Q1 2023 Agilent Technologies Inc Earnings Call
[music].
Please standby we're about to begin.
Ladies and gentlemen, and welcome to the Agila Technologies Q1, 2023 earnings call. My name is bolt and I will be coordinating your call. Today. If you would like to ask a question. Following the presentation. You may do so by pressing star one on your telephone keypad I'll now hand, you over to your host Amit <unk> to begin the conference Pardon me. Please go.
Ed.
Thank you Bo and welcome everyone to <unk> conference call for the first quarter of fiscal year 2023.
With me on Mike Mcmillan, Agile, <unk>, President and CEO , and Bob Mcmahon, <unk> Senior Vice President and CFO .
Joining in the Q&A after Mike and Bob's comments.
We'll be Jacob Tyson President of the agile <unk> life Science and applied markets Group Sam.
Sam <unk> president of the agile <unk> diagnostics and genomics group.
Important Mcdonald President of Adjuvant Cross Lab group.
This presentation is being webcast slides.
The news release for our first quarter financial results.
<unk> presentation and information to supplement today's discussion along with a recording of this webcast are available on our website at www Dot investor.
<unk> Dot com.
Today's comments by Mike and Bob will refer to non-GAAP financial measures.
You will find the most directly comparable GAAP financial metrics and reconciliations on our website.
Unless otherwise noted all references to increases or decreases in financial metrics are year over year and references to revenue growth are on a core basis.
Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months.
Our guidance is based on forecasted currency exchange rates.
During this call. We will also make forward looking statements about the financial performance of the company.
These statements are subject to risks and uncertainties and are only valid as of today.
The company assumes no obligation to update them.
Please look at the company's recent SEC filings for a more complete picture of our risks and other factors and now I'd like to turn the call over to Mike.
Thanks, Bob and thanks, everyone for joining our call today.
<unk> delivered an excellent start to 2023.
Getting both top and bottom line expectations.
Q1 revenues of $1 76 billion are up 10.
Percent core.
Agile is broad based portfolio and resilient growth model on a full display during the quarter.
With growth across all end markets and geographic regions.
Operating margin in the quarter or 27, 1% up 80 basis points.
Earnings per share of $1 37 up 13%.
Let's now take a closer look at our first quarter performance, starting with end market highlights.
Chemicals advanced materials led the way for us with another outstanding quarter.
During 2014% core growth with strength across all geographies.
The strength of our pharma business continues and is up 11% with both large and small molecule growing nicely.
This is on top of 17% growth last year.
Our environmental friendly business grew 12%.
The academia and government and the food markets both grew 8%.
On a geographic basis, China once again led the way.
Our China team continued to record strong execution.
Overcoming any disruption associated COVID-19.
And delivered 13% growth during the quarter.
Exceeding our expectations.
In Europe , we also delivered stronger than expected results growing 10%.
The Americas posted a solid result, with 8% growth.
Looking at our performance by business unit.
Our life Science and applied markets group delivered revenues of $1.0 billion to $3 billion.
Up 11% core.
<unk> delivered growth across all end markets and regions.
Our LC and LC Ms platforms continue their strong performance during the quarter.
Growing faster than the market at 16%.
Demand in the chemicals and advanced materials end market continues to be strong, particularly for materials used in manufacturing semiconductors and batteries.
Our spectroscopy business grew more than 20% in the quarter.
And we continue to strengthen our position in spectroscopy across multiple end markets.
In Q1, we announced the appointment of the inside 200 M.
This system is used at checkpoints throughout the London Heathrow Airport to officially provide enhanced security and ensure passenger safety.
The ASIC Crosstie group posted revenue of $381 million in Q1 this.
This is up 13% core.
As a team continue to take advantage of record instruments placements over the past two years, along with continued growth in attach rates.
The cost of our teams deep knowledge of customer lab operations continues to drive consistently high levels of customer satisfaction.
The breadth and diversity of our product offerings is driving record renewals for support contracts.
At the same time, our enterprise services business continued its strong momentum driving growth.
And converting competitive accounts.
The diagnostic Jonas group delivered revenues of $342 million up 5% core.
Our pathology related business performed well with double digit growth led by the Americas and Europe .
NASD posted another strong quarter growing 22% are trained the manufacturing expansion remains on track to come online mid calendar year.
In January we announced an additional $725 million expansion of our NASD facility that will double.
<unk> manufacturing capacity.
Two weeks ago, we are pleased to have the governor of Colorado joined us as our groundbreaking ceremony of the Frederick site.
In addition to organic investments, we continue to invest externally in new technologies and partnerships.
In the quarter, we welcome Davita biomet team into Ashland.
Further enhancing our genomics capabilities.
Davita is early stage life Sciences company designed to assess clinical researchers using <unk> approaches the study cancer.
We are also getting a part of a new technology platform companies to drive our solutions in the marketplace.
This quarter, we announced a partnership with <unk> biosciences to combine our companion diagnostic and IHT workflow expertise with our solution to drive multiplex tissue assay development for Biopharma.
In addition to these business group highlights Ashland was again recognized among the top 100, most just companies in the U S.
Just capital and CNBC.
As part of this announcement, we are very proud to be the leader in the medical equipment and services industry for our treatment of employees and focus on customer relations.
The agile team navigated challenging market uncertainties in Q1, and yet once again produced excellent results.
It was a great start to the year.
Q1 was another outstanding example of the work we've done to build a resilient company with multiple growth drivers.
Those growth drivers create through targeted investments that aim to expand and enhance our business high growth areas are the heart of our build and buy growth strategy.
If we look ahead to Q2, we remain confident in the strength and resilience of our business.
We have an unstable one agile team that continues to execute at extremely high level and.
