Q1 2022 Agilent Technologies Inc Earnings Call
<unk> Mike.
Pardon me and thanks to everyone for joining our call today.
Our momentum continues.
The ads on team delivered a strong start to 2022 in Q1.
Exceeding the expectations of both the top and bottom line.
Q1 revenues are $1 $67 billion.
This is up 9% core.
At up 8% reported.
This is on top of growing 11% core in Q1, a year ago.
Excluding COVID-19 related revenues, our core growth is even better at 10% this quarter.
We continue to see strength in our order book with robust order intake throughout the quarter.
In fact, Q1 orders grew roughly twice as fast as revenues.
Q1 operating margins are healthy 26, 3% up 80 basis points from last year.
Earnings per share of $1 21 are up 14%.
The EPS increase is versus a tough comparison of 31% growth in the first quarter of 2021.
These strong results have been achieved in a very dynamic environment.
I could not be more proud of the agile teams ability to execute and deliver.
Let's take a closer look at some of what's driving our strong results.
Bob will go into more details later in the call, but our two largest markets continued strong double digit growth.
Our pharma business.
<unk> largest market continues to lead the way for us.
Growing 17%.
Global and market demand for our products and services remains very strong.
Biopharma grew 32%, while small molecule growth came in about <unk> at a robust 9%.
The momentum in our chemical and energy business also continues.
<unk>, 15% growth in the quarter.
This was driven by mid teens revenue increases and chemicals and advanced materials.
PMI has remained positive along with our overall outlook and the chemicals energy and advanced materials markets.
On a geographic basis, our results were led by 13% growth in the Americas. This is on top of 13% growth in Q1, a year ago.
China grew 3% on top of 25% growth in Q1 of last year.
And was impacted by the timing of the lunar new year as noted in our November call.
Demand in China remained strong as orders grew high teens in the first quarter.
We continue to invest in China for China to further strengthen our ability to serve our customers.
We recently announced a $20 million expansion of our Shanghai manufacturing center to meet growing demand for our locally made liquid chromatography spectroscopy and mass spec systems.
Looking at performance by business unit, the life Science and applied markets group generated revenue of $976 million, an increase of 7% on a core basis.
This is versus a 10% core growth in Q1 of 2021.
<unk> growth was led by strength in the pharma and chemical and energy markets.
From a platform perspective.
Customer interest and purchases of our chromatography systems and mass spec offerings are very robust.
Our chemistries and supplies business, which moved over from ACG. This year continues to do very well delivering double digit growth.
We also continue to invest and strategically partner for future growth.
Late last week, we announced the acquisition of very exciting artificial intelligence technology there'll be integrated into our industry, leading chromatography businesses.
This technology has the potential to significantly improve ladbrokes productivity and accuracy by automating.
My interpretation on chromatography data.
We believe that this capability will be very well received by the high throughput labs Atlas servers around the world.
This acquisition.
As an example, or a build and buy growth strategy as our covenants. The work our internal R&D teams are doing to develop these types of capabilities for other Ashland platforms.
During the quarter, we also announced the partnership Alonza to integrate ashland's analytics technologies and techniques into launches Cocooned platform cell therapy manufacturing workflow.
Collaboration has the potential to transform the way personalized cell therapies are manufactured.
In addition to ensure we can meet the strong and growing demand for our cell analysis offerings. We also recently announced plans to invest more in the $30 million for the construction of a new manufacturing site in Chicopee, Massachusetts.
The ASEAN Crosstie group posted services revenues of $359 million.
This is up 10% core against 11% Q1, 2021 core growth compare.
This growth is broad based with strength in service contracts preventative maintenance compliance education, and Informatic enterprise services.
Our focus on providing a differentiated customer experience that leverages, our large scale and talent customer support team continues to pay off.
Our connect rate continues to improve and our install base continues to expand.
Both boding well for continued strength in our services business.
The diagnostic and genomics group delivered revenue of $339 million up 14% core versus Q1, 2000 and core growth of 15%.
Our excellent growth is broad based across pathology genomics and NASD.
Our pathology business grew roughly 10% with strength across all regions.
Our core genomics business grew low teens with strength and target enrichment and our genomics quality control product lines.
The NASD team continues to deliver.
Driving 45% plus growth in the quarter.
Meanwhile, the additional capacity expansion at our Frederick GMP Oligomer manufacturing facility continues to proceed as planned.
We continue expect this capacity to come online by the end of calendar year 2022.
A resolution bioscience team achieved a major milestone in the first quarter by completing the pre market approval submission for the resolution <unk> liquid biopsy as a companion assay as a companion diagnostic.
This was done in conjunction with <unk> therapeutics for non small cell lung cancer and.
And it is currently under review by the FDA.
It is the first of what we hope will be several indications for liquid biopsy assays.
I am pleased with how we have started the year.
Building on our Q1 results.
