Agilent Technologies, Inc.

Ladies and gentlemen, thank you for joining us and welcome to the Q1 2026 Agilent Technologies Inc. Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press star 9 to raise your hand and star 6 to unmute. I will now hand the conference over to Tejas Savant, vice president, investor relations. Tejas, please go ahead.

Thank you and welcome everyone to Agilent's conference call for the first quarter of fiscal year 2026. With me on the line are CEO Parikh McDonald and CFO Adam Elanoff. Joining for the Q&A will be Simon May, President of the Life Sciences and Diagnostics Markets Group, Angelica Reimann, President of the Agilent CrossLab Group, and Mike Zheng, President of the Applied Markets Group. This presentation is being webcast live. The press 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 investor.agilent.com. Today's comments will refer to non-GAAP financial measures. Non-GAAP measures are supplemental and should not be considered a substitute for GAAP results. You'll find the most directly comparable GAAP financial metrics and reconciliations in the press release and 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. all references to profitability metrics are on a non-gap basis core revenue growth is adjusted for the impact of currency exchange rates and any acquisitions and divestitures completed within the past 12 months guidance is based on forecasted exchange rates during this call we will make forward-looking statements about the financial performance of the company These statements are subject to risks and uncertainties and are only valid as of today. Agilent assumes no obligation to update them. Please refer to the company's recent SEC filings for a more detailed description of the risks and other factors that would cause our performance to differ from these forward-looking statements. And now, I'd like to turn the call over to Parikh.