And is well prepared to deal with any challenges they face.
Given the strong start the year.
We are raising our full year core revenue and EPS guidance.
While also keeping a close eye on macroeconomic conditions.
Bob will provide a detailed and overall outlook, but overall we remain convinced.
Our strategic focus and unmatched execution capabilities will continue to drive strong results.
Thank you for joining us today and now Bob over to you.
Mike and good afternoon, everyone.
In my remarks today I'll provide some additional details on revenue in the quarter as well as take you through the income statement and other key financial metrics.
And then finish up with our updated full year guidance and initial guidance for the second quarter.
Unless otherwise noted my remarks will focus on non-GAAP results.
We are extremely pleased with our Q1 performance. It was a very solid start to the year.
Q1 revenue was $1 76 billion exceeding our expectations.
Revenues were up 10% core.
5% on a reported basis.
Currency was a five point headwind, which was an improvement from the beginning of the quarter. The M&A contribution was as we expected.
Pricing for the quarter was higher than the full year forecast also as we expected.
Now I'd like to share some additional detail on our end markets.
Results in our largest market pharma were again very strong.
Pharma grew 11% following 17% growth of last year.
Performance was solid across both small and large molecule.
Small molecule grew 12%, while large molecule grew 9%.
And as Mike mentioned chemicals in advanced materials also continued to be very strong growing 14% during the quarter on top of 15% growth last year.
The chemical and energy sub segments of the market are doing well, while the advanced materials market continues to deliver outsized growth.
Semiconductors and batteries are driving demand helped by government investment in this area.
The food market grew 8% during the quarter driven by double digit growth in China.
The environmental and forensics business grew 12% led by the Americas has increased testing for PFS chemicals drives customer investment in this area and recently approved U S legislation leads to broad spending in the environmental market.
Our business in the diagnostics and clinical market grew 4% versus 11% growth last year.
Apology led the way for us here, partially offset by industry wide challenges in the genomics market.
And the academia and government market was up 8% led by Lcs and services.
Regionally Europe and Asia showed strong results.
On a geographic basis, the China team delivered 13% growth in Europe grew 10% both exceeding expectations.
The Americas had another solid quarter coming in at 8% in line with our expectations.
Now, let's turn to the rest of the P&L.
First quarter gross margin was 56, 5% up 40 basis points from a year ago.
The gross margin performance, coupled with good cost discipline in SG&A helped drive our operating margin to 27, 1% up 80 basis points from last year.
Below the line our tax rate was 13, 75% for the quarter and we had 297 million diluted shares outstanding both as expected.
And putting it altogether earnings per share were $1 37 up 13% from a year ago.
In summary, Q1 ended with 10% core top line growth and 13% earnings per share growth a very good start to the year.
Now some metrics on cash flow and our balance sheet.
In Q1, we generated $296 million in operating cash flow up 16% versus last year, while investing $76 million in capex.
Capex spending continues to be driven by our scale up of our train B manufacturing line and.
And other capacity expansion projects.
In the quarter.
We returned $142 million to shareholders through $67 million in dividends and by repurchasing shares were at $75 million.
We also announced we're increasing our dividend by 7% along with a new $2 billion share repurchase authorization.
<unk> are successful balanced approach to capital deployment.
Our balance sheet continues to remain healthy as we ended the quarter with a net leverage ratio of 0.8.
Now, let's move to our revised outlook for the year in the upcoming quarter.
The macroeconomic environment remains dynamic.
And interest rates and currencies continue to be volatile.
However, given the good start to the year, we are increasing our full year revenue to a range of $7 three to $7 one zero billion.
This increase updates our full year core revenue guidance to a range of five five to six 5% increase.
Increasing the midpoint of our guidance to 6%.
We've also seen the dollar weakened against major currencies in the first quarter. Although it has rebounded somewhat in February and as a result, the full year guide reflects a $100 million of favorable currency movements since our initial guide in November .
And for the full year, we still expect currency to be in almost 300 basis point headwind to reported growth.
In addition, we're also raising our full year EPS guidance to a new range of $5 65.
The $5 70 per share.
And lastly, given the recently announced NASD expansion to double our oligo manufacturing capacity, we are updating our forecasted capital spending for the year to $500 million.
Up $200 million from our guidance at the beginning of the year.
Now turning to Q2, we expect revenue in the range of $1 $65 five to one 680 billion.
This represents core growth of six to seven 5%.
And reported growth of three to four 5% currency is expected to be a headwind of three one points, while M&A will contribute 0.1 points of growth in Q2, which is consistent with Q1 second.
Second quarter non-GAAP earnings per share are expected to be between $1 24, and $1 27, representing growth of 10% to 12% versus the prior year.
I am pleased with how the team has delivered in the first quarter.
We are focused on the things we can control our.
Our team is driving strong execution in the marketplace.
And coupled with our broad portfolio of products and services we.
We expect to continue to grow faster than the market as we go through the year.
Thanks for being on the call and now I'll turn it over things back to pardon me as we take your questions pardon me. Thanks, Bob.
Well if you could please provide instructions for the Q&A now.
Certainly Mr Hu, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your telephone keypad now.
Your line. Please press star followed by to withdraw your question and when preparing to ask a question. Please ensure your phone is on muted locally and take our first question. This afternoon from Mac Sykes of Goldman Sachs.
Hi, Good afternoon, Mike and Bob Thanks for taking my questions.
Quite welcome Matt.
Maybe we'll start on.
On ACG, just given the quarter that it had in the comp it was facing last year, you've talked in the past about areas of under penetration I think China was reaching you called out could you just maybe kind of give us some mark to market on where you feel from sort of an end market and regional standpoint, there's still a lot of room for that growth in ACG.
