma, CAM, food. So it was... Really pleased with the results. I know our narrative is different than others are saying, but I also think my team in China Arcade Builds is also different.
Brandon
And then on the NASD Train C, I guess, expansion, you just talked about timeline for that build out. And as I remember back to Train B, I think a good amount of that was already kind of earmarked for customer demand. The same case this time around with the current expansion.
Mike McMullen
Yeah, I'm going to tag team a bit with this with Sam and myself and Bob. So we lovingly refer to Train B. That's the latest expansion that's coming online this year. In fact, we had a chance to see that firsthand when we went to the groundbreaking ceremony for what we call Project Endeavor, or as you're referring to, Train C and D. It looks really good. We're on track for that expansion. mid-calendar year go-live, and we have a full book of business for that. It's just a matter of ramping the project up. And then I'm going to pass it over to Sam, and maybe you want to remind Brandon what our plans are with the new expansion, when we expect to see some of that first revenue coming into Agilent.
Sam
Yeah, happy to do so.
Bob
As you mentioned, Mike, first of all, we're tracking right on plan for Train B, mid-point, mid-year, You know coming on and it was great to see firsthand Bob join me Really the progress that we're making the facilities looking really really nice a lot of validation work happening miles and miles of stainless steel piping And other other infrastructure that's been put in place as you also noted we did on the at the end of February the middle of February pardon me the the groundbreaking for trains C and D and And these projects will take some time, but we've started the process, and the first revenue from that would be coming online in 2025. And remember, there's two trains, train C and train D, both dedicated to siRNA, antisense capabilities, as well as expanding our ability to serve customers with single-guide RNA or CRISPR. So excited about the progress, and the NASD team under Brian Crothers' leadership is firing in all cylinders.
Mike McMullen
Hey, Sam, unless you're going to commit to me from earlier to go live, I think you meant to say 26, right?
Bob
Yeah. Did I say 25? Thank you, Mike, for catching. Usually you're the one that explorates me instead of the other way. Indeed, it's 26. Thanks for catching that.
Frederick
And, Brandon, to your point around, you know, the question of – Purchase orders and so forth. We have good visibility into the pipeline and the funnel, but we haven't started taking orders given the timeframe there. Yeah, exactly. But we have high confidence or we wouldn't be putting in $725 million into the expansion.
Brandon
Very helpful. Thank you. Thank you. We'll go next now to DJ Kumar of Evercore ISI.
Vijay
Hey, guys. Congrats on a good print share, Mike.
Mike McMullen
Thank you, Vijay.
Vijay
My first question here on the second quarter guidance, six to seven and a half organic. That's a sequential step down of 250 basis points at the high end. I guess the comps get easier. Is there anything in the second quarter? Was there any timing of revenues that got put forward to Q1 or any China impact? Anything that can explain here the sequential guide for 2Q?
Mike McMullen
Yeah. Now, I'll pass this over to Bob for some additional detail, but I think the answer is no, nothing unusual about movements between the quarters. And, Bob, I think what we're going to do is we're going to set up another guide in Q2 that was above our full year guide. So that was the thought process there.
Frederick
That's exactly right. I mean, I think as we look at this, and we just came off a 10%, you know, still six to seven and a half is still significantly above where we're forecasting the full year. And I think we feel good. And I think it's consistent with how we have guided in the past. I haven't used the word prudent yet today, Bob.
Vijay
I was waiting for that, Mike. You have to say the second quarter is a prudent guide. Is that a fair comment?
Frederick
That is correct.
Vijay
Fantastic. And then I did have one on this NASD, Mike. I think they're pulling their API manufacturing in-house. And I know you're starting to see maybe provide some context on how big is Novartis as a customer? What's the pipeline looking in NASD? And is this a rescue?
