Agilent Technologies, Inc.

first quarter of fiscal year 2024. With me are Mike McMullen, Agilent President and CEO, Poreg McDonald, Agilent Chief Operating Officer and CEO-elect, and Bob McMahon, Agilent Senior Vice President and CFO and Acting President of the Diagnostics and Genomics Group. Joining in the Q&A will be Phil Binns, President of the Agilent Life Science and Applied Markets Group, and Angelica Reinman, a newly named President of the Agilent CrossLab 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 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. Guidance is based on forecasted exchange rates. As previously announced, beginning in the first quarter of fiscal 2024, We implemented certain changes to our segment reporting structure related to the move of our cell analysis business from LSAG into DGG. We have recast our historical segment information to reflect these changes. These changes have no impact on our company's consolidated financial statements. 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. Before I review our first quarter results, I want to first acknowledge our news last week that I'll be retiring at the end of the fiscal year. and that Poreg McDonald is Agilent's new Chief Operating Officer and will become CEO on May 1st. It was a difficult decision to retire. After almost 40 great years with this special company and in a role that I love, I will miss working with the one Agilent team. However, I must say it's a great feeling and quite gratifying to be handing over the CEO reins to a tremendously capable successor in Poreg. With Agilent operating from a position of strength, and with a very promising long-term outlook. I've known Porter for more than 20 years and worked closely with him during that time. He has always been completely committed to our customers and agile success. He is a product of our culture, knows our company, team, and markets, and knows how to develop compelling business strategies, build winning teams, and deliver exceptional results. Porig has a strong track record of results at every position he has held during his 26-year career at Agilent. I know he has the knowledge, leadership skills, and customer focus that will be key to Agilent's success moving forward. I look forward to all of you seeing firsthand what a capable, results-driven leader we have in Porig. Porig, would you like to say a few words?

Thank you, Mike. I'm honored to be able to follow you as Agilent's next CEO. And I'm grateful for your support throughout my career and during this transition. You have made a significant impact on Agilent, our customers, and our team. I'd also like to welcome Angelica Ryman to this call. After leading our services division for the last two and a half years, I can tell you she has the experience and the skill set to continue evolving ACG to align with the growing opportunities that the business has demonstrated in supporting the broad install base and our enterprise customers. Expect to see continued great things ahead from Angelica and ACG. I've had the pleasure of meeting some of you on this call, and I look forward to meeting and working with you all in the future. Agilent has a compelling story to tell, and I'm excited by the possibilities that lie in front of us as we help our customers bring great science to life.

Thanks, Porek. For today's call, I will take lead covering the overview of our financial results, While next quarter, PERG will take on these duties as the new CEO. Now, onto the Q1 results. We are pleased with the start of the year. The Agilent team continues its strong execution in a challenging market environment. The first quarter provided further evidence of our team's capabilities with revenue coming in better than expected at $1.66 billion. This represents a decline of 6.4% against a tough compare of 10% growth in Q1 of last year. The better than expected top line results and disciplined cost management drove higher than expected earnings per share of $1.29, down 6% from Q1 last year. Given the solid Q1 results and our continued view of slow but steady recovery throughout the year, we are maintaining our full year outlook that we share with you in November. Key to our Q1 performance was the ongoing sequential stabilization we experienced in China and secular growth drivers in applied markets globally. From an end market perspective, our total form of business is down 12%, which was in line with our expectations. This follows 11% increase in the first quarter of last year. While declining overall against a very strong Q1 of last year, our applied end markets were more resilient than expected. and showed sequential growth from the fourth quarter. In these markets, PFAS solutions and advanced materials, including batteries and semiconductors, were highlights for us. Geographically, both China and Europe finished Q1 better than expected, while revenue for the Americas was in line with expectations. Looking at performance by business unit, the Life Sciences Applied Markets Group delivered revenues of $846 million and down 11%. This is against a difficult compare of 10% growth last year. While still too early to call an overall market recovery, results were better than expected. Our diversified portfolio and broad and market coverage helped drive the performance. We continue to experience a conservative environment for capital spending, but our better than expected Q1 results were driven by consumables, which grew mid-single digits China, and a better-than-expected performance in applied markets. During the quarter, we also completed the expansion of our Shanghai manufacturing facility as we continue to take steps to ensure our long-term leadership in China. We also made our first customer shipments for ASMA's newly released LC-MS offerings. Our latest, highest-sensitivity triple quad, the 6495D, enables expanded and enhanced workflows, including for PFAS. This is in addition to Revitant, the first of a new generation of LCQTOL systems that combine a new architecture with enhanced instrument intelligence for maximized operation time and productivity. The Azure and CrossDive Group posted revenue of $405 million. This is up 5% with growth across all regions except China. Our contracts business led the way with double-digit growth overall, led by strength in enterprise service contracts. This performance highlights the continued strength and resiliency of our business. Connect rates for both services and consumers continue to improve. This is a result of our focused strategy to deliver end-to-end customer value while also building a larger recurring revenue business. The Diagnostic Genomics Group delivered revenue of $407 million down 6% core. Our pathology-related businesses and our NGS QC portfolio grew mid-single digits, which was more than offset by declines in NGS Chemistries and NASD. NASD declined low double digits as expected. This is, again, a very tough compare of 22% growth driven by a significant volume last year from a single commercial program. We continue to be encouraged by our long-term prospects due to the increasing number of programs across a range of indications, many of them targeting large patient populations. The DGG team continues to innovate and deliver differentiated solutions for our customers. In the quarter, we introduced a new proteoanalyzer system The new platform simplifies and improves the efficiency of analyzing complex protein mixtures, a process central to analytic workflows across the pharma, biotech, food analysis, and academia sectors. From an overall ASLIN perspective, we recently achieved World Economic Forum recognition for operations of Walbron Germany. This site was named a global lighthouse for implementing innovations that boost productivity, output, and quality. This marks the second Global Lighthouse Award for us after receiving the recognition for our Singapore facility two years ago. Ashland is the only life science tools company to be recognized as a Global Lighthouse. Ashland recently achieved a top five ranking in the Barron's List of 100 Most Sustainable Companies. In addition, we are included in the Dow Jones Sustainability Index globally and in North America for the ninth year in a row. Looking ahead, we expect the current market environment to persist through the first half. We would expect a slow and steady improvement in the second half of the year. We will continue taking actions that will make us stronger and position us well for the future. We will maintain our approach to prioritize investing for growth with a focus on execution and driving productivity. Our better-than-expected Q1 results and my confidence in the Agilent team reinforce our view for the full year. Bob will now provide the details on our results, as well as our outlook for Q2. After Bob's comments, I will rejoin for some closing remarks. And now, Bob, over to you.