Thanks Tejas, and welcome everyone. It was a solid start to the year with the Agilent team executing well in a generally improving, albeit dynamic, market environment. For the first quarter, Agilent reported $1.8 billion in revenue, growing 4.4% on a core basis within our November guidance range. End market conditions were largely consistent with our expectations, with top line results affected by the winter storm in the US during the last week of January. The storm drove roughly a $10 million revenue impact, with the majority recovered at the beginning of February. The impact primarily came from our logistic providers not being able to ship products from our main American logistics center in Memphis, Tennessee, for three days. This is typically the busiest shipping week of the quarter. Despite the weather, operating margins of 24.6% were in line with our expectations, setting a solid jumping-off point for the remainder of the fiscal year. Moving forward, we anticipate benefiting from leverage on increasing volumes, and we expect to see tariff headwinds continuing to decrease, as well as incremental benefits from our Ignite operating system that together will drive sequential margin improvement throughout the rest of the year. First quarter EPS of $1.36 also was within expectations. Adjusted for the impact of the storm, our first quarter revenue, operating margin, and EPS all would have been above the midpoint of our November guidance ranges, a healthy underlying outcome. Throughout the quarter, the Agilent team remained as always committed to delivering for our customers. Before getting into the specifics of our first quarter results, I want to share my thoughts on three key business initiatives that are fueling our growth. These include our highly differentiated service organization that reinforces our customer intimacy, a theme you've heard me talk about frequently, an update on recent innovations, and finally, how the Ignite operating system continues to drive Agilent's transformation. I want to start by talking about our differentiated customer intimacy. Last quarter, I highlighted our field service engineer's outsized contribution to our deal funnel and conversion rates. This time, I want to focus on our enterprise services business, where we had several marquee customer wins with major pharma accounts. Our enterprise services offerings allow us to cement our extraordinary customer intimacy and is a key strategic differentiator for Agilent that unlocks significant downstream value. This business represents roughly 10% of our total services revenue today and has grown nicely at a low double-digit CAGR. Beyond a direct revenue contribution, the relationship we build with our customer creates tremendous long-term value for Agilent and uniquely position us to gain wallet share over time. The offering includes embedding our expert on-site support technicians in customer sites and leveraging digital capabilities through CrossLab Connect that provide monitoring, alerting, and performance analytics. This allows us to gain unique insights and visibility into lab operations and critically deliver improved efficiency and economics for our customer labs. These successful outcomes position us as a trusted partner, one customers can count on to provide critical data and insights that inform their future technology needs and instrument purchasing decisions. We have agreements with nearly all of the top 20 biopharma companies. In addition, we've won 18 competitive displacements across our end markets over the past three years. Early customer feedback from a recent marquee win reinforces the value of having our specialists on site, including faster response times, improved parts availability, and better advice and consumer and system usage. The insights that we gain from our leading services team are a key success factor in driving customer-focused innovation that underpins durable long-term growth at above market rates. I want to highlight several recent examples that are resonating particularly well with our customers, starting with our Altura ultra-inert column portfolio. In October, we launched our first Altura column to support biopharma workflows, including GLP-1s. Already, 50% of the top 20 biopharma companies have ordered these columns since we launched, and Altura has more than doubled our biocolumn growth to over 30%, a testament to Altura's competitive performance. Just last month, we launched our next column in the Altura family, focused on improving PFAS workflows. These columns are specifically developed to solve key workflow challenges and address new EU regulations. Plus, they double throughput for customers by enabling separation of both short and long-chain PFAS in a single workflow. The launch is off to an excellent start with strong demand out of the gate and extremely positive customer feedback versus competitor offerings. You can expect continued expansion of the Altura family for new use cases later this year and beyond. Next, I want to highlight the ProIQ LCMS, which continues to build momentum since its midsummer launch. We're seeing a robust uptake with growth of our single-quad family exceeding 40% in the quarter. The value proposition of an advanced single-quad LC-MS with expanded mass range is resonating and is particularly compelling for farmer customers who are transitioning from small molecule to biologics and monoclonal antibodies. Our cancer diagnostics business also is innovating to meet customer needs. Last quarter, I talked about the expansion of our most advanced automated platform, Omnis, to a broader set of customers. This launch is off to a very strong start, offering medium throughput labs access to the latest technology with attractive economics. Also within cancer diagnostics is our new S540MD slide scanner system, which we announced in late January as part of our continued effort to enable the latest digital tools for our cancer diagnostic customers. Finally, early in the quarter, our market-leading spectroscopy business announced the release of our Rampant Insight BRT series alarm resolution system. The new system offers next-generation throughput and sensitivity to hand safety and streamline operations at airport security checkpoints. This new instrument helps secure a $9 million TSA contract during the quarter, and we are confident that we are well-positioned to win larger aviation security tenders in the coming years. The last topic I want to focus on is our Ignite operating system. As you know, we launched Ignite at the beginning of 2025 to drive execution excellence, accelerate decision making, and unlock the full value of Agilent as an integrated enterprise. Over the past year, Ignite has evolved into our enterprise operating system, a core differentiator that aligns strategy, resources, and accountability to drive sustainable growth, margin expansion, and long-term shareholder value. Ignite has already delivered clear financial results in its first 12 months, including doubling our pricing realization, generating substantial procurement savings, simplifying our organization structure, and launching our tariff mitigation program. Also, Ignite demonstrated its effectiveness in M&A execution through the successful biovector integration, establishing a repeatable playbook to accelerate value capture in future transactions. In this fourth quarter alone, Ignite delivered nearly 200 basis points of pricing, continued tariff expense reductions, and a very successful launch of our new Agilent.com website that helped drive growth in digital orders at more than two times of our overall order book. Looking ahead to the remainder of FY26, we are expanding Ignite into new value creation workstreams and leveraging a portion of savings to reinvest in the business. These workstreams include increasing returns and innovation investments by improving speed to market, advancing digital and e-commerce capability to enhance commercial productivity, and applying targeted artificial intelligence initiatives with clear ROI to enhance customer insights, automate routine work, and compress manufacturing cycle times. We are also accelerating software development and enhancing our supply chain capabilities by executing no-regret investments that improve efficiency, resilience, and proximity to customers in an evolving geopolitical environment. Now let me share some additional details about our Q1 results, starting with our end markets. The improvement that we saw in our end markets across last year was generally maintained throughout the first quarter. Overall, we are seeing underlying momentum in our markets. Importantly, secular trends in our largest end markets remain on a strong footing. That includes reshoring of pharma and semiconductor manufacturing, GLP-1 uptake and LCNGC instrument replacement cycles. Farmer growth was 7% in line with our expectations, with double-digit growth in the biotech space supported by increased funding and M&A activity late in the calendar year. Mid-single-digit small molecule growth was also solid, showing continued momentum from 2025. The quarter saw a modest benefit from continued normalization in the calendar year-end budget flush in line with our expectations. We delivered excellent GLP-1 growth of 50% with healthy contributions coming from our specialty CDMO as well as our analytical lab business. Our specialty CDMO business grew low double digits during the quarter, and we continue to expect mid-teens growth for the year. We saw continued strength in chemicals and advanced materials market. The 9% growth in CAM was above our expectations, with exceptional strength on the materials side of the business with growth of more than 20%. This strong result in advanced materials demonstrates our leadership in providing solutions for the top semiconductor manufacturers globally. The current shortage of memory chips and the global effort to achieve semiconductor supply chain independence has driven investment by these firms in our leading atomic spectroscopy tools. With support from the recent Omnus family launch, the diagnostics and clinical business continue to perform well, growing at 7% again this quarter. Environmental forensics was flat, with continued softness in government funding in the US and China offset by growth in the rest of Asia and Europe. In Q1, the food business declined 4%, which outperformed our expectations with strong low double-digit growth ex-China. As a reminder, the food market was the primary beneficiary of the large China stimulus that boosted growth in the first quarter of FY25. And finally, academia and government, our smallest market, was down 8%, more than expected in the quarter. Academia and government conditions in the U.S. continue to be soft, with customers using available funding to keep their labs running as opposed to investing in new capital equipment. Excluding academia and government, our instruments grew at a healthy mid-single-digit rate. Our instrument book-to-bill has now been at or above one for the eighth consecutive quarter. The Infinity Tree HPLC continues to delight our customers. The LC instrument replacement cycle momentum built by our differentiated Infinity Tree system during FY25 continued through the first quarter of FY26. And with LC growth in the high single digits, we are gaining share globally versus our competition. On the DC side of the replacement cycle, we saw low single digit growth, a strong result considering the tough year-over-year compare from significant volumes associated with last year's Chinese stimulus. Ex-China, GC instrument growth was mid-single digits, in line with our expectations of around 100 basis points of lift during the GC replacement cycle. And even with these strong results, the upside from farmer reshoring has yet to impact our numbers. we're seeing increased activity in U.S.-based pharmaceutical manufacturing as companies rethink resilience and capacity. Based on announced investments and recent customer activity, we estimate this will represent a billion-dollar addressable market opportunity through 2030. We continue to expect the first orders from Reshoring to book late this year and the revenue impact from those orders to bolster top-line growth in FY27 and beyond. As we look to the rest of the year, our priorities remain unchanged. Advance our Ignite operating system, further enhance commercial execution, and capture opportunities from improving end markets, innovative new products, and a multi-pronged replacement cycle. With a solid start to the year and the outlook for end markets broadly consistent with our original expectations, we are maintaining our expected core growth range of 4% to 6% for the full year. We now expect between $5.90 and $6.04 of earnings per share in FY26, with a $0.04 increase due to favorable currency impact. For Q2, early trends are encouraging, and we are expecting core growth of approximately 4% to 5.5%, which includes a majority of the $10 million storm impact from late in the first quarter. EPS is expected to be between $1.39 and $1.42, representing a 7% growth at the midpoint of our range. We remain highly disciplined around capital deployment, investing for organic growth through innovation and capacity expansion. Simultaneously, we are focused on M&A targets that are both a strategic fit and financially attractive. Now, let me hand it over to Adam, who will provide details on the quarter and our financial outlook.