Mike McMullen
Yeah, I'll tag team on this. I'll lead, and Sam, if you want to add some additional color. But first of all, the announcement from Novartis is no news. That's always been part of the plan, and we actually have contractual agreements relative to how much of the on-market demand we get. So that's all well known. Relative to the – Novartis is one of many customers we have in this business, and we really have worked hard to build a diversified book of business. And – We talk a lot about Novartis, great customer. I talk a lot about Anilam because we're allowed to talk about those programs, but we have a much broader base, a book of business, and I think that gives us a lot of confidence as we move forward because we have a number of programs that we're supporting. We know not everyone's going to hit, but we know that there's going to be a lot of success rates there as well.
Frederick
Bob? Yeah, let me just add something. I would say um this needs means nothing to our expansion i mean oh yeah yeah sorry i want to be very clear about that i mean i think we feel very good about um we've continued to be capacity constrained you know we've we've had more orders than we can satisfy and i think that continues to be the case and and we feel um extremely good about the the overall technology and our position in the marketplace thanks i appreciate that build hey mike if i can just add just a couple of quick things right
Bob
We've stated this before. We think the therapeutic oligo market for the suppliers that we are billion dollars today going to 2.4 billion by 2027. And what's really encouraging about the market is the number of molecules that are advancing. Just to give you a little bit more color, we're doing work with over 30 pharma partners today and on dozens of programs at various stages. So the pipeline of programs are working on some of which have the potential of being You know, molecules also, broad populations is absolutely there and something that we're excited about.
Brandon
Great. Thanks. Thank you. You're welcome, Vijay. Thank you. We'll go next now to Pruneet Sutta of STD.
Vijay
Yeah. Hi, Mike, Bob. Thanks for taking the questions. So first one, Bob, I don't know if I heard it on the call, contribution sort of in pricing. in the quarter and for the full year. If I'm correct, you are still expecting 3% pricing contribution this year, and that would imply a 3% volume contribution, which, you know, it appears below historical levels for what Agilent has grown. So just maybe just, you know, we're trying to understand, given the tailwinds you're seeing in China, any of the other areas, and obviously, you know, congrats on the strong growth in the quarter. So You know, is there anything you're seeing beyond sort of tougher compares that are emerging in the sort of the second half?
Frederick
No, it's a great question. So I did make a quick reference in the prepared remarks. Actually, Q1 was higher than the overall 3% as expected. We are still planning and forecasting that 3% price contribution for the full year of FY23. And you're right, that would be um you know uh speak to roughly a three-point volume what i would say is you know we're taking a one quarter at a time um you know as we've said we're dealing with looking looking forward there's still some uncertainties around macro and that's where i think our forecast and our our guidance is is prudent to use that word again But I wouldn't say anything has materially changed since the beginning of the year from that standpoint. And I've been very pleased with our ability to continue to maintain that pricing throughout the course of the last several quarters, and I would expect that to continue going forward.
Vijay
Okay. That's helpful. And then on the Lunar New Year, Is that part of, is that baked in into the guide as well? And just wanted to clarify on China. I mean, obviously you have heard about the stimulus. You, you, you're actually Agilent is listed. One of the companies listed within the document that was put out for the loan stimulus for China. This is sizable. How are you thinking about it? You obviously have the longest and one of the most, you know, legacy positions in China. So, Just trying to understand what does that mean for China growth in 2023 and 2024? Thank you. You want to take the first part?
Frederick
Yeah, yeah. Sure. Yeah, but the impact of Lunar New Year was not only in Q1, but it's also been reflected in our Q2. You know, it was roughly a half a point headwind in Q1, and that's come back to us in Q2. So it was kind of as planned.
Mike McMullen
And in regards to the stimulus, the way we're looking at this is the stimulus got kicked off in the calendar Q4. There is a section in there that's focused on equipment for universities and hospitals, but from our perspective, it's still early. So we're kind of waiting right now to see how it plays out. And Bob, I think at this point, we really haven't put anything assumed in our guide or China growth relative to the stimulus. If it does get deployed and comes our way, then that'll be an upside to our current forecast.
Frederick
And I think, you know, Puneet, you said it well. I mean, our business in China continues to be very, very strong and couldn't be prouder of the team, how they delivered in Q1. You know, and that's continuing, you know, strong momentum throughout the second half of last year. And we would expect that to continue here in Q2 as well.
