Q2 2023 Agilent Technologies Inc Earnings Call

Consumables in our NASD business.

While small molecule declined 1%.

In previous calls we've talked about the small molecule replacement cycle and that the exceptional double digit growth rates. We've seen in the past two years would eventually moderate which is what we started to see this quarter.

Our chemicals and advanced materials business delivered strong results once again growing 16%.

The advanced materials segment grew more than 20% and the chemical and energy segment grew double digits.

On a geographic basis, 32% growth in China exceeded our high expectations.

While the compare it wasn't easier one even adjusting for the Covid lockdowns in Shanghai, a year ago, we still achieved double digit growth in China.

In addition, Europe delivered 5% core growth.

While the Americas grew 3%, albeit against a tough compare 13% a year ago.

Looking at our performance by business unit, the life Science and applied markets group delivered revenues of $968 million up 10% core.

Our strong results were aided by a backlog conversion across our instrument platforms.

Our LC and LC Ms products continue to lead the way with 16% growth in the quarter with strength across all end markets.

Continued demand for lab consumable led to 13% growth in that business as well.

During the quarter, we added additional strength to our <unk> product line by acquiring <unk> mission and their innovative electron capture technology emission technology allows researchers to develop biotherapeutic products more quickly for treating the disease.

Atlas <unk> continue to bring several innovative new products to market.

Include enhancement to our Bravo Ngl's automation Kerry <unk>.

And the cell analysis <unk> systems.

Many of these enhancements are specifically focused on serving our customers in the biopharma market.

The Hasnt crossed our group posted revenues of $387 million.

This is up 13% core driven by strong revenues from service contracts.

<unk> growth was broad based represent ongoing resilient demand for our services.

We could even see many opportunities for future growth given our services portfolio.

In particular, the benefits of our service offerings as we help customers drive productivity lab are even more relevant in today's challenging environment.

Our strong and trusted customer support is also helping us to drive share gains and acquire a new enterprise customers.

The diagnostic and genomics group delivered revenues of $302 million up 3% core.

Strengthen our pathology and NASD businesses drove growth, partially offset by general industry wide weakness in genomics.

<unk> posted another strong quarter growing in the high Twenty's.

Train B manufacturing expansion remains on track to come online later this quarter.

While construction has already started on the next phase of expansion.

Overall, we wrapped up agile in the first half of fiscal 2023.

With double digit core growth in both revenue and earnings per share.

However continued macroeconomic uncertainty Cup.

Coupled with dresses in the banking system have accelerated a more conservative approach from our customers across the globe.

This is primarily affected capex related instrument spending across most end markets.

But a center mainly in the pharma market in the U S and China.

Early stage biotech customers.

While a small part of our revenue dramatically scaled back purchases as funding and liquidity challenges drove cash conservation.

Outside of these early stage biotechs.

Order funnel continues to be healthy.

But it has taken a longer time in order to be approved slowing deal velocity and generate some new orders.

We expect this constrained capital environment to remain in place throughout the course of our fiscal year.

Because of these factors, we have taken a more cautious approach to the second half and have revised our forecast downward.

As a result, we now expect core revenue growth to be in the range of three to four 5% with EPS growing faster than revenue at 7% to 8%.

Our operating margin decreased in the first half of the year and we're doubling down on delivering cost efficiencies.

And increasing productivity drive more leverage earnings growth in the second half.

As we've done in the past, we will generate additional cost savings. So we can continue to invest in innovative new solutions and support for our customers as we enable future profitable growth.

We have an unstoppable one agile team that is battle tested.

They consistently executed extremely high level and are well prepared to deal with any challenges they may face.

Bob will provide the details of our outlook for Q3, and the full year, but overall, we remain convinced our strategic focus customer service unmatched execution of the agile team remain the key to our continued success.

After Bob delivered his comments I will get back to provide some closing remarks and now Bob over to you.

Thanks, Mike and good afternoon, everyone and.

In my remarks today I will provide some additional details on revenue in the quarter as well as take you through the income statement and other key financial metrics. I'll, then finish up with our updated guidance for the year and our third quarter outlook.

Unless otherwise noted my remarks will focus on non-GAAP results.

Q2 revenue was $1 $72 billion exceeding our expectations.

Revenues were up nine 5% core and up six 8% on a reported basis.

Currency was a two eight point headwind, while the M&A contribution was minor as expected in.

In Q2, we continued to leverage our backlog and exited the quarter with our backlog at a normalized level.

As Mike mentioned, our two largest end markets performed well in the quarter.