Continue throughout this year and into next.
Yes, Thanks, Matt first of all I appreciate the recognition of the numbers we posted.
And we think Theres still a lot more opportunity in front of us and I'm going to actually have.
I'll provide a little bit more color on where those opportunities may lie, yes. So look I think the broad product offering across.
Hardware platforms, where we have hubs.
We got a lot of value to close from operations has been broad based we certainly see a lot of our offerings, particularly around <unk>.
Asset utilization and so <unk> been able to be used outside pharma in different industries, and we see that as an opportunity to grow I think also given a big installed base and our ability to attach in different in different markets and sectors is going to continue as we as we go through the year, Yes, I think we see a lot of opportunity obviously in China, that's when we flagged flagged in the <unk>.
<unk> the other one we're pointing to is.
A lot of the growth has historically been centered in the pharma space.
Seeing growing interest in the Cam space as well, so I think from an end market perspective.
That's an area, we would expect to see some more growth and geographically the China story is still still hasn't fully played out yet and then again I would just remind you about some of the points I made in the call record renewals for support contracts and also clearly taking share on the enterprise level. Those attach rates, we keep talking about are going up as well so a lot to like here.
Great. Thanks, and then maybe just kind of refresh us on your outlook for instruments, I mean, you've kind of guided to mid single digit growth for the full year given that we're a little ways into this year, you're probably a little more visibility on that backlog. How are you thinking about sort of the back half for instruments overall.
Yes, so first of all let me attacking a bit honest with what Bob was talking.
Talk about the backlog first of all I think it's very important to remind the audience that the quality of our backlog remains extremely high so.
And you can see the great work of our team play to work down that backlog, but we're not seeing any cancellations or anything pulling out of backlog. So that gives us a level of confidence around the revenues. We can forecast I think there really isn't anything new to talk about today relative new news relative to the second half we.
We still remain.
<unk>.
I just want to acknowledge the uncertainty about the back half of the year. So there's really no new news here.
Consistent what we talked about in November .
I think you will hear a lot of us talking about normalization of growth rates normalization of deal cycle times. So the funnel has remained healthy the deal cycle times are I think we've already more towards the historical.
And Bob I don't know.
No I think Youre right I mean I think.
<unk>.
Obviously, we had a very strong start to the to the year with double digit growth from LSA G. We will go up against very tough comps in the back half of the year with.
The recovery of.
The business, but as Mike said.
Pleased with the very very good start.
But not anything material changed.
Got it thanks, congrats on the quarter.
Thank you very much.
Yeah.
Thank you the next to Brandon Couillard of Jefferies.
Hey, Thanks, good afternoon, thanks for taking my questions.
Sure Brandon Mike I think I think you said, China was up 13% in the quarter Thats a lot better than we've heard from some of the other counterparts.
You unpack that a little bit forest.
<unk> have been due to the fact that you're one month later, maybe you talk about linearity in China through the quarter and if your outlook for the full year. So I think it was high single gas has changed at all.
Well I'm glad you noticed brand and then if you were in the conference room here Youll see Theres a lot of smiling in the room here because really proud of what the team has done here. So I don't think it's all a timing issue it's.
It's about execution and it's ability of this team to execute because our teams were hit with waves of COVID-19 during the quarter, but we know how to execute we've also enabled the our ability to interact.
<unk> customers digitally so while people may be we couldnt go to the office or couldn't go to customer sites. They were able to support the customers. So we were just we were just delighted with the performance out of China in Q3, and I think it was a broad based story, we had growth and double digit growth in pharma Cam food. So it was really pleased with.
The results I know our narrative is different than others are saying, but I also think my team in China capabilities is also different.
Got it and then on the.
ASD training C I guess expansion.
You just talked about timeline for that build out and.
As I remember back to train B I think a good amount of that was already kind of earmarked for customer demand. The same case this time around with the current expansion.
Yes, I'm going to I'm going to <unk>.
<unk> team a bit with this with the with <unk>.
Sam and myself and Bob So we lovingly refer to train B. That's the that's the latest.
Expansion Thats coming online this year in fact, we had a chance to see that firsthand. When we went to the groundbreaking ceremony for what we call project endeavor or as you're referring to train C. CND.
Really good we're on track for that mid calendar year go live and we have a full book of business for for that is just a matter of ramping again.
<unk> up and then I'm going to pass it over to Sam and maybe you want to remind you.
The brand and what are our plans are with the new expansion when we expect to see some of that first revenue coming coming into Ashland.
Yes, yes happy to do so.
As you mentioned, Mike first of all we're tracking right on plan for train B rate midpoint mid year.
Coming on and it was great to see firsthand Bob join me.
Really the progress that we're making the facility is looking really really nice a lot of validation work happening.
Miles and miles of stainless steel piping.
In other other infrastructure that's been put in place as you also noted we did.
At the end of February in the Middle of February Pardon me.
The groundbreaking for trains C and D.
And these projects will take some time, but we've started the process.
The first revenue from that would be coming online in 2025.
And remember there is two <unk> and <unk>.
Both dedicated to SA RNA antisense capabilities as well as expanding our ability to serve customers. So single guide RNA or Christopher so.
Cited about the progress and the NASD and under Bryan Brothers leadership is firing in all cylinders.
Hey, Sam unless youre going to commit to me for an earlier to go live I think I think you meant to say 'twenty right.
Did I say 25, thank you Mike for cashing, usually are the ones that accelerates Navy instead of the other way.
<unk> 2046, thanks for catching that.
And Brandon to your point around.
The question of.
Purchase orders and so forth.
Good visibility into the pipeline in the funnel, but we havent started taking orders given the timeframe there.