Thanks, Poreg, and good afternoon, everyone. In my comments today, I will provide additional details on revenue in the quarter, as well as walk through the income statement and cover other key financial metrics. I'll then cover our updated full year and second quarter guidance. Starting with Q1, revenue was $1.8 billion. On a core basis, we posted growth of 4.4%, while reported growth was 7%. Currency had a favorable impact of 2.6%, in line with our November guidance. At a business segment level, ACG grew 6%. That's in line with expectations, driven by strong consumables growth in the high single digits, solid performance in services, and balanced growth globally with all regions growing mid-single digits or better. AMG grew 4%, ahead of expectations. Growth was led by double-digit performance in spectroscopy, fueled by the excellent results in the semiconductor space that Porig mentioned earlier. LDG grew 3%, a bit below expectations. In addition to the weather impact, we saw softness in academia and government that challenged our cell analysis and genomics results. On a geographic basis, we saw our strongest growth in Asia, with China growing 6% and the rest of Asia growing a robust 13%. Europe was a bit slower than expected, with 4% growth as transient discussions around higher tariffs caused some customers to slow purchasing decisions late in the quarter. America's growth of 1% was directly impacted by the weather, as well as pockets of softness in our smaller end markets. Q1 gross margins were 53.7%. On a year-over-year basis, they were down by 100 basis points, primarily due to tariff headwinds. Operating margin was 24.6%, in line with our expectations, and down 50 basis points year over year on increased tariff expenses and normalized performance-based pay in the current year. Now moving below the line, we had $10 million of other income, while our tax rate was 14.5% as expected. Finally, we had 284 million diluted shares outstanding in the quarter, slightly better than expected with some incremental share repurchases during the quarter. Putting it all together, Q1 earnings per share were $1.36 and grew 4%. Adjusted for the weather, we would have been above the midpoint of our first quarter guidance range. We are confident we will see improved earnings growth through the remainder of the year, driven by improving volumes and easier tariff and performance-based pay compares. Now let me turn to cash flow and balance sheet. Operating cash flow was $268 million in the quarter, and we invested $93 million in capital expenditures. We purchased $152 million in shares and paid $72 million in dividends during the quarter. And we ended the quarter with a net leverage ratio of 0.8 turns, maintaining our strong balance sheet. Now let me share some additional details on the updated outlook for the year and the guidance for our second quarter. Because of changes in FX, we now expect fiscal year 26 revenue to be in the range of $7.3 to $7.5 billion on a reported basis. This continues to represent growth of 4% to 6% on a core basis, as currency is now expected to be a 1.5% tailwind during the year. This revenue guidance embeds full-year business segment, end market, and geographic growth assumptions that are consistent with what we shared in November. Our largest end markets, pharma, chem, and diagnostics and clinical are all off to a strong start. Across our smaller end markets, we saw some pockets of softness relative to our expectations in the first quarter, especially in our cell analysis business where academic customer budgets are most heavily indexed to government funding. Going forward, we continue to expect low single digit full year decline in academia and government, flat performance in food, and low single digit growth in environmental and forensics, partially helped by easier comps for the remainder of the year. Moving down the P&L, we continue to expect to deliver 75 basis points of operating margin expansion at the midpoint. And while we continue to evaluate the evolving tariff situation in light of recent developments, this guide does not incorporate material changes in tariff rates relative to our view at the start of the year. While we still await the details, we do not expect a meaningful change to our outlook based on the high-level proposals that have been discussed. Our expected tax rate for fiscal year 26 is unchanged at 14.5%. We also expect $22 million of other income and 283 million diluted shares outstanding for the year. Fiscal year non-GAAP earnings per share are now expected to be between $5.90 and $6.04, representing earnings growth of 5.5% to 8%, with the $0.04 increase due to a favorable currency outlook versus our original guide. For your modeling, let me share some additional expectations we have incorporated into our guidance for the year. We continue to expect pricing growth of at least 100 basis points, supported by Ignite. Although the tariff situation is evolving, we expect a fully offset tariff impact over the course of the year through a combination of cost-saving and pricing actions. The tariff dynamics will drive a modestly more than typical sequential improvement in operating margin over the course of the year. As we have said before, this translates into a slight second half weighting on operating profit and EPS versus what we typically see. There is no change for operating cash flow range of $1.6 to $1.7 billion, and we are still expecting to invest approximately $500 million in capital expenditures. Now moving to the second quarter, we expect our reported revenue to be in the range of $1.79 to $1.82 billion. This represents growth of roughly 4% to 5.5% on a core basis, while currency is expected to be approximately a 3% tailwind. This outlook includes weather-delayed revenue from Q1. It also assumes our academia and government end market declines in the mid-single digits in Q2. We expect our operating margin to improve by approximately 100 basis points relative to the first quarter. Our guide assumes 283 million diluted shares outstanding in the second quarter. Second quarter EPS guidance is $1.39 to $1.42, representing growth of 6% to 8%. With that, I'll turn the call back over to Porig for closing comments.

Thanks, Adam. As you've heard, FY26 is off to a good start. Our unique growth drivers, including superior customer intimacy developed by our best-in-class services team, a healthy innovation pipeline to deliver products that solve real-world customer problems, and the Ignite operating system that brings together our best attributes for the benefit of all stakeholders, combined to drive growth and operation leverage that fuels our success. As the year unfolds, we are well positioned to benefit from the instrument replacement cycle and continuing recovery across our largest end markets to win share and deliver resilient above peer growth and margin performance over the long term. I also wanted to take this opportunity to express my gratitude to the Agilent team for their exceptional efforts throughout the quarter. I especially want to recognize our global operations and logistics colleagues who worked tirelessly to meet the challenges presented by the weather and deliver for our customers. Thank you for your attention. I'll turn it back over to Tejas for Q&A. Tejas? Thanks, Parag.

Nicole, can you please share the instructions for the Q&A?

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press star 9 to raise your hand and star 6 to unmute. Please stand by while we compile the Q&A roster. Your first question comes from the line of Tycho Peterson with Jefferies. Your line is open. Please go ahead. Tycho, a reminder to please unmute yourself by pressing star six.

Yep. Hi. Yeah. Hi, this is Jack on for Tycho. Thanks for the question. Just wanted to walk through the impact of the snowstorm and expectations for catch up there. Appreciate you said 10 million in revenues. Just curious if that's already in hand for 2Q or something that's still being recouped. And then, you know, any color on margin impact that would have had in the quarter, you know, gross margins and operating if it would have been without the snowstorm. Thanks.