Continued order strength and execution prowess, we are increasing our full year financial guidance.
We have raised our core growth guidance to a range of 7% 8%.
Up 125 basis points at the midpoint from our prior guidance.
Fiscal year 2022, non-GAAP EPS guidance is increased to a range of $4 80.
Two to $4 90 per share.
Growing to 11% to 13% over last year.
Bob will define the Q2 outlook along with more detail on our improved full year guidance.
We're very pleased with our Q1 results and are looking forward to another strong quarter and year ahead.
I'm also very confident our team and our ability to execute and deliver for our customers and shareholders no matter what the challenge.
Thank you for being on the call today and I look forward to taking your questions. Later, however for right now I will now hand, the call off to Bob Bob.
Thanks, Mike and good afternoon, everyone.
In my remarks today I'll provide some additional details on revenue.
You through the income statement and some other key financial metrics I'll, then finish up with our improved outlook for the full year and our guidance for the second quarter.
Unless otherwise noted my remarks will focus on non-GAAP results.
As Mike described we posted very strong results in Q1 and exceeded expectations revenue was $1 6 billion 67 billion.
Our reported eight 1%.
Core growth was even better at eight 9% as we overcame a greater than expected negative exchange rate impact of one three points.
While M&A added half a point to growth.
Q1 core growth was 170 basis points higher than the top end of our guidance in.
In addition, after adjusting for the one point headwind due to COVID-19 revenues.
Our core growth outside of Covid was roughly 10% and as Mike said order growth was even better.
Again, a very strong start to the year.
Now moving to our end market performance. Our results were driven by a continuation of strong growth in pharma led by Biopharma, while momentum in chemical and energy and our strong results in diagnostics and clinical also led the way for us in Q1.
Our largest market pharma grew 17% during the quarter on top of 20% growth last year.
The small molecule sub segment delivered high single digit growth.
Large molecule continued its strong performance growing 32%.
We are seeing our ongoing investments in biopharma paying off as demand was strong throughout the quarter.
We continue to believe in the long term growth potential of the pharma market and that our business will drive above market growth.
Chemical and energy continued to show strength growing 15% during the quarter.
Growth in chemicals, and advanced materials led the way and we expect continued growth in this business.
Diagnostics and clinical grew 11% on top of 9% growth last year with all three business groups again, expanding revenues nicely during the quarter.
Our expansion of El CMS equipment into the clinical space continues to do well.
And our growth in China was particularly strong increasing more than 30% as we continue to penetrate this market.
The academia and government market was flat in Q1.
The business remained resilient despite omicron impacts in the U S. As some universities delayed in person learning in the period. Following the holiday break in December and reduced lab activity in January we have seen lab activity improve into February and believe the funding environment remains positive.
The food segment declined low single digits against the very strong 22% growth comparison from last year.
The Americas were a bright spot for us growing in the mid teens, while Europe was flat and China was down due to a difficult comparisons and lunar new year timing.
Closing out the performance of the markets environmental and forensics, our smallest market was down 11%.
For agile and overall on a geographic basis all regions again grew in Q1 led by Americas at 13% and Europe at 6%.
China grew 3% on top of 25% in Q1 last year. In addition to the effect of lunar new year timing, which should benefit us in Q2.
Now turning to the rest of the P&L first quarter gross margin was 56, 1% up 30 basis points from a year ago.
Our team has done a good job increasing productivity and pricing has helped offset higher input and logistics costs.
Operating margins of 26, 3% increased 80 basis points, even as we have increased our R&D investments.
Our investments in digital technology for our internal operations also continue to pay off as we leverage our infrastructure across the company using our one agile and approach.
Our tax rate of 14 on quarter came in and as expected and.
And we had 303 million diluted shares outstanding slightly lower than projected.
Putting it all together, we delivered EPS of $1 21.
Up 14% versus last year after growing 31% in Q1 of fiscal 2021.
We continue to produce strong operational cash flow generating $255 million in the quarter, beating our forecast.
We also invested $75 million in capital expenditures during Q1.
And during the quarter, we took advantage of market volatility to repurchase $447 million worth of shares.
And we also paid out $63 million in dividends, returning a combined total of $510 million to shareholders.
Our balance sheet remains very healthy with a net leverage ratio of <unk> nine times.
Given current market conditions, we expect to continue to be aggressive in deploying capital.
Now, let's move on to our improved full year guidance and our outlook for the second quarter.
As Mike indicated we are raising our full year core revenue growth to an expected range of 7% to 8%.
Up from our initial guide in November of five 5% to 7%.
Excluding the Covid related half point headwind this year, our new full year core revenue growth results in seven five to eight 5%.
This new guidance takes into account our strong Q1 results and an improved outlook for the rest of the year on a core basis.
While we've increased our core growth expectations. The dollar has strengthened considerably.
Doubling the estimated exchange rate headwinds from our initial guide to $110 million for the year, while M&A impact remains relatively unchanged.