Exactly right, we have high confidence that we wouldn't be putting in $725 million into the expansion.
Very helpful. Thanks.
Yes.
Okay.
Thank you we'll go next to Matthew Vijay Kumar of Evercore ISI.
Okay.
Hey, guys congrats on a good.
Sure Mike.
Thank you. Thank you my first my first question here on the second quarter guidance, 6%, 7% organic.
That's a sequential step down effect.
At this point.
At the high end.
I guess the comps get easier or is there anything in the second quarter was there any timing of revenues with the current portfolio.
Q1 or in China in fact anything that can explain here at the sequential guide for <unk>.
I'll pass this over to Bob for some additional detail, but I think the answer is no nothing unusual about movements between the quarters.
No Bob I think what we're going to do is we want to set up another guide in Q2 that was above our full year guidance. So that was that was the thought process. There that's exactly right I mean, I think as we look at it this way.
Can we just came off of a 10% still 6% to seven five is still significantly above where we're forecasting the full year and I think we feel good and I think it's consistent with what how we how we have guided in the in the past I haven't answered very prudent yet today Bob.
I was waiting for that Mike.
Safe to say the second quarter is a prudent guide is that a fair comment.
Correct Yep.
Kathy.
I just have one on.
With NASD Mike.
Nicholas.
I think they're pulling there.
Manufacturing in house, and I know Youre, starting training C. Maybe provide some context on how big is novartis as a customer.
What's the pipeline looking NASD suppressed.
Yeah I'll tag team on this as a lead in San Jose If you want to add some additional color, but first of all the announcements from Novartis is no news.
That's always been part of the plan and we actually have contractual agreements relative to how much of the market demand we get so that's all.
Well known are relative to the <unk>.
Novartis is one of many customers we have in this business and we really have worked hard to build a diversified book of business.
And we talk a lot about novartis great customer.
I'll talk a lot about in Ireland, because we're allowed to talk about those programs, but we have a much broader base book of business and I think that gives us a lot of confidence as we move forward because we have we have a number of programs that we're supporting we know not everyone's going to hit but we know that.
There's going to be a lot of success rates, there as well Bob Yes, let me just add something.
I would say.
This needs means nothing to our expansion.
Alright, I don't want to be very clear about that I mean, I think we feel very good about.
Continue to be capacity constrained, we've had more orders than we can satisfy and I think that continues to be the case in and we feel extremely.
Extremely good about the overall technology and our position in the marketplace. Thanks, a lot appreciate that build.
Hey, Mike if I can just add just a couple of quick things. We've stated this before we think the therapeutic oligo market for the suppliers that we are $1 billion today growing to $2 4 billion.
By 2027, and what's really encouraging about the market as the number of molecules that are advancing right just to give you a little bit more color. We're doing work with over 30 pharma partners today and on dozens of programs at various stages. So the pipeline of programs that are working on some of which have the.
The potential of being.
Molecules all serve broad populations is absolutely there and something that we're excited about.
Great. Thanks helpful guys. Thank you.
Youre welcome Vijay.
Thank you and the next now to Puneet tsuga of SPD.
Yeah, Hi, Mike Thanks for taking the questions. So first of all on <unk>.
Bob I don't know if.
I heard it on the call contribution to surf in pricing.
In the quarter and for the full year.
If I'm correct, you are still expecting 3% pricing contribution this year and that would imply a 3% volume contribution which it appears below historical levels.
<unk> has grown so just maybe just trying to understand given the tailwind that you're seeing in China and the other areas and obviously congrats on the strong growth in the quarter. So is there anything you are seeing beyond sort of tougher compares that are emerging in the second half.
No. It's a great question so.
I did make a quick reference in the.
In the prepared remarks, actually Q1 was higher than the overall, 3% as expected we are still planning and forecasting that 3% price contribution.
For the full year of FY, 'twenty, three and Youre right that would that would.
Speak to roughly.
Three point volume what I would say is we're taking it one quarter at a time.
As we've said we're dealing with looking looking forward. There is still some uncertainties around macro and that's where I think where our forecast in our guidance as is prudent to use that word again.
But I wouldn't say anything has materially changed since the beginning of the year from that standpoint.
I've been very pleased with our ability to continue to maintain that pricing throughout the course of the.
The last several quarters and I would expect that to continue going forward.
Okay. That's helpful and then on the lunar new year is that part of is that baked into the guide as well and I just wanted to clarify on China I mean, obviously you have.
I heard about the stimulus.
You're absolutely Ashland is listed one of the companies listed within the document that was put out.
For the loan stimulus for China. The sizable how are you thinking about it you obviously have the longest and one of the most legacy positions in China. So I'm just trying to understand what does that mean for China growth in 2023 and 24. Thank you.
I'll take the first part of.
Question sure.
Yes, but the impact of lunar new year.
Not only in Q1, but it's also been reflected in our Q2.
It was roughly a half a point headwind.
In Q1 and that should come back to us in Q2, so it was kind of as planned.
In regards to the stimulus the way we're looking at this as soon as got kicked off in the calendar Q4.
There is a section in there thats focused on.
Equipment for University of those hospitals, but from our perspective, it's still early so we're not going we're going to.
We're kind of waiting right now to see how it plays out but I think at this point, we really haven't put anything assumed in our guide our China growth relative to the stimulus. So if it does get deployed and comes to our way then that will be an upside to our current forecast and I think.
Puneet you you said it well.
Our business in China continues to be very very strong.
Couldn't be prouder of the team how they delivered in Q1.
And Thats continuing strong momentum throughout the second half of last year, and we would expect that to continue here in Q2 as well.
Got it congrats guys. Thank you. Thanks.