Thanks, Mike, and good afternoon, everyone. In my remarks today, I will 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 second quarter guidance. Q1 revenue was $1.66 billion, a decline of 6.4% core. On a reported basis, currency added 0.9 percentage points, while M&A had a negative impact of 0.1%, resulting in a reported decline of 5.6%. And overall, Orders were greater than revenue in Q1 as expected. As Mike mentioned, pharma, our largest end market, declined 12%. Within pharma, biopharma declined low single digits but grew low single digits outside China, bolstered by strength in services and consumables. Small molecule was down high teens in the quarter with softness globally. The chemical and advanced materials market was down 4% off a very tough comparison of 14% growth last year. We saw broad resilience in advanced materials with a low single-digit increase year-on-year, as well as growth sequentially. Given the extremely tough compare of high 20s growth last year, these are impressive results. As expected, the chemical side saw a decline. The academia and government market was up 2%. The growth in this market reflects the stability of academic funding and lab activity. Our business in the diagnostics and clinical market declined 5%. Mid-single-digit growth in pathology was more than offset by continued headwinds in genomics, cell analysis, and LC and LC-MS. The environmental and forensics market declined 1% after growing 12% in Q1 of last year. We continue to see new regulations around the world driving PFAS testing. Europe grew mid-single digits, while China and the Americas were down low single digits. Americas faced a difficult compare of low 30s growth last year. The food market declined 3%, but was up low single digits, excluding China. On a geographic basis, as Mike mentioned, both China and Europe exceeded our expectations, while the Americas were in line with our expectations. China was down 9% and showed a sequential increase over last quarter, which was much better than expectations. China benefited from continued stabilization and a bigger-than-expected Lunar New Year impact as some customers pulled forward incremental demand from Q2. We estimate the pull-forward impact to be roughly $15 million, or 5% of China's revenue in the quarter. Even adjusting for this impact, China outperformed. Europe was down 4% year-on-year after growing 10% last year and was up mid-single digits sequentially. This was driven by continued strong demand for our ACG services, offset by muted demand in pharma and expected softness in chemicals. In the Americas, revenue was down 8% due to declines in pharma and the softness in NASD and NGS chemistries. Moving down the P&L, first quarter gross margin was 56.0%, down 50 basis points from a year ago as productivity and cost savings were offset by lower demand and mix. Our operating margin of 25.8% was down year over year as expected. Our ongoing cost savings initiatives are delivering as planned. Below the line, we benefited from greater than expected interest income in the quarter driven by nice work from our Treasury team coupled with very strong cash flow. Our tax rate was 13.5% and we had 294 million diluted shares outstanding. Putting it all together, Q1 earnings per share were $1.29, down 6% from a year ago and ahead of our expectations. Now let me turn to cash flow in the balance sheet. I continue to be very pleased with our cash flow generation. Operating cash flow was $485 million and a quarter, significantly above last year. In Q1, we invested $90 million in capital expenditures as we continue our planned NASD expansion. And during the quarter, we returned $69 million to shareholders through dividends. Although no shares were repurchased during the quarter, we expect to catch up on our anti-dilutive share repurchasing for the remainder of the year. In Q2, we expect a minimum of $180 million to be repurchased. All in all, we had a good start to the year, and as Mike mentioned, it reinforces our confidence in the full-year guide we provided in November. Now to our guidance for the second quarter. We expect Q2 revenue will be in the range of $1.56 to $1.59 billion. This represents a decline of 9.1 to 7.4% on a reported basis and a decline of 8.4 to 6.7% on a core basis against 9% growth last year. Currency and M&A combined are a headwind of 70 basis points. Our Q2 guidance also reflects the $15 million impact of the Q1 pull forward in China I mentioned earlier. Second quarter non-GAAP earnings per share expected to be between $1.17 and $1.20. Before turning back over to Mike, I just want to express my thanks to Mike and to congratulate PORG. Mike, it's been a real pleasure to work with you. While there have been many ups and downs in the markets these past few years, One thing I knew I could always count on is your steady leadership and strong partnership. And Poreg, congratulations again. I'm really looking forward to working with you. And now I'll turn things back over to Mike.