Putting it altogether, we are expecting full year revenues to be between $6 67 billion and $6 73 billion.
In addition, we've increased our EPS guidance for the full year to $4 80 to $4 90 per share up from the previous range of $4 76 to.
To $4 86.
And representing 11% to 13% growth versus fiscal year 2021.
Yeah.
For Q2, we're expecting revenue to range from 1.5 dollars 95 billion to $1 65 billion.
This represents core growth between 7% and 9% after adjusting for an expected half point.
Impact related to Covid year on year.
And we expect reported growth in the range of four 6% to six 6%.
Exchange rates are expected to have a negative impact of about two 3% in the quarter.
While M&A is expected to contribute <unk> three points to growth.
In closing out our Q2 guidance non-GAAP EPS is expected to be in the range of $1 10 to $1 12 up 13% to 15% versus the prior year.
This is based on a 14.25% tax rate and 303 million diluted shares outstanding.
Again, the agile team performed extremely well in Q1 and with a solid growth were seeing in orders and the team's willingness and ability to take on every challenge that comes their way I'm confident that Q2, and our full year results will also be strong.
With that permit back to you for the Q&A.
Bob Emily if you could please provide instructions for the Q&A now.
Of course, if you'd like to ask a question. Please do so now by pressing star followed by one on your telephone keypad.
Your mind and wish to withdraw your question from Nicky. Please press star followed by case.
Turning to ask a question. Please ensure that your device and you might find is unmated lately.
Our first question for the call today comes from Tycho Peterson from Jpmorgan your.
Your line is open.
Great Hi, this is Rachel on for Tycho, Thanks for taking the questions. So first off great. Thanks.
<unk> diagnostic package overview. So can you just give us the expected timeline for when you think you'll get that back and if anything is expected in contribution for this guy.
R 22.
Rachel Thanks for that question I'm going to pass it over to Sam.
Okay.
Yes, Rachel Thank you very much for the question. We are very excited about having completed all the modules and made the submission.
<unk> for the companion diagnostic related to Marathi.
Ed aggressive.
Yes.
As you know now we have done what we need to and will engage with the FDA as they come back with questions We cat.
We don't exactly.
Are able to control the timeline and as you likely know the actual approval would be very much tied to the approval of the drug itself, which of course, we have no control over either.
But we are very excited about the progress.
Okay.
Yes, I would say similar to the following question.
Yes, yes, so I think Bob had a build on that just to build on that.
As was recently disclosed that <unk> date is scheduled for the end of this fiscal or calendar year. So there is there is.
Not any material revenue associated with.
This built into our fiscal year guide, but we're very excited about the opportunity in 2023 and beyond.
Thanks, a lot Ed.
Thanks have a good guy.
Can you just give us a rundown on the updated outlook by end market for what's assumed in the new guide.
For the full year or second quarter ratio.
Both would actually be great.
[laughter] Jess general and witnessed.
So I think very similar to what we had talked about at the very beginning of the year.
Two strongest markets will continue to be our pharma and chemical and energy market I think as we look at those.
Certainly both of them performed better than we expected in Q1, and our expectation is that those will continue to be the driver of growth for the full year with pharma, probably roughly double digit growth in chemical and energy about that high single digit double digit growth as well and then followed very closely by diagnostic.
Six.
Yeah.
At high single digits, and then food environmental and in Academia and government are probably in the low to mid single digits, which is pretty consistent with our expectations at the beginning of the year and it's it's slightly.
Different but same same directional four for Q2.
With pharma, probably being a little stronger.
Got it.
For chemical and energy can you just talk about if you see any risk coming from Russia, and Ukraine and then also if you could just touch on that decline of 11% this quarter and environmental how much of a headwind with covance for that program is there anything else underlying that market, that's really changed relative to your prior expectation.
Yes, I would say for chemical and energy as you know our business is really globally based and so as of right now we don't see any material impact to the chemical and energy market or our forecast going forward. Obviously, we're watching that closely and then I think for environmental and forensics.
Our smallest market and can be lumpy there was some impact associated with Chinese lunar lunar new year in China.
But we haven't seen any impact there what I would say is we are starting to see.
Some of the disbursements more in our order funnel than in revenue associated with the infrastructure.
Initial bill here in the United States, So I wouldn't read anything into it in terms of changing fundamental demand.
Great. Thanks for taking the questions.
You're quite welcome.
Our next question today comes from Matthew <unk> from Goldman Sachs. Matthew Your line is open.
Hey, guys. This is Dave on for Matt its.
It's great to see the strength in Biopharma end market.
Impressive given the challenging funding market for that.
These biotech firms any additional color you can give on what youre seeing in the biotech end market and productivity there.
Yes, Dave first of all thanks for the recognition, we're really pleased with that 32% growth print.
And we see the underlying demand remaining strong.