Thank you the next now to Rachel banks at all at J P M.
Hey, Thanks for taking my questions and congrats on the quarter.
So the first step in semiconductor if one of your peers implied that they were expecting the semiconductor market software our 2023, just the semiconductor.
Any customary is worth taking a risk that the macro environment.
Strength in spending during your prepared so can you just walk us through first off which part of them are taking you guys where they plan.
Are you seeing any of that softness at one of your peers have bought.
Yes, yes.
I'll start and then we'll turn it over to Jacob given some additional color.
About where we play and so forth, but I would say the short answer is no.
Our spectroscopy business grew over 20% in the quarter and we're still seeing.
<unk> demand and Jacob.
Provide a little more color yeah, absolutely we have a I would say we have the strongest portfolio in atomic spectroscopy for this market.
In semi but generally speaking in material science and.
We continue to see demand from the semicon industry, both in the Fabs, but also in the upstream scar on the fine chemicals that goes into the Fabs that require the same level of QC testing like they do in the labs and hence they are using the same instruments. So we see a lot of benefits both spend as new fabs built but also for the <unk>.
<unk> operation in the Fab labs. So we expect this to continue for a while we of course see a lot of.
No news around investments into this in other parts of the World also particularly in the U S. Obviously that will take some time before it.
<unk> comes into play, but we are we.
We expect the whole cyclical markets continue to be an upside for us, but as I mentioned also we also see a lot of interest in the rest of the materials market, particularly lithium batteries, where we see a lot of demand.
Not only for spectroscopy business, but really across our broad portfolio, where we are.
Lithium battery needs, both DLC for Gcs spectroscopy, and the CMS. So we are very excited about that space and see a lot of.
Continued growth there and I think the point you made earlier too about some of the funding environment. We're seeing some government funding coming in from different parts of the world as part of the semiconductor industry, which has benefited us.
Great and then maybe just shifting more towards pharma biotech.
So small molecule and grew faster than large molecule. This coronary talk in the past what's been that outpaced strength in small molecule being Japan, some catch up spending related to instrument purchases that were delayed back in 2018 19 timeframe.
Can you walk us through really what inning are we in in terms of that catch up spend.
And how long can you sustain it outpaced growth in small molecule before I kind of retract back to that normalized level, and then and just update on large molecule as well.
Sure. Rachel died there pass this question to the Danish member of the staff that the baseball analogy, but I think Jacob you had a great print on LC and LC Ms, 17% growth clearly outpacing the market and I think we saw some really good strength in small molecule.
In particular this quarter, yeah, absolutely I would start by saying I don't think this is a baseball game I think that is a continuous opportunity.
In this market space, so and we see both opportunities that we continue to believe that there is a big market and small molecules.
<unk>.
Current performance is a reflection of the investments we have done into remade into our portfolio over the past years, both for the LC on the CMS.
So it's really it's really really focused very much on where we've gone strategically on a lot of investment into making robust.
Reliable and routine instruments and instrument solutions, we continue to spend significant time to truly understand our customers' pain point that it's not only about the overall performance.
Performance, but also about how you can ease of use a lot of smarts, we put into the instruments and of course also continues on on focus on uptime on the instruments.
And all of our commercial organization is brilliant and going out and connect both our consumables and also the service contracts to it. So this just continues to be a great.
Great business for questions, Yes, Rachel maybe this Bob maybe I can add a few points because we talked at the beginning of the year.
About this.
Strong performance kind of normalizing. This year. We also said if it continues we're going to take it and I think what youre seeing is some of that as well, but we still do think that this will normalize over time and.
The portfolio that the Jacob and team have.
<unk>.
Speaks very well to us growing faster than the market and.
You talked about the Biopharma the beauty of our business as we've got that nice diversification across both small and molecules small and large molecule and.
Certainly starting off.
Starting off the year very nicely.
Great. Thank you guys.
Youre welcome.
We'll go next now to Derek Debruin of Bank of America.
Hi, Good afternoon. This is Peter on for Derik, Thanks for taking our question.
Could you just dive a bit more into the latest on what you're seeing in Europe , you expressed embedding some caution, particularly in Kim on the last call. So if you can touch on that as well that would be great.
Yes, so I hope it came through in the call remarks, and now I'll make a few comments here then invite the pork in here as well, but we were delighted with the print in Europe in the first quarter exceeded our expectations actually the strength across the marketplace was pretty good I think five of our six end markets were growing high single digits.
Better I think the standouts for us we're actually the Cam markets, along with diagnostics, but I have to say, we continue to watch closely the versant plans, particularly for our large accounts.
In the chemical space.
As well as the.
The pharma space, but we're off to a really good start but that's that remains remains a watch area for us, but we again, we're delighted with the broad based growth we had in <unk>.
I think you said it all Mike I think it's broad based in five out of six markets.
Growing high single digits.
And I think I think what the team has been able to do is being able to really really work together to take share in a lot of areas on all of the markets on our focus of course on attach rates in both service and consumables was really been answered as well and I think.
We just don't talk about weather, but I think the ore favorable weather environment in Europe actually has put less pressure on customers relative to energy costs energy demand. So that's been a net positive, but we're still we're still.
Thanks.
Okay.
Okay, and then could you just discuss your Ma.
Margin outlook, and then pacing across 23.
And then further head kind of what's the level of expansion potential going forward how much gas is left in the tank there looking out in the out years. Thank you.
You want to take that.
So <unk>.
Yes, I mean, I think obviously.
Despite the inflationary environment that we're in we're still able to manage.
Uh huh.
Growing our margins and you saw it both 90 nice balance here this quarter with about half of it coming through.
Most margin as well as half of it coming through Opex I think as we think about it going forward.