Brandon
Got it. Congrats, guys. Thank you. Thanks. Thank you. We'll go next now to Rachel Vancevall at JPM.
Jacob
Hey, thanks for taking the questions, and congrats on the quarter. So first up on semiconductors, one of your peers implied that they were expecting the semiconductor market to be soft through 2023, just as semiconductors or SEMI customers were facing a reset, just given that macro environment. So you mentioned strength in SEMIs during your preparedness. So can you just walk us through, first off, which part of the market do you guys really play in in SEMIs? And then are you seeing any of the softness that one of your peers have flagged?
Frederick
Yeah, I'll start, and then we'll turn it over to Jacob to give some additional color about where we play and so forth. But I would say the short answer is no. Our spectroscopy business grew over 20% in the quarter, and we're still seeing strong demand. Jacob, do you want to provide a little more color?
Jacob
Yeah, absolutely. I would say we have the strongest portfolio in atomic spectroscopy for this market in semi, but generally speaking, in material science. we continue to see demand from the Semicon industry, both in the fabs, but also in the upstreams for all the fine chemicals that goes into the fabs. They require the same level of QC testing like they do in the labs, and hence they are using the same instruments. So we see a lot of benefits, both when there's new fabs built, but also for the continuous operation in the lab. So we expect this to continue for a while. We, of course, see a lot of demand of news around investments into this in other parts of the world, also particularly in the U.S. Obviously, that will take some time before it comes into real play, but we expect the whole semiconductor market to continue to be an upside for us. But as I mentioned also, we also see a lot of interest in the rest of the materials market, particularly in lithium batteries. We see a lot of demands, not only for our spectroscopy business, but really across our broad portfolio where lithium battery needs both the LCs, the GCs, the spectroscopies, and the LCMS. So we are very excited about that space and see a lot of continued growth there.
Mike McMullen
And, Jacob, I think the point you made earlier, too, about some of the funding environments, we're seeing some government funding coming in from different parts of the world as part of that semiconductor industry, which is benefiting us.
Jacob
Great. And then maybe just shifting over more towards pharma biotech. So small molecules grew faster than large molecules this quarter. You've talked in the past about some of that outpaced strength in small molecules being driven from catch-up spending related to instrument purchases that were delayed back in 2018, 2019 timeframes. Can you walk us through really what inning are we in in terms of that catch-up spend and how long can you sustain this outpaced growth in small molecule before it kind of resets back to that normalized level and then, you know, just update in large molecule as well? Thanks.
Mike McMullen
Sure, Rachel. Do I dare pass this question to the Danish member of the staff of the baseball analogy? But, you know, I think Jacob got a great print on LC and LC-MS, 17% growth, clearly outpaced in the market. And I think we saw some really good strength in small molecule growth. in particular this quarter?
Jacob
Yeah, absolutely. I would start by saying I don't think this is a baseball game. I think there is a continuous opportunity in this market space. And we see both opportunities, and we continue to believe that there is a big market in small molecules. And I think the current performance is a reflection of the investment we have made into our portfolio over the past years, both for the LC and the LC-MS. So it's really focused very much on where we have gone strategically on a lot of investment into making robust, reliable, and routine instruments and instrument solutions. We continue to spend significant time to truly understand our customers' pain point. That is not only about the overall performance, but also about how you can ease of use. A lot of smarts we put into the instruments and, of course, also continues on focus on uptime of the instruments. And our commercial organization is brilliant in going out and connect both our consumables and also the service contracts to it. So this just continues to be a great business for Atulence.
Frederick
Yeah, Rachel, maybe this Bob, maybe I can add a few points because we talked at the beginning of the year. about um this this um you know strong performance kind of normalizing this year we also said if it continues we're going to take it and uh i think what you're seeing is is some of that uh as well but we still do think that um this will normalize uh over time and uh you know the portfolio that uh that jacob and team have i think uh uh speaks very well to us growing faster than the market and uh You know, I think you talked about the biopharma, the beauty of our business is we've got that nice diversification across both small and large molecule and certainly starting off the year very nicely.
Brandon
Great. Thank you, guys. You're welcome. We'll go next now to Derek DeBruin of Bank of America.