And Bob I think it's fair to say, we haven't really seen any impact at all from what maybe happened in the biotech funding arena.
We are very excited about our portfolio and how it plays into that space.
Our believing that that strong growth will continue going forward.
Fantastic.
And any additional color on the drivers of the strong margin expansion in <unk> and how sustainable is this margin expansion over the rest of the year.
Yeah I'll jump in there.
The team at <unk> has done.
Done a fantastic job really driving margin and if we look at it it's a combination of being able to cover our costs from the standpoint of the increased logistics and material costs as well as very strong.
Management discipline in the operating expenses, so it's a combination of.
Being successful in a price, which we had talked about before in covering those costs as well as being able to leverage our infrastructure across all three all three of the groups, but I think you also called out the digital investments that you're making so thats in particular showing up through the SG&A line as we leverage digital investments.
Fantastic Congrats on the quarter guys.
Thanks, Dave appreciate it.
Okay.
Our next question comes from Vijay Kumar from Evercore ISI. Please.
Please go ahead.
Hey, guys congrats on a nice quarter and thanks for taking my question.
Bob maybe a near term question here on the.
The second quarter guide.
The 200 basis points range.
Wider than your normal.
Typical advance your annual.
Guidance range is 100 basis points any reason for the wider branch in your comps do get.
Really hard in <unk> I'm curious.
What's giving you the confidence to get to that upper end of Hayden half, which would imply sequentially flattish with <unk>.
Yeah. So let me take the second part first.
As Mike mentioned in the call are demanding.
Continues to be very strong and we actually had order growth that exceeded revenue growth almost to <unk> and that gives us confidence around the order book going into into Q2.
Really across multiple end markets.
And.
So that debt.
<unk> gives us the ability to to deliver the are expected to deliver the high high high growth in Q2 in regards to the range there are still.
Uncertainties out there.
<unk> continues to.
Impact mainly Asia right now and then some other uncertainties.
Uncertainties, so I think thats, just taking a little wider lens, but we still feel good about the business for the full year and I. Appreciate the recognition I think probably we posted 19% core last year, yes. So.
So I appreciate that recognition Vijay.
And as Bob mentioned the book of business is really quite strong plus also our services business is really strong diagnostics. So the recurring revenue side of the houses.
Quite quite strong.
That's helpful. Mike maybe on.
The comment on the acquisition contribution here in the second quarter it seems to be.
Sequentially down is there any seasonality to that business.
What does the guide at CME.
You Didnt note the strong order book for <unk> is the guide assuming.
<unk>.
Both momentum.
Tapers down in the back half.
Yes no.
It doesn't and if there is an element of getting tough tougher comps, but the momentum continues I would say for Q2, it's more timing than anything else.
Relative to the M&A it is down slightly sequentially, but I would say in the overall scheme of things not material.
Got it thanks guys.
You're quite welcome.
Next we have a question from Brandon Couillard from Jefferies. Brendan Your line is open.
Hey, good afternoon.
Mike.
AI acquisition.
Sounds interesting, it's definitely a buzzword.
Would you expect to be making incremental investments with this deal and could you just comment on how widely AI tools are kind of used.
Today, when you would sort of expect this to be I guess more of a reality.
Feature.
Yeah, Brandon happy to do so I'm going to actually invite Jacob on the response here because yeah, we hear a lot about the buzzwords and when the team first came to me and started.
Thinking about this opportunity, we said well in actuality there is a lot more than buzzwords here, we actually have some lighthouse customers using using this capability already and as you'll hear from Jacob It really drives productivity for those high volume labs. So we think for certain segments market. This is actually going to be it's going to be a reality and Jacob why don't you answer bill.
In my comments, though there if you don't mind.
Yes, sure thanks for that.
Yeah, Brian and I'm very excited about this also on breaking the vertical control team here into adjuvant.
It might be a boss work, but we have really seen that it really makes.
A different and first of all it's been very regulatory informatics strategy.
We're all about digital I think lap and create that type both.
Both scientifically and productivity wise for our customers.
He is the first product realization witnessed already been prototype, we aiming toward a part of that.
That is very prone for AI right now and that is really the manual interpretation.
Of commodity graph, but Mike also mentioned and you.
Mostly lapsed spending highly trained to go out and do manual peak integration with tedious process and you can imagine if you have a high volume that that's a lot of investment going into this area and actually virtual control here have already proven by the customers that they can take a substantial part of that work.
And actually automated automate that so we're very excited about that regarding the Tms business first we have a substantial installed base and we actually believe that we can implement this year in the second part.
For fiscal 'twenty two.
Now long term, we do believe that the great opportunity to provide those algorithms also across our analytical platforms and also for other applications like juicy beliefs, and predictive maintenance and other things so even though the boswell days that a lot of video products behind this and I'm very excited about Mike.
Thanks Jacob.