That 50 to 100 basis points over the course of the next several years is still a reasonable way to think about it that's how we're thinking about the rest of this year as well.
Yeah.
Very good thank you.
Youre welcome.
We'll go next to Dan Brennan of talent.
Great. Thanks, Thanks for taking the question guys congrats on the quarter.
Thanks, and maybe just the first hey, Mike maybe first one I know there are a few questions asked on the chemical and advanced materials segment.
Obviously, great growth in the quarter, just wondering with your new hire guide for the year.
Are you assuming something above the mid single digit outlook that you previously guided to for the year and with love. If you can give us any color on kind of how the growth rate broke out this quarter between advanced material and then chemical and energy.
Yes, that's a great question, Dan I'll take that and so with our revised guide we have ticked it up a bit given the strong performance that we had in Q1 and we continue to be surprised to the upside when we talked about at the beginning of the year was a source of upside. This would have been one of the markets that we just talked about.
And what we're seeing is actually good growth across all of the Submarkets.
And our Cam market.
If I think about the chemical and energy markets those were up.
High single digits and the growth was really outsized in that advanced materials that we've been talking about so that that semiconductor and batteries area grew in excess in the high <unk> and so this is a continued.
Our strength.
Really given not only the investment there, but really the power and strength of our portfolio to be able to supply.
Critical tools and instrumentation into markets that are really continuing to expand so we're expecting that don't don't book.
High single digits in the high <unk> for the rest of the quarters, we'll take it but.
We're expecting.
Slight uptick there given the strong performance that we had in Q1.
Great. Thanks, Bob and then maybe just one on the balance sheet obviously.
It's in great shape, Leverages very low just wondering what youre seeing from the M&A environment.
Obviously waters had a deal in the quarter Im wondering what youre seeing in terms of.
Hum.
Have you identified any interesting opportunities like what's the appetite like for sellers to kind of move forward. Just wondering what we could expect from adjuvant won't always hard to time I'm just kind of wondering about your appetite potential to do something bigger since I know you guys have been looking for the right fit.
Yes, no I think youre closing.
Comment on the data Youre closing comments exactly where our heads at which is the right fit. So we think the environment is much more favorable than it was a year ago. We think it's that much more of a buyers buyers market so to speak.
Most people are willing to come off.
<unk>.
The last round.
There is still some.
Some dialogue around the area. So we're we have obviously nothing to announce but we remain.
Very interested in looking for opportunities.
Can augment our core organic business and this is at the <unk>.
Part of our build and buy growth strategy.
As I've said, a number of times the buy side is all optionality for US, we'll do just fine with all the bets we have right now, but if we.
If we see the right thing we will we will move on it.
We have also just wanted to make sure we stuck with our framework.
We don't ever want to have buyers remorse. So we've been very happy with all the deals we've done to date and we'll continue to use that framework moving forward I think that fit piece that you described is really the key criteria for us.
Great. Thank you.
Mhm.
Okay.
Next question comes from Patrick Donnelly of Citi.
Hey, guys. Thanks for taking the questions.
Maybe one one on just the order side I know you guys talked a little bit about the backlog remaining pretty healthy can you just give a little bit of color in terms of what the order growth look like in the quarter I know last quarter.
I started eating into the backlog a little bit which is natural just given the supply chain is normalizing a little bit can you just talk about I guess order growth versus revenue growth. What you saw in the quarter and any color there would be helpful.
Yeah, Let me make some summary comments and then Bob.
Ill jump in here, but as you mentioned, we don't specifically provide book to Bill ratios.
What I can tell you is that orders for the quarter were greater than revenue. So and so we continue to grow orders with particular strength in our NASD and services business on the instrument side, we continue to bring down this record backlog. We had now as we really are focused on meeting those customer shipping requirements.
Really thanks to the great work of order fulfillment team, we've really been able to get back to a normal flow of shipment times and delivery commitments.
And again I would just say that the funnel.
<unk> remained healthy the backlog is still a very high quality I think we had.
Pretty much next.
No cancellation. So the quality is good it gives bob on that level of predictability around revenue from that backlog yes.
I would say yes.
As Mike said I mean, the backlog continues to be healthy.
And we haven't seen anyone back out of any cancellations or anything like that that would be beyond kind of the normal activities, but I would emphasize the one point I made earlier the deal cycles are reverting towards.
The historic norms in this space again this whole construct that we see of a normalization of particularly the analytical instrumentation marketplace evolving.
Yeah. That's helpful. I appreciate that and maybe just on kind of the environmental spend PFS testing you called out the last couple of quarters and Mike I know you're excited some actual infrastructure dollars kind of coming through in the US Here can you just talk about what youre seeing there kind of where we are I mean, it seems really early but just your perspective on kind of.
How thats tracking.
What impact do you guys are seeing from that obviously the durability as well.
Sure happy to talk about that and actually happen to have Jacob talk about it because I think you've just spent some time in front of the board.
<unk> and talking about the PFS opportunity now to educate the board on what its all about but the durability of growth. We're seeing we see here, yes, absolutely and we continue to see a lot of opportunities in the PFS, where we are at the beginning was we gave all about looking for PFS in the border supply announced moving into food and other types of.
<unk>.
<unk> of area. So I think you are right. We are still in the early phases of the growth opportunity as you know the U S infrastructure Bill that was a $4 billion set aside to PFS testing.
And so we have one of the leading solutions here I mean, PFS is very difficult to measure who need high end instrumentation, but also very specified December prep and consumables to be to make sure that you don't contaminate why you measure.
So we have spent a lot of energy a putting a high quality solutions out there and we continue to see a lot of opportunities and we will continue to invest in this space beyond PFS I think environmental is.