Mike? Thanks, Bob. Today marks my 37th and final earnings call with all of you. Time does truly fly by. I want to first thank you for your support and engagement over the years. I have to say, it has been a tremendous honor to serve as Agilent's CEO and represent the achievements of the One Agilent team to all of you in the broader investor community. In 2015, we launched the then-new Agilent with a goal to transform Agilent into a leading life science and diagnostics company. We had ambitious goals to drive long-term shareholder value creation with significantly stepped-up financial results delivered by an unmatched one Agilent team working together in a truly differentiated and compelling company culture. I couldn't be proud of the Agilent team and what we've accomplished together over the last nine years. While current market conditions remain challenging, the long-term promise of growth remains with end markets powered by investments to improve the human condition. On the Agilent front, We've never been in a stronger position to continue to capitalize on opportunities to serve our customers, win in the market, and deliver differentiated financial results. It's been a pleasure to work with all of you over the years. I will miss it. While at the same time, I know that you'll enjoy working with Parekh in the years ahead. Like me, I know you'll be impressed with Parekh's knowledge of our industry and our business. As I noted earlier, he knows how to develop compelling business strategies build winning teams, and deliver exceptional results. His track record of success during his Agilent leadership journey speaks for itself, and have no doubt it will continue in his new role. While this is my last earnings call with you, I'm certain that the best is yet to come for Agilent. Thank you, and now over to you, Parmeet, for the Q&A.

Thanks, Mike. Regina, if you could please provide instructions for Q&A now.

Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone now. If you change your mind, please press star one again to withdraw your question. When preparing to ask your question, please ensure that your phone is unmuted locally. Our first question comes from the line of Derek DeBruin with Bank of America. Please go ahead.

Hi, good afternoon. Good afternoon, Derek. Congratulations, Mike. It's been fun. And good luck.

Thank you very much.

So the first question, we've been getting a lot of of incomings on the NASD business. And just because the growth trajectory is not doing what I think what people had thought it was going to do this year. I have a couple of questions. It's like, look, there's been some push outs in some. clinical readouts from like on island with their Helios B trial. Um, there's been some other sort of like a developments in the market. I guess the question is, is like, are you still confident that that segment can grow this year? Any SD can grow this year. And I just, is there any risk at all that there's like an overcapacity situation because as the market is, it's just taking longer for things to catch up. Just sort of your thoughts on that, please.

Yeah, thanks for that, Derek. And it has been fun. And thank you again. I'll tag team with Bob on this. So, as you saw in our prepared remarks, you know, Q1 came in as expected for the NASD business. And we are in a situation where we've had, I think, the broadest number of clinical programs and such. So, we're very active. The volume is less commercial this year, as we pointed out in the script as well, versus clinical. And Bob, I know we've been talking a lot with the team about the outlook for the year, particularly with some of our customers who are, you know, re-sequencing some of the clinical programs into 25.

Yeah, good afternoon, Derek. And as you're talking about, you know, we remain very optimistic about the future of NASD. our forecast for trained C&D remains intact in terms of building out the expansion. I would say that, you know, as we're talking about things, you mentioned one of the clinical trials that's an important element of one of our customers. We are seeing some, you know, potential pushouts into FY25. And, you know, as they are looking at revisiting their clinical trial programs and timelines and it's probably closer to flat this year based on that, although we're not giving up hope. But, you know, that's built into kind of keeping our guide the way it is. But I think if you look at the number of commercial programs or, excuse me, clinical programs that we have, you know, we're very excited about the future.

Hey, and Bob, I think it's also fair to say that this is not a byproduct of over capacity in industry or significant change in insourcing. That's really how some of our customers are reacting to really the IRA Act. That's right.

Well, that takes me, that's a great segue into my next question, which is what's sort of the latest on pharma? It doesn't sound like you're ready to call an inflection point, but it does sound like things sounded a little bit better. Can you just sort of give your thoughts on what budget releases are? sort of timing around that, any sort of, like, notable developments? I mean, when do you, you know, are you seeing any sort of, like, signs of life that the signs of budgets could start to be released in the second quarter?

Yeah, great, great question, Derek. Obviously, top of mind within Agilent, you know, as we mentioned, Q1 came in where we thought it would, but what's the outlook? And, Torek, I know you've been spending a lot of time with your team and customers talking about this exact question.

Yeah, thanks, Mike. And I think, you know, customers continue to be cautious globally. I think we're as stable, what we're seeing is stability, but no material improvement versus what we saw in the last half of last year. And in terms of the capital budget cycle in 24, this is the time we see it. It's pretty early in that cycle. But we've heard movement in both directions, positive and negative. But fewer customers expecting negative budgets. So we're watching and seeing how that goes.

Yeah, I think what you were sharing with me earlier, Porek, was the tone was more negative at this time last year. It's still not super positive yet and still a lot of caution. But, you know, we're not seeing anything to cause us to change our outlook for the year. Great. Thank you. Happy trails.

I think, Bob, thank you very much. I think, Bob, you had one. Yeah, I was just going to say, you know, one of the things that we see is, you know, very strong performance in our services and consumables business in the pharma sector, which actually speaks to lab activity. And so while we've seen, you know, a depressed capital cycle here, we're optimistic about that, you know, turning around in the second half of the year.

Our next question will come from the line of Matt Sykes with Goldman Sachs. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. Congratulations, Mike, on the retirement and good luck and congratulations on the new role. I look forward to working with you more closely. Thanks, Matt. Maybe just to start out, maybe a bigger picture in China. It sounded like you made some comments about sequential improvement. It sounds like it's informing some of your confidence for back half. What are the risks that China just simply doesn't get worse and just kind of bounces along the bottom? And what kind of catalysts are you looking for in China for the back half for some level of improvement? I know it's not necessarily baked into your guide, but you did make some comments about some sort of nascent optimism there potentially.

Yeah, sure. Thanks for the question, Matt. You know, as we had a really, I think, nice print to start off the year, a big part of that was performance in China. Yes, we had a bit of a pull in from Q2, from Lunar New Year, but the business overall was better than expected. And to answer your question, we now have several quarters of real orders, real revenue, and the sequential growth, the numbers are real. So, you know, we're not seeing anything on the macro world that would also dramatically change what has continued to be a very challenging economic market in China. So, you know, our, what gives us confidence is the fact we've had a number of quarters now of predictability in the business. The numbers are coming in, you know, slightly better than we had anticipated. But again, I think it's more just the fact that there's ongoing run rate of business that gives us confidence on the outlook. And Bob, I know that you, you want to jump in on this one, Porek? Yeah.