Derek DeBruin
Hi, good afternoon. This is Peter on for Derek. Thanks for taking our question. Could you just dive a bit more into the latest on what you're seeing in Europe? You expressed in Benning some caution, particularly in Chem on the last call, so if you can touch on that as well, that would be great.
Mike McMullen
Yeah, so I hope it came through in the call remarks, and I'll make a few comments here, then invite Porrigan here as well. But we were delighted with the print in Europe in the first quarter. Exceeded our expectations. Actually, the strength across the marketplace was pretty good. I think five of our 6N markets were growing high single digits or better. I think the standouts for us were actually the CAM markets along with diagnostics. But I have to say we continue to watch closely the investment plans, particularly for our large accounts in the chemical space as well as the – But we're off to a really good start, but that remains a watcher for us. But again, we're delighted with the broad-based growth we had.
Matt
I think you said it all, Mike. I think it's broad-based in five out of six markets, you know, growing high single digits. And I think what the team has been able to do is been able to really work together to take share in a lot of areas on all the markets. And our focus, of course, on attached rates in both service and consumables has really benefited as well.
Mike McMullen
I think we usually don't talk about weather, but I think the more favorable weather environment in Europe actually has put less pressure on customers relative to energy costs and energy demand. So that's been a net positive, but we're still keeping an eye on things.
Brandon
Yep.
Derek DeBruin
Okay, and then could you just discuss your margin outlook and then pacing across 23? And then, you know, further ahead, kind of what's the level of expansion potential going forward? How much gas is left in the tank there looking out in the out years? Thank you. You want to take that? Yeah, yeah.
Frederick
I'll say there's still gas in the tank. There's still gas in the tank, yeah. I mean, I think obviously despite the, you know, inflationary environment that we're in, we're still able to manage inflation. growing our margins. You saw both a nice balance here this quarter with about half of it coming through gross margin as well as half of it coming through OpEx. I think as we think about it going forward, I think that 50 to 100 basis points over the course of the next several years is still a reasonable way to think about it. That's how we're thinking about the rest of this year as well.
Brandon
Very good. Thank you. You're welcome. And we'll go next now to Dan Brennan of Talon.
Dan Brennan
Great. Thanks for taking the question, guys. Congrats on the quarter. Thanks, Dan. Maybe just the first – hey, Mike. Maybe the first one, I know there were a few questions asked on the chemical and advanced materials segment, but obviously great growth in the quarter. Just wondering, with your new hire guide for the year, are you assuming something above the mid-single-digit outlook that you previously guided to for the year and Would love if you can give us any color on kind of how the growth broke out this quarter between advanced material and then chemical and energy.
Frederick
Yeah, that's a great question, Dan. I'll take that. And so, you know, with our revised guide, we have ticked it up a bit given the strong performance that we had in Q1. And we continue to be surprised to the upside. When we talked about at the beginning of the year what was a source of upside, this would have been one of the markets that we would have talked about. And what we're seeing is actually good growth across all of the sub markets in our CAM market. If I think about the chemical and energy markets, those were up high single digits, and the growth was really outsized in that advanced materials that we've been talking about. So that semiconductor and batteries area grew in excess, you know, in the high 20s. And so this is a continued strength, you know, really given not only the investment there, but really the power and strength of our portfolio to be able to supply, you know, critical tools and instrumentation into markets that are really continuing to expand. So, you know, we're expecting that. Don't book, you know, high single digits and high 20s for the rest of the quarters. We'll take it. But, you know, we're expecting, you know, a slight uptick there given the strong performance that we had in Q1.
Dan Brennan
Great. Thanks, Bob. And then maybe just one on the balance sheet. Obviously, it's in great shape. Leverage is, you know, very low. Just wondering what you're seeing from the M&A environment. Obviously, you know, Waters had a deal in the quarter. I'm wondering what you're seeing in terms of, you know, have you identified any interesting opportunities? Like what's the appetite like for sellers to kind of move forward? Just wondering what we could expect from Agilent. While it's always hard to time, I'm just kind of wondering about your appetite potential to do something bigger since I know you guys have been looking for the right fit. Thanks.