<unk> it.
Place that there would be a lot of investment going in over the next decade. So we are excited about that area also besides the advanced materials.
Yeah.
Great. Thank you guys.
Quite welcome.
And we'll go next to Jack Meehan at Nephron research.
Thank you good afternoon, everyone.
Pat.
Wanted to spend a little time on DDG.
Maybe start with deep technology business, so double digit growth.
With stronger than I guess, what we've seen in the last few quarters was there anything just in terms of the uptick in the quarter.
Yes, Jack I'm going to actually pass it over to Sam because Sam actually is calling in from Denmark, He's actually with the pathology team right. Now so you can get it right latest and greatest on the ground from from glass drug go ahead, Sam Yeah. Thanks, Mike Jack Thanks for the question.
I offer you a couple of things that we've observed in the quarter and I think are also promising going forward.
First of all.
We continue to see the trend of.
Hospitals, and health care systems, being able to work through Covid and start to re prioritize cancer cancer diagnostics. So overall I think thats been something Thats positive. We've continued to see strength in our IHG solutions be it our companion diagnostic solutions.
That are in the market, but more broadly speaking, including for the antibodies that we have that we sell is ready to use reagents.
We're also continuing to see good traction for our advanced staining system. The Doc alumnus so.
All of that you look at that geographically we've had some good success, particularly in Europe , but the Americas as well.
Great and then sticking with CTG either for you Sam or for Mike just on the genomics side.
Was backing into sort of like a high teens.
Decline in the quarter that sounds right I was just curious different companies have called out different issues. In this end market. If you could talk about just maybe what exactly you're seeing that would be great.
Hey, Bob I don't remember the exact number but it was down but not to that extent, yes. It was down close to double digits, yes.
Yes.
I'm going to have Sam talked about this but were seeing some what we think.
Is it transitory disruption in the.
Diagnostics side of genomics, so theres a lot going on with a lot of the the diagnostics firms, where we provide our solutions into their into their into their assay. So Sam.
Your perspective, I think would be really good.
Yes, happy to provide that and building on what you said Mike right.
There is a lot of public information now that I'm sure Jack that Youre aware of it.
Restructuring or other sort of operational challenges at a number of customers from research into <unk>.
Technology, driven genomics companies in diagnostic testing companies going through based on that we've definitely seen a conservatism from customers that they've pulled back on purchasing levels, they're working down.
Excess safety stock that they perhaps had built up in.
<unk>.
We've just seen a little bit of hesitation.
And purchase patterns now that being said just recently earlier in February I had the chance to attend a GBT, which is one of the most.
The most important technology and science conferences.
There we definitely saw good interest for our early access that we've been doing for our sure select cancer CGP comprehensive cancer.
Panel.
679 genes, we continue to see really good interest in our Magnus automation system, which is the walk away for sure select platform.
<unk>.
And our and our broad based market leadership in genomics and NGL QC remains intact. So I think this is a.
Some market headwinds that we're seeing but.
It's just I think a transitory thing as Mike mentioned.
Thank you.
Okay.
Alright.
Thank you we take our next question now from Josh Waldman of Cleveland Research.
Hey, guys. Thanks for taking my questions two for you.
Yeah. Thanks, two for you if I.
First on the core growth guide.
Wondering if you could provide a bit more color on the considerations that women's you reiterating the top end.
The core growth outlook for the year, I guess, maybe a bit surprised we didn't see more of a Q1 upside flow through to the full year.
Wondering if maybe this is backlog work down benefit here in the quarter and that starts to abate as we get into the second half or for some I guess something else.
Yes, well I'll, let you handle I think I think the headline was more just the recognition of the continued uncertainty about the back half, but yes, I think the way the way to think about that Josh.
We.
<unk> raised the midpoint of the guidance.
<unk> delivered 10% in Q1, we're saying that Q2 is going to be higher than the full year.
Take this one quarter at a time given some of the uncertainty that we're seeing.
Obviously, we did talk about having great visibility into Q1 with some of the backlog activities and so forth, but I wouldn't say it was just that.
I think what I.
I would characterize it as a as a prudent guide given kind of what we're seeing.
And taking it one quarter at a time.
Got it Okay and then Mike.
Following up on pharma I think these accounts typically starts to get better clarity on their full year budgets. This time of year I wondered if you could update us on what Youre hearing from key pharma accounts with respect to instrument budgets and purchasing plans here in 2010.
Yeah, sure Josh and in fact the.
I think you've just done recently around with some of the.
Our large pharma accounts in.
So I think what we're seeing is.
Formulas are very very stable and one of them of course Youre correct. The afirma budgets are set around this time of the year end.
We are watching closely of how that moves to the second to the second half, but for now no change. So I think we probably haven't seen any surprises on those lines by themselves, but they are not aggressively releasing yet either yes, I think thats for sure and that's why I made a few times on this call comments around a normalization of deal cycle times.
Got it okay I appreciate it guys.
Youre welcome.
And we will take our next question now from Liza Garcia.
Yes.
Thanks, so much for taking the question and congrats on the quarter.
I don't want to talk about.
Cell analysis, if we could obviously I think a $100 million business over for you at this point.
I'm thinking about performance and then.
I think in a recent presentation, Ken indicated that pharma that maybe the largest customer stat, followed by research so it'd be great to get.
Sense of kind of the different customer groups and what youre seeing there.
It was hard to get a lot of other good news in but I think we had a good a good start to the year and cell analysis Jacobs as I recall, you have you had another good quarter and cell analysis actually really proud of appropriate buildup of our business over the past year to year and cell analysis, including the M&A and the acquisitions we have done.