Yeah, and I think if Matt, as you just mentioned, we aren't assuming any inflection in our guide that's been consistent. Actually, Q1 ended up being a little better than we anticipated. We kind of putting that money in the bank, so to speak. And if you look at it, we'll have now four quarters of numbers that are relatively stable, which is a very positive sign. And I think, you know, when we look at our funnel, it's also stable, as well as the order forecast is what Mike just talked about as well.

Great. And then maybe just on ACG, which had a good quarter, you talked about the contract revenue and specifically enterprise services with that growth. Maybe could you just help kind of size that contract business within ACG and then maybe talk about what is driving that growth and what kind of contribution can that make to the ACG segment over the course of this year?

Hey, Matt, thanks for your support of the ACG business over the years. And I want to use this opportunity to introduce our new ACG group president. But first, I'd like to maybe have a two-part response. I mean, and Bob, I think it's roughly about 65% just to make sure. So roughly about 65% of our total services businesses in this contracts arena. And Angelica, maybe you could share your thoughts on really what's been driving the growth we're seeing in that contracts business.

Yeah, thanks, Mike. As you mentioned, it's about 65% of the total business and a part of that demand has really been driven by the lab wide enterprise services offerings where we're able to help customers as they're navigating their own economic situation really helping them optimize their entire lab operation. And our portfolio offerings in this phase have allowed us to really facilitate that improvement in lab operations, lab efficiencies, and that's particularly important to those enterprise customers.

Yeah, thanks, Angelica. And in times of tough economic times and market times, the productivity help and driving productivity in the labs is a well-received offering we have.

Hey, Matt, just one other quick thing on that. You know, one of the great things that Angelica and team have been doing, and you heard us talk about this a lot, is about the increasing of the attach rate. And that continued to grow at roughly a point, again, year on year this year. And that kind of locks in that resiliency and that stability in that business. And if you think about two-thirds of that business growing double digits, you know, it really helped power the business. And when we see the inevitable turnaround of the instrument business, that will be a nice tailwind as well. Absolutely, Bob.

Got it. Thanks, guys. Appreciate it.

Your next question comes from the line of Brandon Couillard with Jefferies. Please go ahead.

Thanks. Good afternoon, Mike. It's been a great run and a pleasure working with you. Thank you, Brandon. The chemical and advanced materials business actually performed a little better than we were expecting. Obviously, you still see some headwinds in the chemical side. Just give us your state of the union there, what you're seeing from a macros perspective, and kind of outlook for that business moving into the second half, Mike.

Yeah, so I'll do a tag team on this with PORG. So as you may recall, we've talked earlier this year about these secular growth drivers in the applied markets. We saw that pretty much across the globe and I think what we're seeing again is the investments being made in advanced materials relative to the semiconductor supply chain. And also the drive and productivity we're seeing continued investment relative to battery battery development. And I think we continue to. Um, you know, see, see some real nice growth in the fast side of our environmental business started in the US. I think all those applied market secular drivers that we've been pointing to for for some time delivered in Q1. and I think our outlook remains the same that we're expecting there'll be a source of of positivity for us. in the overall chem market space, albeit the chemical market is expected to remain subdued.

Yeah, that's right, Mike. I think it's really a tale of two sub-markets. We saw broad resilience in the advanced materials with sequential growth, and given the extremely tough compare in high 20s we had last year, it was truly a very impressive result from the teams. The chemical energy side was, we saw decline, but on a very tough compare of 10%. But we did see a sequential improvement versus Q4 23. Overall, I think our portfolio is extremely strong in this area. We have ability to cross and upsell across that. And of course, our strong services offerings have that value proposition.

Okay. And then, Bob, in terms of the guide for the year, I mean, you're sticking with the organic growth range for the year. You beat the first quarter. the China FOPO would then explain all of the upside in the first quarter and let the NASD outlooks lower. What other moving parts by end market or geography kind of gets you to the same midpoint?

Yeah, it's a great question, Brandon, and you talked about a couple of them. We feel really good about where we started the year. It's still at the beginning of the year, though, so we're kind of banking some of that. What I would say is if you looked across the moving pieces of With the NASD being slightly lower, that would be offset by a little better results in the LSAG side of the business. And really, that chemical and advanced materials and academia are two areas that are probably slightly better than what we forecasted. But overall, we're maintaining the guide and is, you know, as we are looking here, you know, felt good about really at the start to the year.

Your next question comes from the line of Puneet Sudha with Learing Partners. Please go ahead.

Yeah, hi, thanks, Mike, and really great working with you. And Parag, welcome to the seat. Thanks, Puneet. So my first question, thank you. So first question is really around you know, maybe I think Bob you talked a little bit about the book to bill Orders growing faster than revenue, but maybe could you elaborate a bit on more on the instrumentation side what you're seeing? and what you're seeing with the respect to book to bill in China and A quick question clarifying question on the to cue guide. It does look a slight step down versus q1 and I just want to make sure that Beyond the Lunar New Year, what else are you baking in there?

Yeah, I'll take that. There are a lot of questions in that one question, but so true to form, Puneet. And one of the things, I'll start with the last one. I mean, we typically do have seasonality. There is that $15 million that gets pushed from one quarter to another. That's strictly timing in China because of the Lunar New Year. But Q2 is typically a lower seasonality. a lower revenue number, so we're building in that normal seasonality. In terms of book to bill in China, actually book to bill was greater than one in China, so continued stabilization. And in terms of book to bill for our instruments, it was below one, kind of expected. Now, some of that was a result of the China pull forward where the orders came in, and we were expecting that revenue to be shipped in Q1. in Q2, so there's some element of timing there. But all in all, you know, a positive start to the year.