Mike McMullen
Yeah, no, I think you're closing – I have to comment on that, Dan. You're closing comments exactly where our head's at, which is the right fit. So we think the environment is much more favorable than it was a year ago. We think it's now much more of a buyer's market, so to speak. Most people are willing to come off their view of the last round. You know, there's still some dialogue around there. You know, so we have obviously nothing to announce, but we remain – you know, very interested in looking for opportunities that can augment our core organic business. And this is at the heart of our build and buy growth strategy. As I've said a number of times, you know, the buy side is all optionality for us. We'll do just fine with all the bets we have right now. But if we see the right thing, we will move on it. And we just have also just wanted to make sure we stuck with our framework and And we don't ever want to have buyer's remorse. So we've been very happy with all the deals we've done to date. And we'll continue to use that framework moving forward. I think that fit piece that you described is really the key criteria for us.
Brandon
Great. Thank you. Our next question comes from Patrick Donnelly of Citi.
Patrick Donnelly
Hey, guys. Thanks for taking the questions. Maybe one question. One, on just the order side, I know you guys talked a little bit about the backlog remaining pretty healthy. Can you just give a little bit of color in terms of what the order growth looked like in the quarter? I know last quarter you guys started eating into the backlog a little bit, which is natural, you know, just given the supply chains normalizing a little bit. Can you just talk about, I guess, order growth versus revenue growth, what you saw in the quarter, and any color there would be helpful.
Mike McMullen
Yeah, let me make some summary comments, and then, you know, Bob and Park, feel free to jump in here, but... As you mentioned, we don't specifically provide book-to-the-bill ratios, but what I can tell you is that orders for the quarter were greater than revenue. And so we continue to grow orders with particular strength in our NASD and services business. On the instrument side, you know, we continue to bring down this record backlog we had as we really are focused on meeting those customer shipping requirements. And really, thanks to the great work of the order fulfillment team, we've really been able to, you know, get back to a normal flow of shipment times and delivery commitments. Again, I would just say that the funnels remain healthy. The backlog is still a very high quality. I think we had pretty much next to no cancellations. So the quality is good. gives Bob and I a level of predictability around revenue from that backlog.
Frederick
Yeah, I would say, you know, as Mike said, I mean, the backlog continues to be healthy, and we haven't seen anyone back out of, you know, any cancellations or anything like that that would be beyond kind of the normal activities.
Mike McMullen
But I would emphasize the one point I made earlier, the deal cycles are revering towards, you know, the historic norms in this space. Again, this whole construct that we see of a normalization of particularly the analytical instrumentation marketplace evolving.
Patrick Donnelly
Yep, that's helpful. I appreciate that. Maybe just on kind of the environmental spend, PFAS testing, you called out the last couple quarters. Mike, I know you're excited to see some actual infrastructure dollars coming through in the U.S. here. Can you just talk about what you're seeing there, kind of where we are? I mean, it seems really early, but just your perspective on kind of how that's tracking, what impact you guys are seeing from that, and obviously the durability as well.
Mike McMullen
Sure. I'm happy to talk about that. And I actually happen to have Jacob talk about it because I think you've just spent some time in front of the board recently and talking about the PFAS opportunity, not only educating the board on what it's all about, but the durability of growth we're seeing, we see here.
Jacob
Yeah, absolutely. And we continue to see a lot of opportunities in the PFAS where the beginning was really all about looking for PFAS in the water supply. And now it's moving into food and other types of products. um of of areas so i think you are right we are still in the early phases of the growth opportunity as you know the u.s infrastructure bill there was a four four billion uh set aside to pfas testing um and and so we we we have one of the leading solutions here i mean pfas is very difficult to measure so you need high-end instrumentation but also very specified sample prep and consumables to really make sure that you don't contaminate while you measure. So we have spent a lot of energy putting high-quality solutions out there, and we continue to see a lot of opportunities, and we will continue to invest in this space beyond PFAS. I think environmental is really a place that there will be a lot of investment going in over the next decade. So we're excited about that area also besides the advanced materials.