You're absolutely right that the main opportunities are within the Biopharma and academia and we've actually done a really good job in diversifying where we had some of the business. We acquired was very exposed to academia have you been able to really penetrate into the biopharma over the past years.
So we continue to see opportunities and especially in the high end of the business that there is still a lot of opportunities in.
In the Biopharma space, and especially in understanding the immune system immuno oncology cocky in all those areas.
Areas that we have put a lot of investments into NBC that pays off so I believe there is still a lot.
Sort of opportunities in front of us here.
That strong correlation there in the Biopharma academia space, there's a lot of collaborations where especially if you look into the car T where you see none of the Big University hospitals that is that it's investing investing into this so there's kind of a crossover between the academia and biopharma right now so we see opportunities in both those arenas right now.
Yeah.
And then I guess.
<unk>.
Just wanted to comment.
You had asked about kind of growth rates, what I would say as it grew faster than the overall company it faster than LSA G.
Awesome. Thank you Super helpful.
I guess, if I could just squeeze in one last one on the attachment rate.
You did cross over the 30% line I think I'd be more thinking about kind of.
How do we think about kind of the incremental particularly I'm thinking about services ACG did pretty well this quarter.
The revenue progression as we're looking at a larger installed base that's been put out over the past couple of years.
Yes.
You make some comments on your part, but I think we're expecting a continued step up in that attach rate. Yes, I think there is significant opportunity to drive growth for our business and our proposed one.
Point of attach rate is about $30 million annually and we know our customers are adopters workflow solutions.
With tight integration on the instruments and that allows us of course with the one commercial organization to demonstrate the value and of course.
Touch more.
Services and consumables I will say, if you think about what Jacobs said about <unk>.
<unk> Biopharma our focus on solutions selling has really paid off that's really driven the attach rates.
And I think our overall.
<unk> in both service and consumers are now in the low thirties and that represents a 2% increase and we expect that to grow as we move forward and allows you a cleanup question focused on the attach rates on services, but I'd be remiss not to have Jacob talked about whats going on attach rates of consumers tightened. This workflow solutions, because we did make some changes organizationally, but the.
The ACG strategy of driving connect rates in services and consumables remains intact, yes, exactly and I think a long one but probably also mentioned is that that's been a lot of investment from both businesses in commercial about.
Driving.
Connect rate also with consumables and it's more about selling the full solution and hence going out not only present in instrument present the instrument the consumables informatics to go after as part of those mentioned P fast or the workflows into Biopharma and really addressing restarting to addressing the high end parts of the market and have you seen that.
A significant uptake in our attach rates in our consumables and and I would say we are.
We will continue to see growth, we still have a long a lot of opportunities, but I've been really impressed with the team to take it from <unk> into 'twenty is up the way beyond the thirties now.
Thanks, So much guys I appreciate the time.
Youre welcome.
<unk>.
Thank you the next now Jean Paul Knight of Keybanc.
Hey, Mike Thanks for being patient and getting the yen.
Not a problem Paul.
[laughter] I'll call it earlier on.
On the.
On the RNA or the olive oil production business. It looks like we've had I guess four or five here in the last four years or so dominated by Alan Island and Novartis.
I'm assuming that this customer account you talk show and project count.
Is expanding well beyond that group.
That that customer. So my question really is what's your position in the market do you think you are the dominant vendor.
Two.
Does this number of partners suggests youre going way beyond Novartis in Hawaii an island.
Item, Paul Paul Im really glad you hung on and got your question because very enthusiastic to answer that question.
We have a much broader base of business beyond two very good customers, but.
But the programs go go much much much broader than that.
And we are the market leader.
We crossed over on the SA RNA piece.
We are the clear market leader.
We are going to be going after more aggressively.
The CRISPR space, where we cannot yet claim leadership, but overall, we are really with the capacity expansion. The continued great work of our team. We've continued to gain market share from the math, we're doing we've now crossed over two and a leader in this space.
So in fact, what you're really building out as the kind of market.
Are the technological law I.
I guess the threshold. We've now achieved is that fair to say.
Okay.
I'm not sure I understand completely the question.
But I think we.
What we're doing is I think I got it which is we're actually expanding our portfolio, which is we're the leader in RNA.
We've got a broad base of business with broad based set of number of pharma customers overtime, you'll hear more about those when they're when they're therapeutic come to market, but also.
Expanding into the CRISPR area, we've got a small business there right now we do really well, we just don't have all the capacity, we need and Thats part of the story Board, what we're doing will be called project endeavor.
Paul to build on what Mike was saying is not only are we expanding but I think just as importantly, the market is expanding and so.
Our islands of the World, where the pioneers of this technology or one of the pioneers, but if you look at the number of products that are in the in the clinical compounds that are in the clinic. It goes well beyond the two customers that you just talked about.
Rob maybe just add just to.
Such a color to that.
The actual number of programs that are in various stages is literally doubled over the last four years.
And then in terms of pharma partners.
We're not in a position today to share anything publicly but I already said, we are working with more than 30 pharma partners and I think what's encouraging for us is.
Even within pharma the caliber of the companies that have now entered an advancing molecules at various stages. So.
This is a market that is maturing.
<unk> of FDA approvals that have happened.
European approvals that have happened so there's momentum in the market.
We are.
We've worked hard to be leaders in this era of RNA, but there's there's momentum that's there for us to ride as well.
Right.
Thank you and gentlemen, it appears we have no further questions to date pardon me I'll hand things back to you for any closing comments.
Thanks, Bob and thanks, everyone for joining with that we would like to end the call for today have a great rest of the day everyone.
Thank you pardon me, ladies and gentlemen. This concludes today's call. Thank you again for joining and you may now disconnect your lines.
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