Hey, Bob, if I could put a headline on that, too, I'd just say that Q2 seasonality is as normal and the Q1 book-to-bill results are as our normal pattern. So, again, we've been talking a lot about, you know, normalization of business flow, and I think we're seeing it in terms of the seasonality of patterns and book-to-revenue situations.

Got it. That's super helpful. And then just a high-level question, a simple question. Could you maybe elaborate a bit on the pharma side, where you're seeing more traction, more growth? Is it the large pharma, small biotechs, CRO, CDMOs? Maybe just talk a little bit about that. Thank you.

Yeah, I'll take that, Puneet. If we look at across our business, you know, the relative strength was actually in our biopharma, so large molecule, and our business is skewed to the larger, you know, midsize and large cap companies. The standout has been the ACG business and our consumables on that. So it actually speaks to activity in the labs. We are starting to see, you know, I don't want to call it a trend, but certainly a stabilization on the emerging biotech side of it. The instruments were still down. But that is where we're starting to see the relative strength in the pharma business. And that speaks to kind of the long-term growth drivers, I think, in that market. And, you know, I would expect that to continue throughout the course of the year as our business gets stronger and the markets get stronger. And quite honestly, we have more favorable calls.

Hey, Bob, and I think if I call correctly, outside of China, our biopharm business actually grew in a quarter. That's right.

Got it. Super. Thanks, guys.

Your next question comes from the line of Rachel Badenstall with J.P. Morgan. Please go ahead. Hi.

Thanks for taking the question, and congratulations, Mike, on your new role as well. So first up, I just want to follow up there on the comments around book-to-bill. So you mentioned that book-to-bill for instrumentation was below one for the quarter. And some of that was really timing related. So I guess, can you just break that down for us a little bit further? What trends were you seeing in liquid chromatography versus mass spec, for example? And then is there any dynamics or trends to call out from geography on that instrumentation business as well?

I don't think there's any new trends here. I think, you know, without going into the details of our product line, you know, the small molecule side has really, you know, been an area where, you know, we've talked about the year-on-year challenges there. you know, for the LC side. But, you know, Phil, I don't know if you want to jump in with any thoughts here, but I don't think there's any real outstanding new trends here with, you know, perhaps the better than expected trends we saw in the applied markets, particularly on advanced materials. But maybe you have something else you want to add?

Yeah, sure, Mike. I think that's pretty much the case, similar to Q1, around how the markets are performing. We're seeing some bright spots around some of the secular areas in the applied markets in the instrumentation, which is driving the business forward. But just support your comments there.

Hey, Rachel, just one other thing to build on what Mike and Phil were just talking about. When we look at our LSAG business, you know, it was down 11%, which was better than what we expected. The piece that's really been driving that down is the pharma market, which is what we've been expecting. If we looked at the rest of the markets, they were much better than those down 11%, with the exception of the diagnostic and clinical, which is a small number.

Right. And to your question, Rachel, that dynamic in the pharma really speaks to pressure on the LC business.

And then I just want to ask about monthly trends. You know, some of your peers have talked about how spending has been a little bit slow out of the gate in January and then into early February. So I guess since you guys have a few more weeks of visibility here, can you walk us through, were you seeing similar trends on just slower spending to start the year? And has any of that started to come back? Any color there as we enter fiscal two key would be helpful. Thanks.

Well, I've been in, as you know, I've been in this business for a while, and it's always slow in January. And that's why we have the seasonality we talked about relative to Q2. So I don't think we're seeing any significantly different trends that we've seen historically. Borg, I know that you're closer than I am, but... Yeah, no, I think that's right.

That's right, Mike. I think on the ACG side, we see a number of service, our service contract business comes in strong on the ACG side, but on the capital side, we're not seeing much.

Yeah, to put a finer point on that, January came in as we expected.

Our next question will come from the line of Vijay Kumar with Evercore ISI. Please go ahead.

Hey, this is Jordan on for Vijay. Okay. Hey, Mike. This is Jordan. Thanks for taking my question. Sure. Maybe one follow-up on the China side. Have you seen any hints of stimulus to start the year? And if we do see a stimulus, do you have any foresight to what implications that will have on Agilent?

Both Fork and I are in the conference room shaking our head no. We've not heard anything about any potential stimulus. And what I can tell you is if it does happen, it's upside to our outlook.

Understood. And then maybe one more from me. Can you talk about how pricing has trended in the quarter and any updates to your expectations for the remainder of the year?

Bob, do you want to take that one? Yeah, we were pleased with the results. It was between 1% and 2%. But in line with kind of the seasonality and the mix that we saw, we would expect to see in Q1. So right now it's on track. As we've talked about, you know, our consumables business and ACG business have the greatest price realization, followed by, generally speaking, actually we had a very good result in diagnostics and genomics in the quarter. And then we did see some mix, but not anything out of the ordinary instrumentation side. So all in, we're on track for what we expected for the full year. Understood. Thank you.

Your next question comes from the line of Patrick Donnelly with Citi. Please go ahead.

Hey, guys. Thanks for taking the questions. And, yeah, Mike, I'll second the congratulations on the retirement. Bob, maybe one for you first. Just in terms of the EPS guide, it looks like you guys got an additional $20 million on the kind of net interest, other income. Can you just kind of flag that? You know, if that's rolling through, you know, did that core earnings number move a little lower? Is there any moving pieces there? And then secondarily, just on the margin piece, you guys have that cost savings plan. Can you just talk about how that paces as the year goes would be helpful?