Brandon
Great. Thank you, guys. You're quite welcome. And we'll go next now to Jack Meehan at Nephron Research. Thank you.
Jack Meehan
Good afternoon. Good afternoon. I wanted to spend a little time on DGG, maybe start with the pathology business. So double-digit growth. was stronger than I guess what we've seen in the last few quarters. Was there anything you noticed in terms of the uptick in the quarter?
Mike McMullen
Yeah, Jack, I'm going to actually pass that over to Sam because Sam actually is calling in from Denmark. He's actually with the pathology team right now, so you can get the latest and greatest on the ground from Gloucester. Go ahead, Sam.
Bob
Yeah, thanks, Mike. Jack, thanks for the question. I, you know, offer you a couple of things that we've observed in the quarter and I think are also promising going forward. You know, first of all, you know, we continue to see the trend of, you know, hospitals and healthcare systems being able to work through COVID and, you know, start to reprioritize cancer diagnostics. So, you know, overall, I think that's been something that's positive. You know, we've continued to see strength in our IHC solutions, be it our companion diagnostic solutions that are in the market, but more broadly speaking, including for the antibodies that we have that we sell as, you know, ready-to-use reagents. We're also continuing to see good traction for our advanced staining system, the doc alumnus. So, you know, all of that, you look at geographically, you know, we've had some, you know, good success, particularly in Europe, but the Americas as well.
Jack Meehan
Great. And then sticking with DGG, either for you, Sam, or for Mike, just on the genomic side, I was backing into sort of like a high teens decline in the quarter, if that sounds right. I'm just curious, different companies have called out different issues in the SEND market. If you could talk about just maybe what exactly you're seeing, that would be great.
Mike McMullen
Hey, Bob, I don't remember the exact number, but it was down, but not to that extent. Yeah, it was down close to double digits. Okay. And I'm going to have Sam talk about this, but we're seeing some, what we think is a transitory disruption in the diagnostic side of genomics. There's a lot going on with a lot of the diagnostic firms where we provide our solutions into their assays. So, Sam, your perspective on this I think would be really good.
Bob
Yeah, happy to provide that. And building on what you said, Mike, right, you know, there's a lot of public information now that, you know, I'm sure, Jack, that you're aware of, be it restructuring or, you know, other sort of operational challenges that a number of customers, you know, from research into, you know, technology-driven genomics companies and diagnostic testing companies are going through. You know, based on that, you know, we've definitely seen conservatism from customers that they've pulled back on purchasing levels you know, they're working down, you know, excess safety stock that they perhaps have built up. And, you know, we've just seen a little bit of hesitation in purchase patterns. Now, that being said, you know, just recently, earlier in February, I had a chance to attend AGBT, which is one of the, you know, most important technology and science conferences. And, you know, there we definitely saw, you know, good interest for our, you know, early access that we've been doing for Our Sure Select Cancer CGP, which is a comprehensive cancer panel, you know, 679 genes. We continue to see really good interest in our Magnus, you know, automation system, which is the walkaway for our Sure Select platform. And, you know, in our broad-based market leadership and, you know, genomics and NGSQC remains intact. So I think this is a you know, some market headwinds that we're seeing. But, you know, it's just, I think, a transitory thing, as Mike mentioned.
Brandon
Thank you. All right. Thank you.
Operator
We take our next question now from Josh Waldman of Cleveland Research. Hey, guys. Thanks for taking my questions.
Sam
Sure, Josh. Two for you. Yeah, thanks. Two for you, if I may. First, on the core growth guide, I wondered if you could provide a bit more color on the considerations that went into reiterating the top end of the core growth outlook for the year. I guess maybe a bit surprised we didn't see more of the Q1 upside flow through the full year. I'm wondering if maybe this is backlog work down benefit here in the quarter that starts to abate as we get into the second half or I guess something else.
Mike McMullen
Yeah, I'll attend, but I think the headline was more just the recognition of the continued uncertainty about the back half.