Pharma, our largest end market posted 6% growth led by Biopharma, while small molecule declined slightly.

Chemicals and advanced materials continued to drive strong secular growth of 16% during the quarter on top of 9% growth last year to.

The chemical and energy sub segments of the market are doing well with the advanced materials market continuing to lead the way.

As in past quarters semiconductors, and batteries are driving demand in this space.

And looking at the rest of the end markets. The food market grew an impressive 21% during the quarter driven by very strong growth in China.

We also saw strong results in the Americas and Europe .

The academia and government market was up 11% led by China and Europe .

As the funding environment continues to be constructive.

Our business in the diagnostics and clinical market grew 6% on top of 5% growth last year.

Pathology again led the way for us here, partially offset by genomics.

And the environmental and forensics business grew 2% led by China.

In the Americas, while Europe declined.

The Americas slowed after a very strong Q1, but still delivered mid single digit growth.

On a geographic basis, the China team exceeded our expectations delivering 32% growth following last year's Covid Lockdowns in Shanghai.

As we mentioned last year, the Covid related lockdowns deferred roughly $55 million in Q2 from last year into third and fourth quarters.

So while Q2 was an easier compare we have much tougher compares in China going forward.

Taking out the effects of the Lockdown this quarter, we estimate China still grew double digits. So very solid results by our China team.

And the rest of Asia grew high single digits better than expected.

The Americas grew 3% with growth across all end markets from a group perspective, both ACG and DDG grew while LSA G unexpectedly declined low single digits as we started to see the accelerated effects of a slowing capex environment.

Europe grew 5% inline with expectations led by pharma and Cam.

Now moving down the P&L.

<unk> quarter gross margin was 55, 3% down 40 basis points from a year ago, largely due to an unfavorable product mix.

The benefit of pricing was as expected.

Below gross margin, we had good cost discipline in SG&A, which drove our operating margin to 25, 6%.

30 basis points from last year.

Below the line, we benefited from higher than planned interest income due to higher interest rates and strong cash flow.

Our tax rate was 13, 75% for the quarter and we had 297 million diluted shares outstanding both as expected.

Putting it altogether Q2 earnings per share were $1 27 up 12% from a year ago. A very good result, combined with our nine 5% core top line growth.

During the quarter operating cash flow was very strong generating $398 million.

This result was helped in part by deferring estimated U S tax payments of roughly $60 million to our fiscal fourth quarter.

This is due to the payment deferral relief made available by the IRS to taxpayers and designated counties affected by the winter storms in California.

We returned $151 million to shareholders.

$66 million through dividends and repurchase shares worth $85 million, while also investing $57 million in capex continuing.

Continuing our successful balanced approach to capital deployment.

Our strong balance sheet is even more of an asset in this market environment and remains very healthy as we ended the quarter with a net leverage ratio of <unk> seven times.

And earlier this month, Moody's upgraded <unk> investment grade rating on our corporate long term debt to <unk> one.

This action is an important recognition of agile and financial strength.

Now on to the revised outlook for the year and guidance for Q3.

For the year, we now expect revenue to be in the range of $6 93 to seven point over $3 billion.

This represents reported growth of one two to two 7%.

And core growth of three to four 5%.

Currency.

Back to be a headwind of one nine points, while M&A will contribute 0.1 points of growth.

In addition to revising our guidance we've increased the guidance range for the second half of the year to reflect a wider range of possible outcomes.

For modeling purposes, I would encourage you to use the midpoint of our guide.

Our updated guidance reflects a more constrained capital market.

Primarily impacting our instrument business.

The outlook for our recurring revenue businesses remains largely unchanged.

From an end market perspective the.

The market most impacted as pharma, where we are now expecting full year growth of low single digits down from high single digits.

And from a geographic perspective, we see impacts focused in the U S and China.

With the change in revenue, we now expect full year fiscal 2023, non-GAAP earnings per share to be between $5 60.

And $5 65.

Representing growth of 7% to 8%.

As with revenue I encourage you to model at the midpoint of our guidance.

Now turning to Q3.

We expect revenue in the range of $1 64 to $1 67 5 billion.

This represents a decline of four 5% to a decline of two 5% for both reported and core revenue.

This is on top of a tough compare of 13% growth last year.

Adjusting for the China deferral in Q3 of last year would add roughly 200 basis points to both reported and core growth in the quarter.

Currency and M&A impact in Q3 are minimal and are expected to offset each other.

Third quarter non-GAAP earnings per share are expected to be between $1 36, and $1 38.

Representing.