Yeah, thanks, Patrick. Great question. And what I would say is a couple of things. We are on track to have more interest income than what we anticipated at the beginning of the year, that $20 million. And saw some of that in the first quarter as well. And that's really a result of actually having better than expected. cash flow in the first quarter and great work by that Treasury team. I would say that on, you know, the savings, we're on track for the savings targets for the for the full year. And, you know, as I think about the year, it's still very early in the year and this provides us what I would say is more confidence in the guide.

Okay, that's helpful. And then maybe just on kind of the book to bill, how are you guys thinking about, I think last quarter you said the book to bill for the year would be above one, but you'd have quarters kind of in and out on the instrument side, which obviously we're seeing this quarter. How are you thinking about just the order trends and the book to bill trends on the instrument side as we work our way through the year, given what you're seeing today?

Yeah, no change to what we said back in November. You know, Q1 is a proof point for what we said. All right. Fair enough.

Thank you, guys. All right.

Your next question comes from the line of Dan Brennan with TD Cowan. Please go ahead.

Thank you. Mike, it's been great working with you over the last nine years, so congrats, and I look forward to working with you as well.

Thanks, Dan.

Maybe just don't want to beat a dead horse, but just for the instrument, did you guys say, I know in the queue you usually put out what the instrument number actually was, so what did actually instrument do in the quarter? And then given how much easier comps go as we get through the year, can you just kind of give us a sense of pacing? Like what should we expect on Q2 and instruments? And then we can, you know, kind of how about the back half of the year?

I know the team did a calculation on that because the LSAG was down 11, but that includes our consumables business, which was up.

Yeah, I would say, you know, we typically don't give all that information, but it was down, you know, we were down 11%. It was down 20% in the quarter, but that was better than expected, offset by, you know, 6% growth in our consumables business. If we look at the LSAG thinking for Q2, it's down low teens. And a lot of that has to do with some of the timing associated with that $15 million shift. That's almost all capital equipment from Q1 or from Q2 back into Q1. So if you look at it, it is in line with where we expect it to be. And then we go into more favorable comparison Q3 and Q4. Got it.

Okay. And then I know there's been a handful of questions running on China, but can you just, would you mind spending a bit more color on kind of what, maybe by segment, pharma, applied, any color you can give us kind of what you're seeing within the different businesses in China. And is down mid-single still the expectation of China for the full year, or is there a chance you can kind of see some upside to that number? Thank you.

I think we've... We have... Raise it up a bit. It's still down.

Yeah, yeah. I think, you know, we're cautiously optimistic there. I'd say it's still within a range that we had before. So I don't want to call an inflection. But if you looked at the markets, you know, we were down, you know, that 9% was roughly down 20-ish percent in pharma. So, you know, that continues to be the area of really around the globe. But China is no different. The great thing is many of the other markets perform much better. So, even when you think about, like, academia and government that grew, so did our chem and advanced material business now grew very low single digits. And then our forensics and environmental was down low single digits. So you're actually starting to see. you know, this stable, you know, continued stabilization. And then you'll get into, you know, very much easier compares in the back half of the year in China because, you know, that down 22 was down, you know, compared up 12 last year. We had another strong compare in Q2, and then we actually started seeing the pretty significant declines year on year. And so there's reasons to be optimistic about that continued stabilization that Mike talked about, but we're not ready yet to call an inflection, but when it happens, we'll take it. Hey, Borg, I think you wanted to jump in on this as well.

Yeah, and I think, you know, what we see is also consumers and services continue to outperform expectations in China, so that's going to affect that to continue.

Yeah, I think the story, great build, Borg, and I think the story really was in pharma, you know, Q1, you know, the instrument, the CapEx side of things. But... We were pleased with the start there.

Great. Thank you.

Your next question comes from the line of Catherine Schulte with Baird. Please go ahead.

Hey, guys. Thanks for the question. Maybe first, when pharma was down 12% in the quarter, I think you said biopharma was up 2% ex-China. What was small molecule performance ex-China and maybe the outlook for biopharma versus small molecule for the rest of the year?

So small molecule on a global basis was down, you know, roughly 18%, and it was ex-China was down 20% and down, you know, roughly 14% for China. So pretty consistent across the globe, I would say, in China. The big area in China that has been impacted is on the small molecule side where we'll start to see better comps going forward after Q2.

Okay, and then maybe on consumables, great to see a return to growth there this quarter. Can you talk through what you saw outside of China on the consumable side?

Our consumables business was pretty consistent across the globe in terms of growth.

I don't know if you have anything you want to add to that on what we've seen on consumables. I think we were really pleased to see that because it really speaks to lab activity being in the robust. So anything else you want to jump in on with?

Yeah, probably just one item there, Mike. I think we are seeing really good traction around our workflow development. So end-to-end solutions, which obviously also drives our services business as well. But around the consumables, in most of our end markets, we've been pretty heavily focused on developing workflows and making our customers' lives easier. and more integrated in their labs, and that's showing some really good traction, and that's reflected in solid connect and attach rates in the consumable space.

Yeah, thanks, Phil. I'm really glad you closed with the comments about connect rates. We talked about that relative to our services business. We're also seeing a very strong positive trend on consumables as well, which bodes well to our future in terms of recurring revenue business growth.

All right, great. Thanks, and congrats on the retirement, Mike.

Thank you very much. Most appreciated.

Your next question comes from the line of Jack Meehan with Nephron Research. Please go ahead.

Thank you. Good afternoon. And Mike, again, it's been a pleasure working with you. Just had a couple of follow-ups. The first one was, could you just talk about what you're seeing in the genomics business within DGG? I know it's still been a bit of a drag. Just when do you think that's going to start to turn?