Frederick
Yeah, I think the way to think about that, Josh, is that we raised the midpoint of the guidance, delivered 10% in Q1. We're saying that Q2 is going to be higher than the full year, and we're going to take this one quarter at a time given some of the uncertainty that we're seeing. Obviously, we did talk about having great visibility into Q1 with some of the backlog activities and so forth, but I wouldn't say it was just that. I mean, I think what I would characterize it as a prudent guide given kind of what we're seeing and taking it one quarter at a time.
Sam
Got it.
Frederick
Okay.
Sam
And then, Mike, following up on pharma, I think these accounts typically start to get better clarity on their four-year budgets this time of year. I wondered if you could update us on what you're hearing from key pharma accounts with respects to instrument budgets and purchasing plans here in 2030.
Mike McMullen
Yeah, sure, Josh. And, in fact, Pork, I think you've just done recently a round with some of the large pharma accounts.
Matt
Yeah, so I think what we're seeing is, you know, our funders are very, very stable on it. And, of course, you're correct, the pharma budgets are set around this time of year and And I think we're watching closely at how that moves to the second half, but for now, no change.
Mike McMullen
So I think we probably haven't seen any surprises on those cycles themselves, but they're not aggressively releasing yet either. Yeah, that's for sure. That's why I made a few times those comments around a normalization of deal cycle times.
Brandon
Got it. Okay, appreciate it, guys. You're welcome.
Operator
And we'll take our next question now from Liza Garcia of UES.
Liza Garcia
Evening, guys. Thanks so much for taking the question and congrats on the quarter. I wanted to talk about cell analysis if we could. Obviously, it's like a $400 million business over for you at this point. I'd love to hear about performance. And then, you know, I think in a recent presentation kind of indicated that it's pharma that's like maybe the largest customer set followed by research. So it'd be great to get a sense of kind of the different customer groups and what you're seeing there.
Mike McMullen
It was hard to get a lot of all the good news in, but I think we had a good start to the year in cell analysis, Jacob, as I recall.
Jacob
Yeah, we had another good quarter in cell analysis. Actually, we're really proud of what we have built up of our business over the past year here in cell analysis, including the M&A and the acquisition we have done. And you're absolutely right that the main opportunities are within the biopharma academia. And we've actually done a really good job in diversifying where we had some of the business we acquired was very exposed to academia and we've been able to really penetrate into the biopharma over the past years. So we continue to see opportunities and especially actually in the high end of the business that there's still a lot of opportunities in the biopharma space and especially in understanding the immune system, immune oncology, CAR T and others is areas that we have put a lot of investments into. and we see that pays off so i i believe there is still a lot of opportunities in front of us here there is a strong correlation there in in the biopharma academia space there's a lot of collaborations where especially if you look into the car t where you see a lot of the big university hospitals that is that it's investing investing into this so it's kind of a crossover between the academia and biopharma right now so we see opportunities in in both those arenas right now
Liza Garcia
Awesome.
Frederick
And then I guess, um, Eliza, Eliza, just, uh, just, uh, um, you, you had asked about, um, kind of growth rates. What I would say is it grew faster than the overall company and faster than LSAG.
Liza Garcia
Awesome. Thank you. Super helpful. Um, I guess if I could just squeeze in one last one on, um, the attachment rate, um, you know, you're just crossed over the 30% line. I think I'm more thinking about kind of, how do we think about kind of the incremental, particularly, I'm thinking about services. ACG did pretty well this quarter. The revenue progression as we're looking at a larger install base that's been put out over the past couple of years.
Mike McMullen
Yeah, and I'll have you make some comments here, Park, but I think we're expecting to continue to step up on that attach rate.
Matt
Yeah, I think there's significant opportunity to drive growth for our business, and it's about one point of attach rate is about $30 million annually, and we know our customers have adopted workflow solutions that you know a tight integration on the instruments and that allows us of course with the one commercial organization to demonstrate the value and of course attach more services and consumables. I will say if you think about what Jacob said about PFAS and buyer firm our focus on solution selling has really paid off that's really driven attach rates and I think you know our overall attach rate in both services and consumers are now in the low 30s, and that represents a 2% increase, and we expect that to grow as we move forward.