Just one follow up for Bob I'll, just if you could just elaborate a little bit more about the book to bill in the first quarter and then cut.
Couple of just housekeeping, what's the lunar new year impact kind of in line with plan and last quarter, you talked about $15 million kind of delayed orders were all those recouped in the first quarter.
Kind of update on that.
Brandon as usual your notes are quite.
Quite accurate.
So let me address a couple of those things so the lunar new year impact came in kind of as we as we anticipated which should come back into Q2.
That transit time of that $15 million that came in but we.
We haven't seen really the improvement so thats still opportunities in the second half of this year.
Our end of the quarter coincide with the large snows snow storm in.
In the U S.
But the shipments were out and we still were able to deliver in terms of the.
The first question was about lunar.
So I think that's both yes, okay I think on both.
Brendan we Miss something.
Just to be quantified the book to Bill.
Alright.
Quantify the book to Bill, Yes, I knew that there was something else I was trying to avoid that one on purpose.
Because we're not going to provide that but what I can tell you is that the growth rate of our our orders was twice as much as the revenue growth and I would say our backlog.
Is the highest.
This is Mike I would just add one comment there was one word in my script I really wanted to make sure I emphasize here throughout the quarter. So this wasn't just a calendar December year end kind of story, we saw this order strength throughout the entirety of our fiscal Q1.
Got it thank you.
Mhm.
Our next question comes from <unk> <unk> from SBB Leerink your.
Your line is open.
Yes, Hi, Mike and Bob Thanks for taking the question.
So the first one is just a follow up on the on the order book I'm wondering if you can quantify that obviously that's been growing strongly and maybe just help help us understand one side you have the strong order book.
Confidence in the rest of the I mean, the guide throughout the year based on what you are providing.
But maybe just talk to us about the <unk>.
Sort of the cadence wise in terms of supply chains. Obviously, we're hearing we have a number of questions that we get it on supply chain frequently so I'm just wondering.
What's your level of confidence on the supply chain and turning those order books into orders.
Yes, so first of all I'd say that the supply chain environment continues to be quite challenging.
On the other hand, I remain quite confident because our team has found ways to continue to navigate through those and meeting the expectations of cost per terminal delivery times in fact, Bob if I recall correctly, our order cancellation was actually lower this year than prior year. So while I don't want to imply that it's all sunny out there in terms of the supply chain we've been.
Working on this thing for a while I mean, many quarters ago, we were working on this quarter and the second half of this year. So while the environment remains challenged externally I remain confident our ability to actually get product customers when they need it.
Yes, pardon me tier puneet to your first question.
On the quantification.
Not going to provide that other than what I had answered job He's got one Bob.
But we did we did buy the two X order growth rate.
Revenue.
Got it fair.
And in terms of.
Cell analysis, Mike that franchise has been growing you highlighted alonza the cocoon platform a couple of other capabilities. Maybe can you I know at one point, you had sort of quantify that business.
Wondering if you can do that again.
What sort of growth rates, you're seeing there and what's the what's the expectation this year given the acceleration youre seeing in overall in bio molecules. Thank you.
Yes. Thanks for that question, we love to talk about the cell analysis has been a really.
Great addition to the company of the year. So we continue to grow and expand that so first of all I would say that business remains very healthy.
We're seeing really good strong end market demand and Bob I think for the year, we're expecting double digit growth for out of the cell analysis business.
<unk>.
Really excited and the fact that in addition to the manufacturing expansion of that heightened chicopee that kind of gives an indication of our confidence in future growth and I believe we are close to bomb and Jacob closer North of 400 million for this business this year.
Sure.
Yes.
Got it Super helpful guys Alright, thank you.
They are quite welcome.
Our next question comes from Patrick Donnelly from Citi.
Patrick Your line is open.
Hey, Thanks for taking the question guys.
Hey, Patrick Mike maybe one on China, you know between the tough comp lunar new year, obviously, a few layers. There can you just talk about I guess, the core performance can stripping that out a little bit what youre seeing there what you saw through to your point there throughout the quarter I guess, the cadence and then the expectations going forward there as well.
Between the different markets there just curious what's going on.
Yes.
It's interesting sometimes you can.
You can get kind of kind of.
Diverted on the headlines out of China because of our business remains quite strong.
And.
We're seeing good strength in pharma is really been a key driver for us of which Bob pilot in the script, but also our diagnostics business DDG grew I think over 40%.
In the first quarter services growth in the mid teens. So other things that I've talked to you about which is in addition to continue to grow and strengthen our instrumentation.
Our portfolio of market share in China. We've also been talking about our ability to grow our ACG business in China with that large installed base and the fact that we've historically viewed ourselves will be an underpenetrated and diagnostic genomics and we're really starting to see traction on both of those those growth vectors. So again, we feel really confident about that.
State of the China business, because I don't have the order book, we have but also these other areas of recurring revenue.
Are really growing growing well growing well for us.