Yeah, thanks for your kind comments, Jack. And I think I'll invite Bob in on this one, but I think it's been sort of a tale of two cities. When we talk about our genomics business, there's really two pieces to it. Half of it's in QAQC activities for NGS workflows, and we're seeing, you know, really solid growth on the consumables and that side of things, as well as starting to see signs of life on the CapEx, not only the current to cause a call to turn there yet, but that's in reasonably good shape. I think we've seen really in our U.S.-based genomics business, you know, some really market challenges have been hitting us, and Bob, maybe you can elaborate on that.

That's right. Thanks, Mike. And as you said, our NGS QC portfolio from an instrument and consumable side actually grew mid-single digits in the quarter, which was very nice. The genomic chemistry side that we referenced in the prepared remarks We faced some very difficult comps. We had a couple of companies that reorganized and exited some businesses. They had some lifetime buys at the end of Q1. I would expect the performance of that to improve starting in the second half of the year.

Great. Also wanted to ask about the academic end market. I know that's been very stable for you guys, but just what you're seeing in the U.S. here with the continuing resolution for the NIH, just thoughts on the durability moving forward. Thank you.

Yeah, Jack, thanks for noticing that. That was a real bright spot for us. We actually grew, I think, 2% in the quarter. And, you know, we've been working on this thing for some time to really build out our portfolio and really change our market position in academia research, and I think it's starting to show up in the numbers. I think stabilization really is what we're seeing, which is the funding is there. And, you know, NIH is a relatively really small part of Agile's business, so it really is immaterial. But we're seeing, you know, universities have increasingly been funded through private sectors, so the money is there. And even so, we saw money in China as well. So it was really a nice global story for us. We're fairly optimistic that that kind of stabilization can be there for us for the rest of the year.

Your next question will come from the line of Doug Schenkel with Wolf Research. Please go ahead.

Well, Mike and Forag, congrats to both of you. And Mike, as everyone said, you'll be missed. I hope this means more time on the beach, but we'll miss you. Absolutely.

I'll be listening.

Yeah, yeah. I hope not too much. But anyway, I want to ask a question on guidance and then a question on capital deployment. Sure, absolutely. Go ahead, Doug. So for the year, on one hand, around 48% of sales is in the first half. At least that's how you've guided, I believe. Yeah, that's lower than last year, but it's not outside the norm for the last several years. On the other hand, you know, just doing some math, your guidance for the first half embeds the assumption that, you know, revenue declines around 7% organically and then improves, you know, 7 to 9, you know, positive percent organic in the second half. Can you do that just as a function of the comps or do you actually really need to see improvement in, you know, certain geographies or certain end markets or categories? And then again, just a math question, does guidance assume Q4 revenue kind of exiting around like $1.8 billion?

Hey, Doug, this is Bob. I'll take that last one. We'll tell you when we get to Q4. And, you know, what I would say, but your math is, in all seriousness, your math is spot on as usual. I think one of the things that we look at is we look at it a couple of different ways. I think the way to look at it is Is that, you know, first half second half kind of looking at seasonality that's probably more instructive given kind of the changes in the growth rates. And when you look at it, as you notice, as you mentioned, it is in line with our historical seasonality and. When you look at the growth rates, you're right. We are expecting growth in the back half of the year. A lot of that is, in fact, the easier the comparison. When we actually look at what I would ask you to take a look at also is a two-year stack basis relative to, you know, implied Q1 and Q – first half and second half. And what you would see there is a much more smooth number that we also looked at as well. So – As usual, you're spot on there.

Bob, I think that's why we really emphasize in the script, you know, the word stabilization, because as things have continuity of stabilization, you know, we're going to get a lift on the growth rate just by the comps as we go.

That's super helpful. Yeah, I know there's a lot of focus on how much improvement is necessary to get there. So, if a lot of this is stability and just math, that I think obviously makes people more comfortable. I know I've taken up a lot of air time already. Real quick, capital deployment, the cash flow remains robust, the balance sheet is super clean. Can you just talk about your thinking right now on capital deployment and what the environment looks like right now?

Yeah, I think we remain very interested in deploying capital in a balanced way, which is inclusive of investing in the business. And that speaks directly to our interest in M&A. It's our build and buy growth strategy. I just have to say that the The funnel pipeline is more robust than I've seen in a number of years. And, you know, nothing to obviously announce, but we're very much engaged. Great. Thanks again.

Your next question comes from the line of Josh Waldman with Cleveland Research. Please go ahead.

Hey, thanks for taking my questions, and congratulations, Mike and Borg. Thank you.

Yeah.

Thank you. Yeah. Yeah, just a couple on my end, and maybe Bob, starting with you. First, a follow-up on the guide. Can you comment a bit more on how Q2 guide moved versus the framework in the initial outlook? I assume core outlook came down a bit, but just wanted to confirm the moving pieces there. And then does the guide, the core guide, reflect any changes in Q3 or 4? Or is it really just reflecting an update on H1?

Yeah, that's a good question. It's a little of both, Josh. So Q2 is relatively intact for what we had originally thought, with the exception of that small movement of the China business. That's roughly a point of core growth from Q1 and Q2 switching. What I would say is Q1 also had a beat into it, and what we're taking is some of that out of the second half of the year. And so the So the takeaway is Q2 is spot on from where we expected it to be, absent that kind of shifting the timing shift of China. And then the rest of Q1, kind of the beat, really helps us in the second half of the year. Okay. Okay.

And then, Mike, can you talk about how visibility in the business has evolved over the last three months? Has there been any improvement in the ability of the funnel to predict near-term sales or still seeing an elongation of, you know, kind of opportunity and quoting, flipping to orders? You know, carry a total company and then also what you're seeing in pharma specifically.