Yeah, so I'll start off and I'll hand it over to Adam. So first of all, you know, a really solid finish overall with 4.4% growth and high single digits in our tree markets. But Adam, can you give some colour around the weather in Pakistan?

Yeah, so thanks. And I'd first like to say I didn't think I'd be on this call talking about the weather. So it's always fun to do that. So when you think about the impact of the weather, we said it was about $10 million. We've already seen that come back or the majority of it. There's some pieces of it that will take a little longer, and that's really related to services and things like that that don't happen instantly. So we've already recovered the vast majority of it. Then to your second question related to margin, it would have been a very modest impact to margin. So what we delivered in the quarter was a reasonable proxy for what we actually, the actual performance.

Okay, that's helpful. And then sticking on margin, appreciate you still guiding the 75 bits for the year. Can you just give a little bit more color on the cadence from here in the bridge to that improvement after being down a little bit in one queue? Sure. I think you said slight second half waiting. I guess there's what's baked in for 2Q versus the second half. And then what do you see as the biggest swing factors to that step up? Thanks.

Yeah, so I'll take this one. So from a year-over-year basis, we expect the second quarter to be a 50 basis point improvement, and that's really driven by pricing, volume, and then Ignite savings. And then that's offset by performance-based pay, and once again, the tariffs. And as you know, the tariffs, or as we've talked about, the tariffs are fully mitigated by the second half of the year. Then when you move through the rest of the year, that's where you start to see the acceleration in our margin expansion. And then that's driven by um, continued volume and leverage, uh, volume, leverage pricing and ignite. And then, um, it's slightly offset by, uh, uh, some of the people costs and growth investments that we're making through the year.

Your next question comes from the line of Vijay Kumar with Evercore ISI. Your line is open. Please go ahead.

Hey guys. Uh, thank you for taking my question. maybe poor, uh, my first one high level. When I look at, uh, You know, this cadence for the year, right? First half versus back half. Your guidance for first half implies, you know, slightly less than five and back half to hit the midpoint, you know, needs to be about five. Can you just talk about what drives the back half step up, comps to get tougher? Is this some new product cycles or is this something else that's going on in the business that gives us this back half visibility? Yeah.

Yeah, I mean, the underlying, we see a really strong underlying momentum in our businesses and our key biggest markets. You can see that in pharma where, you know, driven by GLP-1s, but also the replacement cycle going extremely well. You see our infinity tree number growing in double digits, I think, and we're seeing from our latest market share report that we're taking oversized share In that area. And then, of course, you can go down to our cam markets as well, where you can see, you know, a lot of secular drivers. We grew 20 percent of the advanced materials from the semiconductor on shoring and so on. So underlying momentum in the markets, we have very good visibility in funnels. We're seeing very strong wind loss rates. And of course, we're going to watch that as we go forward. But we see that continued momentum to improve.

And then I would just jump in. The step up between the first half and the second half isn't that big. It's really 49 in the first half and then 51 in the second half on revenue.

Understood. Maybe one on tariffs, just given the Supreme Court ruling. How are you thinking about the tariff assumptions, right? Are you assuming now a global minimum of 15% and how does that change versus your prior assumptions?

Aramal, I'll give this one to you. Sure. So I guess the first thing is, one, the situation continues to be dynamic. And we don't know that much information about what the 15% would look like and exactly how it's going to play out. But if you assume that the 15% is on the surface, what it says across all different markets, what I would say is we wouldn't change our guide on it. And it really comes down to a couple of things. One, we made a series of no-regret moves, and that was really about leveraging the our supply chain, bringing our manufacturing closest to the customer. So that wouldn't change. The second is we've been utilizing pricing and surcharges, you know, really as appropriate and been very thoughtful about that. So that also helps us. And I guess the third piece I would add is, is in any dynamic market and any dynamic market conditions, as you see, and we're living in, um, What gives me a confidence is I look at how the Ignite operating system has been able to allow us to react and be resilient as things change. So right now, we wouldn't change any of our guide based on what we know. That said, we're ready to react and we're ready to respond as things evolve.

And I would just close it off by saying the actions we've taken to bring manufacturing close to our customers and strengthen supply chains are no regrets moves. We have that plan for a long time now. And outside of storage charges, we would not expect to reverse them in any way.

Your next question comes from the line of Doug Schengel with Wolf Research. Your line is open. Please go ahead.

Good afternoon, guys, and thank you for taking my questions. Two topics I wanted to address. One is the capital equipment environment, and then the second is M&A. So on the first topic, How would you describe demand month by month going back to, you know, say November and December and through the beginning of the calendar year? I ask because some of your peers have suggested that demand may have slowed a bit over the past several weeks, and I'm just trying to get at whether or not this is just kind of normal, typical seasonality, or if there's anything you're seeing from an environmental standpoint, meaning uncertainty related to things from a policy dynamic that are flaring up again and slowing things down, or again, whether this is just kind of normally what you would see going from calendar Q4 to calendar Q1. The second question is, our second topic is really on M&A and Simply put, how would you describe the environment, your readiness and your appetite to do a multi-billion dollar deal? Thank you.

Thanks, Doug. I'll take the first one and Adam can take the second one. So if you look at a proxy of pharma and you look at our replacement cycle, you know, we had a very strong quarter, you know, biotech led that business. And of course, what we saw was a reasonable budget flush. It wasn't over the top budget flush, but a reasonable budget flush there. at the end of December. I think January, we talked about some of the disruption we saw intra-quarter in Europe, for example, and the weather impact. But I would say it's been very, very steady. We've seen our funnels continue to be steady, in a lot of cases growing. And why is that? I think CapEx conditions continue to improve with the MFN deals reducing the tariff uncertainty. That's been very big for our pharma customers. You see the strong GLP-1 growth and our CDMO, the base in CDMO growing extremely well. And I think, you know, we're very pleased to see how the trajectory of orders continue to go on the CapEx side. Now, of course, we're watching our funnels as we go forward on it. So I wouldn't say there's anything that we see any deterioration in terms of CapEx. Capital allocation, which is a big question. I'm sure we get it a few times today. I'm going to get Adam to answer that one.