We continue to invest for our customers in China as I mentioned in my call script. So I think there's a lot to like about the opportunities in our business in China, Yes.
Yes.
Patrick just one other other thing while we grew.
3% as we as we mentioned if we add back in kind of the lunar new year estimate it was high single digits, which was.
In our in line with what we'd expected and our expectation is that that's going to be for the full year as well now Q2 will be stronger than that obviously you take as it comes back and we also saw <unk>.
Mid teen mid to high teens growth in orders in Q1.
Okay. That's helpful. And then maybe just on the academic government market Youre not alone obviously in calling that out as it had been a little sluggish to come back.
Maybe just what you saw there in January Mike I know you called out the remote learning maybe caused a little more of a pause even as we got into 'twenty. Two and then just expectations. There going forward do you expect the market to.
Normalized a little bit and what have you what are you hearing from customers on that front, yes. Thanks. Thanks for that Patrick we thought we'd see the omicron impact is transitory.
We saw that in the U S. For example, and we would expect to I think Bobby you called out in his script back to normal kind of levels of February . So we actually expect the environment to improve over the year I think I think we are flattish.
For Q1, but I think we're calling for.
Mid singles or so growth for the full year, so that would imply a pickup in growth in this segment later on this this year yes.
For everything that we see Patrick funding funding levels continued in activity within our order book continues to be strong so.
It's not.
Not as strong obviously is the pharma and see any areas, which.
Our leading the growth in the diagnostics, but we're not seeing any fundamentally different performance in that market going forward.
That's helpful. Thank you guys.
You're quite welcome.
Next we have a question from Jack Meehan from Nephron Research Your line is open.
Thank you good afternoon guys.
And I was hoping you could elaborate on the pricing actions you are taking in the market how do they compare to kind of normal periods and what areas of the portfolio have you had success when it comes to pricing.
Yeah, I'll take that Jack.
I think we mentioned at the beginning of the year that we were.
Estimating roughly a point of point of growth associated with.
With that which was about half of what we had seen normally.
To cover the increased cost and what I would say is through Q1, we're ahead of schedule.
Which is good.
Okay and then.
The other area I was hoping you an update on his NASD, so over 45% growth in the quarter.
Maybe just.
Any update to what your guidance is for the full year.
It seems like you're tracking ahead of schedule here and just.
When the new line opens up just what sort of pace you expect to be able to take advantage of that capacity.
Yes, I was going to say, we the team continues to do a fantastic job and continues to drive even more.
Our revenue and product out of the existing capacity and.
It was a great first quarter.
And slightly ahead of our expectations.
We had expected.
Double digit growth and that continues to be our expectation before the new new train train B comes online at the end of this calendar year and.
The order book continues to be strong that team continues to actually.
Build build the order book for 'twenty, three and building that demand for that training. So we are extremely excited about that business and are looking forward to not only bringing that up but also.
Looking for other ways to expand our capacity absolutely.
Thank you Bob.
Okay.
Our next question comes from Derik de Bruin from Bank of America.
Please go ahead.
Thanks for taking the question this is Mike on for Derik.
I wanted to ask a little bit on.
Okay, I will ask a little bit on the diagnostics and the clinical end markets.
In particular, you called out sort of the expansion of our CNS.
Some of the applications here and you're seeing a new vector of clinical growth here I was wondering if you could elaborate on that.
Just sort of what are the specific drivers you're seeing there.
And where some of that uptick happening.
Yes. Thanks for the question I'm going to pass it over to Jacob for some more details here, but also I would also just remind we also had a very good print on the pathology side of our diagnostics business, but.
I think as you'll hear from Jacob <unk> as indication of.
Future traction we're already getting some good growth so Jacob your thoughts there.
Yes, I don't think we have slowed the Europe have accurate.
<unk> clinical business.
But over the past year, we have also expanded our self into China have really good traction as we both have our own product line now direct sales, but we also have an OEM partner.
In that sense. We are we are both addressing the customers that we know, but also a lot of customers that we want to get access to and that's been quite successful and hence we are right now looking to expand the portfolio against product and we have the <unk> cost with our LTE connected and we're looking to other parts of our portfolio both within CMS.
But also beyond our CMS here over the next period of time, but we do see China, great opportunity and thought.
The next time, we will also enter into other areas like Europe and other places.
And Jacob on the <unk>, but I think the customers love the combination of performance and the size of the footprint it really fits nicely into the diagnostic lab.
Yes, exactly you know we spent a lot of energy.
Making it a fight that fits very well into the LC stack, but more than that we also made it more you can choose to work with so it's actually an ease of use solutions. So very excited about that and even better. The customers also super excited about that I do want to mention also that we also have a strong.
Clinical business within the flow cytometry.
Tia business and that continues to drive.
And particularly in China, where we see a lot of demand, but also as you might recall the floor.
