Agilent Technologies, Inc.

Ladies and gentlemen, welcome to the Agilent Technologies Q2 2023 earnings call. My name is Sarah 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 one on your telephone. I will now hand you over to your host Parmeet Ahuja to begin. Please go ahead.

Thank you, Sarah, and welcome everyone to Agilent's conference call for the second 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 Porek McDonald, President of the Agilent CrossLab Group. This presentation is being webcast live. The news released for our second quarter financial results, investor presentation, and information to supplement today's discussion, along with the recording of this webcast, are available on our website at www.investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures. You'll 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.

Thanks, Parmeet, and thanks, everyone, for joining our call. In our call today, I'd like to first cover our second quarter results. I'll then provide some insight into the recent market dynamics that we are seeing and how this has translated into lower expectations for the second half of this year. I'll then turn things over to Bob for more detail on the quarter, and outlook before returning for some brief closing comments. In an increasingly challenging market environment, the Agilent team delivered very solid results in the second quarter. Revenues of $1.72 billion are up 9.5% core, above our expectations, with growth across all end markets and regions. Our results are driven by an innovative and broad portfolio, a differentiated customer experience, and outstanding execution by the Agilent team. Operating margins in the quarter are 25.6%, up 30 basis points. Earnings per share of $1.27 are up 12%. Highlights from an end market perspective include our two largest markets, pharma and chemicals and advanced materials, performing very well in the quarter. Our pharma business grew 6% on top of 13% growth last year. Pharma is led by BioPharma, which grew 16% driven by lab services, consumables, and our NASD business, while small molecule declined 1%. In previous calls, we talked about the small molecule replacement cycle and that the exceptional double-digit growth rates we've seen the past two years would eventually moderate, which is what we started to see this quarter. Our chemicals and advanced materials business delivered strong results, once again, growing 16%. The advanced materials segment grew more than 20%, and the chemicals and energy segment grew double digits. On a geographic basis, 32% growth in China exceeded our high expectations. While the compare was an easier one, even adjusting for the COVID lockdowns in Shanghai a year ago, we still achieved double-digit growth in China. In addition, Europe delivered 5% core growth, while America's grew 3%, albeit against a tough compare of 13% a year ago. Looking at our performance by business unit, The Life Science and Applied Markets Group delivered revenues of $968 million, up 10% core. Our strong results were aided by backlog conversion across our instrument platforms. Our LC and LC-MS products continued to lead the way, with 16% growth in the quarter, with strength across all end markets. Continued demand for lab consumables led to 13% growth in that business as well. During the quarter, we added additional strength to our LC-MS product line by acquiring eMISSION and their innovative electron capture technology. eMISSION technology allows researchers to develop biotherapeutic products more quickly for treating disease. ASLA's LSAG team continues to bring several innovative new products to market, including enhancements to our BRAVO NGS automation, Cary UV-Vis, and the Cell Analysis NovaSight systems. Many of these enhancements are specifically focused on serving our customers in the biopharma market. The Aslan Cross Lab Group posted revenues of $387 million. This is up 13% core driven by strong revenues from service contracts. ACG's growth was broad-based, representing ongoing resilient demand for our services. We continue to see many opportunities for future growth given our services portfolio. In particular, The benefits of our service offerings as they help customers drive productivity in the lab are even more relevant in today's challenging environment. Our strong and trusted customer support is also helping us to drive share gains and acquire new enterprise customers. The Diagnostic and Genomics Group delivered revenues of $362 million of 3% core, strengthened our pathology and NASD businesses' drug growth, partially offset by general industry-wide weakness in genomics. NASD posts another strong quarter growing in the high 20s. Our train B manufacturing expansion remains on track to come online later this quarter, while construction has already started on the next phase of expansion. Overall, we wrapped up Agilent's first half of fiscal 2023 with double-digit core growth in both revenue and earnings per share. However, continued macroeconomic uncertainty, coupled with stresses in the banking system, have accelerated a more conservative approach from our customers across the globe. This has primarily affected CapEx-related instrument spending across most end markets, but is centered mainly in the foreign markets in the U.S. and China. Early-stage biotech customers, while a small part of our revenues, dramatically scaled back purchases as funding and liquidity challenges drove cash conservation. Outside of these early-stage biotechs, the water funnel continues to be healthy, but it has taken a longer time for orders to be approved, slowing deal velocity and generation of new orders. We expect this constrained capital environment to remain in place throughout the course of our fiscal year. Because of these factors, we are taking a more cautious approach to the second half and have revised our forecast downward. As a result, we now expect core revenue growth to be in the range of 3% to 4.5%, with EPS growing faster than revenue at 7% to 8%. Our operating margins increased in the first half of the year, and we're doubling down on delivering cost efficiencies and increasing productivity to drive more leveraged earnings growth in the second half. As we've done in the past, we will generate additional cost savings so we can continue to invest in innovative new solutions and support for our customers as we enable future profitable growth. We have an unstoppable One Agilent team that is battle-tested. They consistently execute at an extremely high level and are well prepared to deal with any challenges they may face. Bob will provide the details on our outlook for Q3 and the full year, but overall, we remain convinced our strategic focus, customer service, and unmatched execution by the Agilent team remain the keys to our continued success. After Bob delivers his comments, I'll get back to you to provide some closing remarks. And now, Bob, over to you.