So thanks for the question. And I think it's important that we always start with our capital allocation priorities, which aren't changing. So one, we're prioritizing investments and growth, and that's through innovation, internal innovation. Second thing is M&A. And the third is investments in strategic capacity expansion. And at the same time, we're going to continue to return excess capital to shareholders, and that's through a growing dividend in share repurchases. The next thing I want to say as context is we like our organic business and we like our plan. We don't need to do any transformative deals or any transformative transactions to achieve those growth ambitions. Now, we don't have any arbitrary size filter on our deal funnel, but I want to be very, very, very deliberate about this. The bar is very high for a transformative deal, and there aren't that many of those out there. So we're really focused on making sure that any deal that we do is aligned to our enterprise pillars, that we're focused on opportunities where we have a right to win we're able to integrate whatever asset we're buying and that we pay the right price for it so that we're generating cash on cash returns above our hurdle rate. So we think the market out there, there's some nice opportunities and we're continuing to evaluate those, but we're looking at them against the filter that I just said. And once again, we like our organic business and we don't need to do any kind of transformative transaction to achieve our ambitions.

Thank you again.

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

Hey, guys. Thank you for taking the questions. Porig, I want to focus on the LDG segment. You know, I understand the weather impact. It did come in light, even backing that out. It sounds like it's around the cell analysis and genomics piece, maybe some softer purchasing in Europe. It does sound like LCMS and the CDMO overall held in well there. Can you just expand on what you saw there? And then also staying in the LBG segment, just the profitability probably for Adam, what drove the softness there? Is that just mixed with the sell analysis? Want to get a little more color there?

Yeah, thanks, Patrick. And I think, you know, LDG grew 3% of the quarter, was a bit below our mid to high digit expectations. And I think in addition to the weather impact, we saw softness, I think, in academia and government that challenged our cell analysis and genomics business. But our larger end markets, you know, pharma, biotech and diagnosis grew high single digits. But Simon, do you want to give some more colour on LDG, what you saw in the quarter, particularly on those businesses? Yeah, I can.

Yeah, thanks, Parag. As Parag already mentioned, we were challenged by the weather situation and also the ongoing softness that we're seeing in academic research markets, most notably in the US. And in our cell analysis portfolio as well, we've got a relatively lower portion of recurring revenue mix than we have elsewhere. In our portfolio, when we've got a bit more exposure on the smaller capital equipment side there. So as we think about the macro situation going forward, the exposure to academic and government is always going to be there. And we still see a lot of cautious spending. But we also think we've got reasons to believe we're at or near the bottom. US academic science budgets appear to be plateauing. Europe is more stable. I think we're anticipating some modest incremental improvement in academia and government in Europe. And also the feedback I've been getting from the teams as I've been seeing customers and attending the sales meetings over the past few weeks is that there's a sense of optimism in the field. We've got a strong portfolio. We've got very strong conviction in the portfolio on a medium long term basis. And I think we'll see that improvement begin to unfold as time passes.

The only thing I'd add on margin is beyond the weather, the academic and government softness is there's the CDMO batch cadence that also impacts the margin in the first quarter. With CDMO, obviously, a batch is not a batch is not a batch. They're all a little bit different and have different revenue profiles and different timing. So just given the cadence we had in Q1, that also impacted the margin.

Okay. That's helpful. And then Adam, I wanted to pick up right there in terms of the CDMO. Can you guys just talk about NASD, BioVectra, what you saw in the quarter? It sounded like overall, it was low double-digit growth for the specialty CDMO. Can you just give a bit more color? And again, it sounds like the mid-teens still very much on the table. So just the visibility and pacing of those businesses as we work our way forward. Thank you guys.

Yeah, so I'll start off and then I'll pass it over to Simon if he has anything to add. But yeah, absolutely. So we saw low double digit growth in the first quarter as expected. And once again, it really is about the batch cadence. And it's the normal kind of quarter over quarter revenue variance that you'd expect. We continue to expect mid-teens growth for the full year. And that's based on our production schedules and the demand dynamics we're currently seeing in the market. And I guess the only other thing I would add that may be helpful for you is our mix of business and NASD continues to skew toward larger commercial batches with about 60 percent coming from commercial programs. And then on the other hand, commercial programs represent about only one third of the biovectoral revenue. So they have a little bit different profile. But, you know, we expect based on what we have now that it will continue to ramp through the year.

I think Adam covered most of it there. Just to add a couple of points, we did see strong year-over-year order intake in the first quarter. As Adam said, NASD continues to skew favorably towards commercial programs, and as we look to the rest of the year, we've got good visibility to the pipeline, and we see revenue ramp in the second half of the year.

Great. Thank you, guys.

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

Great. Thank you. Maybe just to start off, you know, I understand if you back out the 10 million, you know, the growth would have been right in line with the 5% and you kind of walk through all the puts and takes. But just kind of stepping back, you guys have been on a pretty consistent pace of like coming in ahead of guidance. 5% growth is still solid in this environment. Just wondering how we might think about the rest of your guidance in terms of, you know, what would drive you to the higher end, to lower end, you know, given that trend of, you know, consistently beating numbers and now it looks like more in line this quarter.

Yeah, I think just talking at a high level, we're really set up for success, Dan. You know, you look at the innovative products really going extremely well, Infinity Tree and the replacement cycles, ProIQ, you know, the strong commercial team, you know, good connection with customers and our enterprise service capabilities that I talked about in my prepared remarks. And I think it was a solid Q1 and excellent growth despite the weather, you know, and at top line, we're confirming it. I think it's prudent, but appropriate giving the macro uncertainty that's around as always. And I think the operating profit growth of 10 percent and 75 bps margin expansion at the midpoint is really well. I have to say, you know, we've had a number of sales kickoffs around the globe in the last month. Funnels are very robust. The thing we've seen almost our best market share report that we've seen to date. So everything is moving in the right direction. So that gives us positivity as we go through the year. Got it. Thank you. Oh, go ahead. Sorry.