Flow cytometry from the <unk> business is really focused on decentralized lap also against with ease of use and we see a lot of interest in that and.
And do we expect also that U S would be a future market cross here.
Great I appreciate that any any color you can give us just real quick on sort of how meaningful all CMS is within.
Within that 15% of your exposure is just to give us a sense of the scale of that relative to.
Genomics in cancer diagnostics and pathology at Entercom.
And.
Bob you want to take it all do you want me to yes, yes, I'll take it.
It is still relatively small, but growing very fast with the.
The market itself is quite large and so the opportunity here is really it in front of us going forward.
Great and if I could ask a quick follow up on just on the capital deployment side.
The M&A.
Obviously, you've done some small deals in the last couple of years.
And you continue to invest in new technologies.
You've got some you've had M&A deployed into sort of life science solutions and <unk>.
Cell analysis, you had things in liquid biopsy and now artificial intelligence. So Scott showcase that you can deploy capital in a variety of different end markets, but.
Just looking at where the balance sheet is now any thought on on larger acquisitions in a sort of scaling up to do a bigger deal.
And what excites you what markets would you be looking to sort of how would you go about it.
Deciding where to deploy that capital.
Okay.
Yes, sure happy to address that Mike. So appreciate by the way the recognition of the variety of where we deploy capital.
There is a consistent theme across the way, we deploy capital, which is high growth end markets, which will drive increase to the overall core growth of the company and places where we can leverage the scale and other capabilities. We have as a company to really make those business even more successful. So I think theres, a kind of a kind of underlying theme behind all of those.
Acquisitions, so that will continue to be our thesis and our approach as well as staying focused.
In the private sector, which we think there is a really fits well the agila model and often.
Potential acquire companies and leadership teams really find the ads on culture, a good place to be.
And they also see how well we've done with previously acquisitions. So we've got a track record as well that they can they can they can point to.
Now I'm on record, saying that we want to deploy our balance sheet as part of our overall growth story is part of what's been corner building by growth strategy.
As you May know the largest deal that we've done to date has been was the acquisition of biotech, but we believe we can do multiples of that deal and we will be willing to deploy capital.
If the right opportunity comes along for us.
Okay. Thanks.
Mhm.
Yeah.
Our next question comes from Thomas Petersen from Bad.
Your line is open.
Hey, guys. Thanks for taking my questions.
Sure I just wanted to circle circle back on pharma.
And just.
Wanted to know if you had seen any benefit within pharma from both onshoring activities in manufacturing redundancies.
Kind of if so where is this tailwind band and what are your expectations for for any potential durability.
Yeah, Great question. So I think this is actually a story both for the pharma as well as elements of our chemical and energy business and I'd say right now not yet material in terms of order book or revenue, but we believe it's coming.
There is a lot of discussions with customers that are that are building new capacity I would say, it's probably more of a 'twenty three kind of event, but I think it speaks to the durability of growth that we think we have.
<unk> two largest end markets. So we're hearing lots of discussions about dual sources of critical components.
Onshoring of previously Offshored.
Critical supply chain elements. So I think the continued supply chain challenges that the world is seen as only putting more emphasis on that direction. So I'd say right now.
In the longer term planning phase as you know the analytical laboratory instrumentation is often the last thing is added.
When they.
When they when they bring on new capacity, but we believe it's coming but it's not been material yet to the Companys performance.
Great.
Super helpful.
Maybe just to finish.
Just any updated thoughts on one agile and commercial organization transition anything that surprised you relative to expectation sort of how has that incorporation gone internally.
Yeah, so I'm going to have a poor I guess jumping here.
Some additional specifics as you know I have asked Paul to take on.
This role in addition to his leading the overall Ashland services business, but we're just delighted with the start of this new structure and I think you know.
I always say the proofs in the results and we're off to a good start with the.
The fact that we had such a strong Q1 order book throughout the quarter and pork I know, it's been just a few months, where you've been pulling your team together and but I think you're already starting to work with customers differently and maybe you could share.
Some of your thoughts here.
Yeah. Thanks, Mike I think we're starting to see the benefit of an enterprise approach to both sales and service.
Andy associated functions and of course, selling the complete out some solution to customers, which includes instruments services and consumables with aligned sales approach is really giving us a lot of scale with customers. We're also seeing a doubling down on our investments in our digital interaction with customers and we continue to see strong momentum with accelerating digit.
Growth of about 25%, so great great start Mike and more to come.
Yes.
Okay.
Our next question comes from Dan Brennan from Cohen, Dan Your line is open.
Hey, Mike Thanks for thanks for taking the questions congrats.
Sure Dan I was hoping to go back.
I want to go back to <unk> could you or Bob on your act.
Kind of unpack the customers their chemical R&M A&P to kind of give us a flavor for what youre seeing and I know the question was asked earlier.
The impact of what's going on but.
But just wondering.