Mike McMullen
And Elijah, your question focused on the attach rate on services, but I'd be remiss not to have Jacob talk about what's going on with attach rate to consumer that ties in this workflow solution, because we did make some changes organizationally, but the ACG strategy of driving connect rates and services to consumers remains intact.
Jacob
Yeah, exactly. And I think along what Craig also mentioned is that there's been a lot of investment from both the businesses and in commercial about driving connectivity. connect rate also with consumables and it's more about selling the full solution and hence going out not only present an instrument, present the instrument, the consumables informatics to go after, as Parikh was mentioning, PFAS, other workflows in the biopharmace and really addressing, we're starting to addressing the high-end parts of the markets. And we've seen a significant uptake in our tax rates in our consumables. And I would say we will continue to see growth. We still have a lot of opportunities, but I've been really impressed with the team to take it from the 20s up way beyond the 30s now.
Brandon
Thanks so much, guys. Appreciate the time. You're welcome. Thank you. We'll go next now to Paul Knight of Keybase.
Paul Knight
Hey, Mike. Thanks for being patient and getting me in. Not a problem, Paul. I'll call in earlier next time. On the RNA or the oligo production business, it looks like we've had, I guess, four or five here in the last four years or so dominated by Alnylam and Novartis. I'm assuming that this customer count you talked to and project count is expanding well beyond that customer. So my question really is, what's your position in the market? Do you think you're the dominant vendor? And two, does this number of partners suggest you're going way beyond Novartis and Alnylam?
Mike McMullen
Cool. Paul, I'm really glad you hung on and got your question in, because very enthusiastic to answer that question. We have a much broader base of business. I mean, two very good customers, but the programs go much, much, much broader than that. And we are the market leader. Yeah, we crossed over on the SIR&A piece. We are clearly the market leader. We are going to be going after more aggressively the CRISPR space where we can't yet claim leadership. But overall, we have really, with the capacity expansion, the continued great work of our team, we've continued to gain market share. And from the math we're doing, we've now crossed over to the leader in the space.
Paul Knight
So, in fact, what you're really building out is the kind of market or the technological, I guess, threshold we've now achieved. Is that fair to say?
Mike McMullen
I'm not sure I understand completely the question, but I think what we're doing is, I think I got it, which is we're actually expanding our portfolio, which is we're the leader in siRNA. We've got a broad base of business with a broad base set of number of pharma customers. Over time, you hear more about those when their therapeutics come to market. But also, we're expanding into the CRISPR area. We've got a small business there right now. We do really well. We just don't have all the capacity we need, and that's part of the storyboard of what we're doing, what we call Project Endeavor.
Frederick
Yeah, and Paul, to build on what Mike was saying is not only are we expanding, but I think just as importantly, the market's expanding. And so, You know, Alnylums of the world were the pioneers of this technology or one of the pioneers. But if you look at the number of products that are in the clinic or compounds that are in the clinic, it goes well beyond the two customers that you just talked about.
Bob
Bob, maybe just to add just a touch of color to that, you know, the actual number of programs that are in various stages has literally doubled over the last four years. And then in terms of pharma partners, you know, we're not in a position today to share anything publicly, but I already said we're working with more than 30 pharma partners. And I think what's encouraging for us is, you know, even within pharma, the caliber of the companies that have now entered and, you know, advancing molecules at various stages. So, you know, this is a market that is maturing. You know, the number of FDA approvals that have happened uh, European approvals that have happened. So there's momentum in the market. Uh, and you know, we are, we're, you know, we've worked hard to be leaders in this RNA, but there's, there's momentum that's, that's there for us to, to ride as well.
Brandon
Thank you. Congrats.
Operator
Thank you. And gentlemen, it appears we have no further questions today. Pardon me. I'll hand things back to you for any closing comments.
Beau
Thanks, Bo. And thanks everyone for joining. With that, we would like to end the call for today. Have a great rest of the day, everyone. Thank you, Parmeet. And ladies and gentlemen, this concludes today's call. Thank you again for joining, and you may now disconnect.
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