Sure. No, I can just give you a little bit more detail on what would be pushes to the upside versus pushes to the downside of the gut, if that's helpful. And it's really around three things. One is a pickup in the small and mid-cap biotech sector. All of the green shoots are still there, but then there's that time lag between You know, how does how does all the incremental investment IPOs and M&A convert into actual spending and investment? The second is academia and growth. If we start to see more stability there, that can push us to the upside. And then the third, while China remains stable, we believe it'll be stable about that 300 million dollar. per quarter run rate. You know, if there was a stimulus, a bigger stimulus toward the end of the year, that would be an upside. What I will say is there was a small stimulus in the first quarter, which we did very well in that offering. And so that would give us confidence if there was a second SAMR stimulus that happened later in the year, we would perform well in that. So that's what pushes the upside. The downside is just then the opposite. If small and mid cap remain pressured, academia and government continues to get worse. And then China, we see decline in the low single digit range versus our flat assumption.

uh and maybe second one just on cam obviously super important business really strong quarter you gave some color but just a little bit more there um in terms of you know why it came in better i know you addressed it in the prepared remarks maybe a little bit more color and how you're thinking about that going forward for the rest of the year thank you yeah it's sometimes an underappreciated part of our business you know it's our core business our heritage is in the applied markets and cam you know nine percent growth uh

And of course, the advanced materials sub-segment, which grew at 20%. We saw really robust demand because of our leading position around semiconductor. You see there's a lot of reshoring going on on that. I think our spectroscopy and our GCMS tools are critical in that manufacturing supply chain. And of course, for... chemical plants that are around helping on that. So the ongoing reshoring really helps in that space. And I think, you know, also the increased clarity on tariff policies, you know, if there is that in East US-China tensions and, you know, strong demand for memory chips. And we're number one by a long way in the CAM market by far. You know, our leadership positions and our market shares are unmatched in that. So you put it all together, it's a very important secular driver for us. And we could see that continue throughout the year.

Your next question comes from the line of Dan Leonard with UBS. Your line is open. Please go ahead. Dan, a reminder to kindly unmute yourself.

Sorry about that. Thank you for taking the question. And I'll pick up right where you left off, Poreg. Poreg, you talked about atomic spectroscopy upside in the quarter due to the memory shortage. Not something you talk about a lot. So how are you framing that opportunity?

Yeah, I mean, it's not just the memory shortage, but it's the reshoring of fabrications, fabs that you see that globally, you know, you even see in India where fabs are being set up also in Asia and the Americas. So I think that has been, it's been really a mix of all that together and a lot of demand on that side. Also on the chemical side, you know, you have downstream processes that are needed for AI that supports that in terms of it. And that really bolsters a lot of demand. And just to give a bit of color, Our chemical business is about two-thirds advanced materials, about one-third of the cam business. So we expect that to continue to see that growing. And of course, the energy business where we're working on the battery side is naturally head against oil volatility as well. So we continue to see good strength in that. So it's a mixture of all of the above.

Thank you. And just to follow up on what you're seeing in pharma, you mentioned a mid-single-digit growth in small molecule. Is that all GLP-1s? And can you talk about the situation in pharma outside of GLP-1s?

Yeah, so, you know, biotech kind of grew low double digit for us. That's really around, you know, our specialized CDMO core growth of low double digits. What we see is the U.S. biotech recovery is starting in well-funded large caps. We see that continuing. Small and mid caps, improved funding backdrop is really, really helping us. And breaking it down, you know, if you look at our small molecule business, which is very solid at mid single digit growth, you kind of see Asia leading the way in small molecules with low double digit growth. We see that continuing. And of course, we're very well hedged on the GLP one side, both from our CDMO side, but also our analytical side. We were testing both on the orals and on the injectable side. And as we go forward on a GLP grew at 50 percent in the quarter last And that was 7% for the analytical labs and on the CDMO side, 120% growth. So I think, you know, you underpin all of that in the market conditions. And then you look at our replacement cycle moving forward, 40% growth in our single quad, which is right at the sweet spot of QAQC. So it's a really, really strong momentum in that market as we see that continue for the rest of the year.

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

Thank you. Good afternoon.

Sorry, Jack, I think you dropped off there. I'm muted.

Operator, can we go to the next question and we'll circle back to Jack once he's back on?

Absolutely. Your next question comes from the line of Michael Riskin with Bank of America. Your line is open. Please go ahead.

Hey, guys. Thanks for the question. Hope you can hear me. I want to follow up on what I think Patrick was asking about earlier about some of the moving pieces in the quarter, especially with the 10 million weather shift. Just want to make sure we're understanding the dynamics correctly. My read of it is it sounds like you've had a slightly slower start to the year than you anticipated in select markets like sell analysis, like A&G specifically. maybe a little bit on food. I just want to make sure I'm understanding that correctly. You know, again, don't want to blow it out of proportion, but especially with the 10 million shift, just want to make sure we get that. And then a follow-up to that is, you know, obviously you're maintaining your full year core guide. Is there something that's offsetting that where, you know, you talk about GOPs, you talk about camp, Is the strength there offsetting it? It's just sort of like you had buffer in the model built in and you're absorbing some of these hits. You expect to recoup it later in the year. Maybe an easier way to ask all of this is, you know, you've given us sort of, you typically give us an end market breakout for the year in terms of core growth. If you could run through that compared to where you were a quarter ago, that might be helpful.

Thanks. I mean, you want to take this one, and I'll take the second part of that question.

Yeah. So I think just in the dynamics of the quarter, there was minor differences in our small markets, but our key markets actually performed quite well. So if you think about pharma, CAM, and then our diagnostics business, they all performed very well. And then we had small pockets of slight differences from where we guided. And overall, we were actually doing quite well. And then the unfortunate was the storm hit in the last three days of the quarter. which are our biggest days of the quarter, and we weren't able to recognize the revenue, which we've since recognized the following, actually, Monday.