As oil price spikes in the past kind of what what kind of impact have you seen if the oil price spike is sustained.
Yes, I would say if you look at the three.
Sub segments of the <unk> marketplace, we often talk about the the chemicals energy and advanced materials market I think it's the chemicals and advanced materials market segments that are driving driving the growth here.
Now they are radically when although it be it is now a much it's a very small part of the total number of these days.
Higher oil prices would tend to lead to more investment in that energy segment portion of the.
The whole market segment by I can't remember the exact percentage I know, it's evolved a bit over time.
But.
I think of most interest to US is how does the worldview global growth, where our PMI. So yes, I think highest correlation of growth in this segment related to <unk> and the global growth global growth outlook, but we.
It could be some more money to invest in exploration, perhaps if oil prices stay high, but it's really awesome, but it really driven by the PMI view, that's why they still remain positive.
That's why we're optimistic about ability to grow this overall market throughout the rest of this year.
Yes, Dan to build on what Mike was saying if we looked at those three big areas over 90% of our roughly 90% of our <unk> business is actually chemicals in advanced materials. So the energy piece is an important component, but that demand around.
New types of chemicals advanced materials, and so forth is really what's driving it and so whether it be batteries.
In other other areas around these.
Is.
Is the growth driver today.
Got it thanks, guys and then just related to the Oligos business, even the NASD business. Just can you remind us at least from our perspective.
But like Crimson within your high single digit growth for pharma.
How many points of growth should we be thinking that business is contributing.
Pro forma it grew it it was roughly two to three points of growth for pharma.
In Q1, and then for the year, sorry, Yes, sorry, Bob I misspoke. So for the year I think I think youre talking low double now for farmer. So what's assumed from your auto business within that low double.
A point or two.
Yeah.
I think the real message here is the yes.
The pharma growth was strong with a biopharma NASD, but also across the rest of the counties portfolio as well.
So, it's an agile and wide story.
Great and then maybe just one final one sneak in just the LTE market, Mike Mike It's always entering the year.
Going on and Thats, a big part of your business, that's what our competitive trends there like in <unk>.
All I can tell you about is what's going on with my business, which is doing very well so.
We've got we have we continue to see very strong business momentum with the market demand is very robust you may or may have a recall in my script I tried to call out demand incident of chromatography systems remains very robust we saw double digit growth again in Q2, Q1, 'twenty two off double digits over the prior year backlogs.
Strong orders growing faster than revenues. So there's a lot to like about what's going on with the LC business.
Great. Thank you guys.
You're quite welcome.
Yeah.
Our next question comes from Paul <unk> from Keybanc. Please go ahead.
It's always tough to ask a good question late in the day Mike.
I'll come off I know you are up to it and now you're up to it.
As I look at the 32% Biotechnology Grove, which.
It would seem.
Extraordinary good.
Would you attribute this to the cell and gene therapy market.
This is equally biotech instruments.
Behind that.
Really high growth rate.
Bob why don't we tag team on this but I'd say, it's really being driven by.
I don't know the NASD business, we talked about earlier, but our core LC and LC Ms business.
Some contribution from cell and gene therapy, but it really is coming from LCL CMS business, along with really really strong growth in services and consumables as well. So I'd say, it's really a broad based story, but really around our core core instrumentation platforms, along with services and consumables.
Spot on.
And then have any notes for that.
Very good.
Alright.
You mentioned CMS more than I think it's typical.
Is this the result are you seeing a result.
Benefit yet from the event tour Jay.
And in addition.
I know cross lab, you mentioned higher connectivity.
Youre, implying you could.
Sure there.
You could talk to those two topics.
Yes, sure happy to.
ACG is then what we've done has been near and Dear to our overall growth strategy for a number of years and we're very excited about the new relationship. We have onshore I would say, it's still very early days, so not yet a material contributor to <unk>.
To the top line revenue and that really was all coordinate so is proceeding. According to plan. So I'd say, there's more to come in that regards and then on the connect rate in.
In fact, we called it out on purpose to say.
We continue to see higher connect rates with our consumables and services business and we think that bodes well for our future growth and pork, maybe you want to just comment a bit on what youre seeing on the services side on the connect rate.
Yes, well overall, the attach rate for both services and consumables in the high <unk>, but we believe we have significant headroom for growth going forward as we targets into higher technology spaces.
On the services side in particular, we have a strong demand for contracts and that's driving a lot of connect right with new instruments as well Mike.
Okay.
I think we had double digit contract growth and probably more than 10% of annual revenue is now under service contracts.
Okay. Thank you.
Thanks for all the questions. We have time for today, So I'll now hand back to Tony to conclude today's call.
Thanks, Emily and thanks, everyone for joining with that we would like to wrap up the call for today have a great rest of the day everyone.
Thank you everyone for joining our call today. This now concludes our call. Please disconnect your lines.
Okay.
Yeah.
Yeah.
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