Yeah, no, I'll have a poor jump in this one. I think the visibility remains the same. I don't think it's any better or any worse. And so I think it's the normal kind of cadence of business. And that's why, as Bob just mentioned, you know, when we're talking about the second half, you know, we bank some of the beat to, you know, to put against the second half because we've yet to see the second half materialize in terms of the order book, which is typical at this time of year.

I think that's right, Mike. And I think as far as the quality of orders that remain in our backlog, nothing has changed yet. We've not seen any increase in cancellations, and ex-China, the funnel continues to grow, and that's led by the aftermarket business. I will say, you know, as a continuing team, the deal closure times remain at elevated levels, but it's definitely stable, and deal win rates have been consistent.

Yeah, I think it's an important point made here. Elevated, but we're not seeing elongation. So, you know, they're stable, but they're longer than they have been in the past.

Okay. Thanks, guys.

Sure.

Your next question comes from the line of Dan Leonard with UBS. Please go ahead.

Thank you. My first question, just a bit more on China. Are you expecting sequential growth in Q2 in China, similar to Q1?

No. If you looked at the sequential number, it's going to be roughly the same as what we had in Q1.

All right.

Thank you for that. Mike, congrats on your retirement. I was wondering if you could elaborate on timing. I was surprised, others were surprised. I've gotten the question a number of times, and we'd just love to hear your thoughts.

Yeah, thanks for that. So while it's maybe a surprise to many on the call, and it was a surprise when I shared the news across the company because The Agilent team just knows how much I love working for this company and work with them. And it really was a really difficult decision for me, but I've been contemplating this for a while. And I pulled the board into the discussion, started communicating with them, because I really wanted to make sure that they had enough time really run a thorough and thoughtful selection process, which are they able to do? And in my mind, they came out with the best possible choice in selecting pork. But, yeah, but this is something that I've been contemplating for a while and engaged in the board about my timing and then really want to make sure they had enough time to, you know, really pick the right successor. And that's what they did.

Well, you always seem to be having a lot of fun. So congrats again, and it's been good.

Thank you. It's going to be hard to step away, but I have to say the Polo family was just too strong. We have an 18-month-old grandson, and he will soon have a brother and sister. So there's a lot going on on the family side, and there's only one way I can make more time. So, again, it's been a real pleasure working with all of you on the call. All right. Thank you.

Your next question comes from the line of Luke Surgod with Barclays. Please go ahead.

Great. Thanks, guys, for squeezing me in. I just want to talk about the margins on the quarter and kind of the step down in DGG and LSAC. And I assume, you know, obviously it's probably driven by the volume declines there on the instrument side. But, you know, how do you guys view the recovery and the margins between DGG and LSAC throughout the year to hit your guide?

Yeah, hey, Luke, this is Bob, just real quick. You're right. If I look at DGG, it actually was improvement year over year, but it was down and it was really a result of that margin. or the volume. I would say also there was an element of mix in LSAG, and I would expect that to continue to improve. You know, the cost actions that we took weren't fully actualized all as expected in Q1, so we'll have the full impact of those as well in Q2 throughout. So I would expect an improvement over the course of the year as the volumes grow up in both LSAG and DSAG.

That's what I thought. I just want to clear up. And then just for follow-up here from the 2Q guide, can you just help frame what you guys are embedded there by the different segments?

Yeah, if I look at the Q2 guide, you know, we're still expecting, if I look at the end market, you know, pharma down double digits, academia and government down low single digits, really as a result of some of that timing shift, diagnostics and clinical down mid-singles, and uh chemical and advanced materials down uh high single digits and uh food about the same both of those are are you know as a result of some of the shift also in in in the china business from you know q2 back into q1 and then environmental and forensics you know kind of mid single digit decline great thanks yep our final question will come from the line of paul knight with key bank please go ahead

Hey, Mike, really super to see you doing what you're doing. And I knew you, I don't know, 15 years before you became CEO. So I guess the concluding question I would have, at least professionally, would be what do you see in terms of two things? Number one, what do you think the kind of market growth rate is for the markets that Agilent participates in? And then geographically, where do you see the surprise over the next five years? Like, will Japan reinvigorate its growth? Will Europe see more insourcing? Would love to have your perspective on those things.

Yeah, hey, thanks, Paul. Yeah, we do go way back, don't we? And it's been great to work with you over those years, going way back to the CAG days in our prior role. You know, I think we think this is a, you know, 4% to 6% kind of growth market, you know, mid-signals. So we think that The kind of market growth that we're not experienced as industry right now is an anomaly. And this will be back to that, you know, 4 to 6% kind of long-term growth rate. Obviously, certain segments within that overall macro number, that big TAM will be growing faster than that. That's always a challenge to make sure that you pick those segments so you can actually beat that number. I think there's going to be some geographic mix. I mean, we've evolved our view of long-term growth into China because we actually expect some of the supply chain moves and other things that have been going on that you'll see more growth in Europe, which has been more of a slower grower for us geographically. But we continue to be surprised how well we do, our team does in Europe. I think you're going to expect to see – Japan rejuvenated particularly. I think you can make the case of the semi-industry, which is going to return with some strength in Japan. But that's the beauty of this business is just the diversified nature of both the end markets and geographies. So that would be my last, I guess, my final prediction of long-term growth for the market in this role. But thanks, Paul. Appreciate the comments and looking forward to staying in touch.

I'll now turn the call back over to Parmeet Ahuja for closing remarks.

Thank you, Regina, and thanks, everyone, for being on the call today. With that, we'd like to close the call. Have a good day, everyone.

Ladies and gentlemen, this concludes today's call. Thank you all for joining.