And then I'll pass it over to Paul. Yeah. And, you know, it's you know, I don't want to kind of if you're looking at the academia and government side, you know, it's the smallest part of our business. You know, NIH is one percent of our funding. And so it's slightly less than what we expected. But but it is really the smallest part of our business. And I think I described the real momentum we have in the key markets, you know, continuing improvement in pharma business. We're seeing spend in biotechs. GLP-1 business continues to be extremely strong. CDMO continues to move forward in cam strength. And you put that all together, you know, with the funnels that we're seeing and our outsized growth on our infinity tree. If you look at that compared to our peers, we're almost 2x in terms of the quarter, and that's driving the replacement cycle. So all of those things moving together, we're very positive about the rest of the year.

And then I just remind you that for the full year we're maintaining our end market guys. We expect them to land in roughly the same place. Okay. Okay.

All right. Appreciate it. That was a long one, so I'll just leave it there. Thanks.

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

Thank you. Hopefully you can hear me now. Yes. Excellent. Sorry about that. I wanted to follow up on the M&A question because this is the number one debate we've been fielding. You talked a lot about how Ignite has improved your capabilities around M&A execution. I was just wondering if you could elaborate on that as number one. And then number two is just from a product area. I was curious your take on diagnostic assets. You have a unique position with DACO that seems to be doing pretty well. Just where does that, like the IBD market, stack up on your pecking order as kind of an industry of interest?

Yeah, Adam, maybe you can talk about Ignite and what we're seeing on the integration capability side, and I'll take the second one.

Sure. There's a couple pieces to why Ignite gives us the confidence that we'll be able to integrate an asset effectively. If you look at what the Ignite program is, it's really about a management system and how do you bring a bunch of different functions together to execute on a project in an efficient way. And that's exactly what an integration is. And you think about managing tariffs, that's a cross-functional activity where you need people moving in coordination together. and to achieve an outcome, that's what an integration is. So that'd be the first point I'd make is just running through the Ignite program and using the Ignite system that we've now implemented. It gives us confidence we can execute an integration. The other piece I'd point out is BioVectra. We've leveraged that capability to integrate BioVectra into our network. And so that's another proof point to our readiness to integrate the right asset.

Yeah, I think Adam talked about our capital allocation philosophy. I won't go back over that one. But, you know, we're focused on increasing our service and recurring revenue mix. I think we've been very clear on that when you see software and automation, also content on systems, et cetera. And we have many high growth adjacent markets where we would have examples and all of that. Specifically about diagnostics, it's one of our businesses. That's not excluded, of course, but it's a very durable market. We have a 7% growth in Q1 and pathologies in mid-single-digit growers we've seen over time with a lot of long-term growth drivers. So it's an area where we will continue to look in all those spaces. But again, where do we have a right to win? Does it link with the strategy within that segment? Does it increase our recurring revenue? That's very important to us as we go forward. And, of course, then we have the Ignite operating system to allow us to integrate it very quickly as well. Thank you, guys.

Your next question comes from the line of Puneet Suda with LeeRank Partners. Your line is open. Please go ahead.

Yeah, hi, Parikh and Adam and team. Thanks for taking my question. First one, again, GLP-1 growth here is strong, but my question is more on the utilization on the Oligo side, on the NASD side. Any update to the full utilization of Train C, which I think is anticipated in 2027? The question is really around the margin impact in light of this utilization, where it stands today, how it ramps up, and how should we think about the commercial batches versus the early stage pipeline work that you're seeing?

Yeah, I'd start off and I'll hand it over to Adam for some more color. You know, we have a very strong order backlog and we're confident in the FY26 outlook continuing to ramp. You know, of course, you have month to month variances, but we have trained C&D coming online. I have to say we're delighted to have that capacity coming online where it is because we're booked out for 26 and now we're booking into 27 with larger commercial batches. So is that the right time? But Adam, do you want to give more color on that cadence?

Yeah, so thanks for the question. And I think at SteadyState, the specialty CDMO business will return above our operating margin, above the corporate operating margin. So it's a good business to be in. Specific to 2027, train C and train D will be ramping through the year. And so there will be a negative margin impact, however, will offset that through other activities within the business. Got it.

Okay. Namely, through Ignite. I see. Okay, that's helpful. And then just to follow up on that, you made a comment about the small biotech capital raises and capitalizations driving growth. Just as you see that across the business, just wondering... Maybe if you can double click and where are you seeing that? Is that more on the LCMS instrumentation side, cell analysis, or is it more on the CDMO side, business side of the business, where you're seeing the uptick from the emerging and small biotechs?

So let me, I think I just need to clarify because it was set in the context of what would be the upsides to the forecast. So it was really set around, hey, if we see a meaningful uptick in the small and mid-cap biotech, then we would start to see upside to our forecast. So while we have seen the capital market profile change, improving, we have yet to see a meaningful uptick in the small and mid-cap investments.

Yeah. Yeah, if you look at small and medium sized biotech, we have a relatively small exposure, but we're actually encouraged by the improving biotech funding and increased M&A. You see that a lot. You know, if you look at the macros in January, total biopharma financing rose about 11 billion. That's a two year high. So we watch that. You have the patent cliff that's looming, of course, with heightened biopharma focus and M&A. And I think 25 is one of the strongest years in M&A for pharma, which, of course, I think about 240 billion. But I think it's too early to cause an inflection on it. And there's a lag, I think, between improving funding environment and customer spending. But we're extremely well-placed with our tools. You know, if you look at the ProIQL CMS on that side, also on our Infinity Tree. And, of course, we'll see a recovery in our cell analysis business for those tools as we go forward on it. So that's the way I would say it. But it's really a relatively... a small exposure for us, but we're really encouraged by the improved farming environment.

Your next question comes from the line of Brandon Coulard with Wells Fargo. Your line is open. Please go ahead.

Hey, thanks, guys. Good afternoon. The 6% growth in China, was that all stimulus-related? And it'd be helpful if you just touch on a couple of the end markets there. Curious if you're seeing any of them turn more positively or if it's really just still status quo.

Yeah, I mean, we were very pleased with our 6% growth. We're better than expected. You know, if you look at compared to peers, also very expected. And that's, you know, there was a slight bit of more spending before Lunar New Year, but not too much. And I think we saw an outside. Last year, we saw a very strong GSEC stimulus increase. We saw a small one this year. We won about 30 percent of that. And I think, you know, as we go through the year, we expect it to be a 300 million dollar quarter business on it. But if you look at, I think, overall in the business, we're under indexed DX and pharma. We are over indexed the applied markets and we see continued strength on that side. So we expect China to grow mid to high single digits over the long term and not the double digit rates we saw 10 years ago, but mid to high single digits. And our track record is how our ability to manufacturing in China and our commercial teams very, very close to the customers is really important. And of course, Adam talked about the larger stimulus that's looming towards the end of the year. We're not counting that in our guide, but if that comes in, it's going to be significantly more than the GACC stimulus. And we expect an outside win in it. But to be honest, if you look at the We're optimistic about China. We have the largest install base. Look at the pace of innovation in life science and the applied markets that supports demands for instruments and our solutions is very strong. And if you look at the China 15 five-year plan, whether it's rapid application on AI, healthcare, green sustainable developments and new regulations for pollutants like PFAS, we're right in the sweet spot in terms of those priorities. So we feel very good about China.

That's helpful. Um, and then Adam, it'd be great to get some color on the Angie markets by region. I think Simon said Europe was pretty solid. So just curious where you're seeing the weakness visits all in the Americas. Um, any color would be helpful by region. Thanks.

Yeah. So the softness we've been seeing is really primarily in the America, the Americas. And, and, and I guess there's reason to be optimistic. You know, the NA, the NIH budget came in, in line, um, with, you know, flat to slightly up, um, The 15% cap on overhead research costs was blocked. That said, it goes back to where Simon talked about, which is, you know, we're still seeing a little bit of hesitancy in our customers to make bigger investments as they're really focused on operating their labs.

And just to clarify the Europe comment, that was a forward-looking comment that we envision more stability in Europe than in the Americas with academic and government and cautious optimism around incremental improvement. That was a forward-looking statement.

Your next question comes from the line of Casey Woodring with JP Morgan. Your line is open. Please go ahead.

Great. Thanks for fitting me in. I'll ask my two up front. The first is just on LC and LCMS pacing over the course of the year. You know, LC grew high singles in one queue. Can you just talk about what LCMS grew in the quarter and walk through the growth phasing for LC and LCMS over the course of the year? And then secondly, Porig, you know, you called out the three marquee enterprise service wins and ACG, and you talked a little bit about it in your script. Can you maybe just elaborate on what the financial impact could look like from those contracts and how we should think about the impact to the model and how those ramp over time? Thank you.

Yeah, let me talk about the enterprise services and I'll comment then on the LCMS. I think on the enterprise services side, it is a really important flywheel for the future because we're really fully working with customers on their lab management and productivity. You can imagine the insights we get off replacement cycle through that. And how do we move forward on it? So it's not just about the services, it's about the consumables. And it's about the instrument replacements that we can go going forward on it. We've had a significant displacement in competitive accounts. We're kind of unique in how we're doing that in the market. And we're seeing that as a flywheel to continue going forward. And of course, we see in accounts where we do have enterprise service agreement, we have a higher consumables attach rate, we have higher services attach rate. And actually, we have an early warning system around replacement cycles that we have early conversations about. On the LC side of things, I think it's been a steady pace, really good quarter. And I think on the LCMS side, I don't know if you want to add anything.

Yeah, well, just to reiterate on LC, we saw high single digit growth in the quarter, particular strength in China and APAC. And as we've mentioned already, very strong performance in Infinity 3. Customers continue to love it. And I still think we're relatively early mid on the replacement cycle there. Win-loss rates continue to be positive. Notable share gains based on the industry data. And we're now seeing additional tailwind there with the Altura columns. On the LCMS side, we were in line with expectations in the first quarter. Coming off a tough sequential and year-over-year compare, it has to be said. But again, we were very pleased with ProIQ with the 40% growth, really exceptional performance. adoption there and in lcms similar story with respect to win-loss rates and the industry data which signifies some notable share gains and then beyond the pro iq which is off to a very strong start we're also very encouraged by our broader lcms innovation pipeline yeah just going back to the enterprise services part i just want to bring in angelica because she's been very close to some of these marquee wins under the growth trajectory and what you're seeing with the customer

Yeah, thanks, Parag. And thanks for the question, Casey. You know, I think we're very excited about the enterprise business and the opportunity that unlocks. I think Parag used the word flywheel earlier. And when you think about it, it allows us to really embed our service experts into the accounts. And they're looking at managing assets across the laboratory. So not only does it give us the opportunity to help customers with their lab operations and keep their labs up and running and producing those scientific results, it gives us visibility and access more broadly. in these laboratory environments so that we're not only looking at our own replacement cycles, but we're also looking at competitive displacement opportunities. We're looking for incremental wallet share opportunities. And over the course of time, the relationships that we're building, they compound. They compound from a growth perspective, but they also compound from the insights that we get from customers and how we bring that back into the innovation muscle that we have here at Agilent and how we can continually improve grow, evolve, and continue to serve our customers on all different levels, whether it's lab operations, it's scientific outcomes, or it's ongoing value over time.

Your final question comes from the line of Evie Kozlowski with Goldman Sachs. Evie, please limit yourself to one question. Your line is open. Please go ahead. A reminder to please unmute yourself by pressing star six.

Operator, Phoebe's not there. I think we can leave it there. It's all the time we have for this afternoon. And thank you to everyone for joining us. We look forward to speaking with you soon.

This concludes today's call. Thank you for attending. You may now disconnect.