Growth of one 5% to 3% versus the prior year.

We are pleased with our first half performance and while we are facing a more difficult market environment than we were estimating a quarter ago I am confident our team will continue to deliver for our customers.

Thanks for being on the call and now I'll turn it over things back to Mike for some closing comments before we take your questions Mike.

Thanks, Bob.

Q4, 'twenty two co in November .

Share with you that I believe <unk> has the right growth strategies the.

The right team and right culture to continue delivering strong above market results.

My belief remains unchanged our custom nowhere reliable.

Resilient and extremely quick and reacting to meet their needs.

The agile team continues to work hard to earn their trust.

While the near term outlook points to continued challenges in the market.

We remain confident in our long term growth prospects on our end markets and our ability to continue to grow faster than the market.

As a trusted partner that our customers know they can rely on.

Despite the current market environment I remain confident our ability to deliver on our shareholder value creation model.

Our core values and approach Hasnt changed.

Our focus on investing for growth, providing the industry's best customer support.

Our innovation prowess and being a great place for our team to work with a differentiated company culture are here to stay.

They remain agile in the form of a long term success.

Thank you and now rodeo pardon me to lead the question and answer session Pardon me.

Thanks, Mike.

If you could please provide instructions for the Q&A now.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your telephone now if you change your mind. Please press star one again to withdraw your question.

Glen preparing to ask your questions. Please ensure that your phone is on mute it locally.

Your first question comes from the line of Brandon <unk> with Jefferies. Please go ahead.

Hey, Thanks, good afternoon.

And Brandon Mike would be helpful.

Great like it would be helpful. He kind of unpack, what you're seeing in terms of instrument that add between let's say mid to large pharma relative to smaller biotech and some of your peers have talked about maybe that large pharma budget just being delayed coming back later in the year curious what you're embedding in kind of your outlook.

We'll be bringing those two customer basis, yes.

Yes, sure happy to do so Brandon So I think there are differences between the two sectors. The small biotech is pretty much shut down we've seen real efforts on cash conservation as they've been dealing with the financing challenges of less venture capital money out there.

Banking crises.

Unlimited access to the IPO market.

But on the medium sized and large pharma companies.

We still see a very actually an increasing level of conservatism coming from new capital.

Investments, particularly as it relates to our business in instruments.

You can make a case that perhaps they'll be year end budget flush if customers are going to try to spend there that our year end money that theyre not spending now we're not assuming that because all we can really comment on right now is.

What we're seeing today, we're not given any indications that that situation will change and I think what remains to be seen is I think it's going to be a CEO CFO decision that our larger pharma companies about how they'll handle their their full year budgets.

And again that relates primarily to the instrument side of our business as.

As we commented in our prepared remarks.

<unk> and services continued demand can be quite strong in these marketplaces.

Now anything else you'd add to that.

Hey, Brendan this is Bob just to kind of frame in if we think about.

These these businesses. These this emerging biotech which is the one that has really changed during the course of.

Of Q2.

That represents roughly about 10% of our pharma business and we were projecting that at roughly low double digits and now we're expecting that to decline and as Mike was saying the rest of the business was it was high single digits and now we're assuming kind of a low double digits given this more.

Conservative capital I would also say that the funnels are healthy from the standpoint of working with them. It's just taking longer for them to translate that deal velocity into orders Hey, Bob One thing I forgot to mention as well is we aren't hearing the budgets are being cut.

But the timeline as Bob mentioned, our extended them are often hero often have higher levels of approval as well within within our customer base.

Actually that's helpful. Lastly.

Kind of what Youre seeing in Europe overnight, we've got pretty weak manufacturing PMI.

I'm just curious if you're seeing any slowdown in terms of the more cyclical, let's say industrial pockets.

Sure sure Brandon you May recall earlier this year, we really are pointing to you.

Europe as a watch area, particularly western Europe , you don't.

I have to say, we continue to point to as a watch area, but we've been pleased with the results to date.

We are.

We are seeing signs of increased cautiousness on the chemical side of our customer base.

In Europe , but.

Advanced materials continues to be demand there and we're pleased with how the business is holding up right now.

Okay. Thanks.

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

Hey, guys. Thanks for taking my question sure.

Sure.

Mike.

Can you just frame sort of what.

April trends for our.

How may progress because I'm, just trying to make sense of the guidance you guys did double digits in first half.

And we went from double digits to low single digit decline.

Just frame up this pace of slowdown is there any historical analogies when you see these kinds of slowdowns.

These things last.

Couple of quarters.

Like four quarters.

And I'm, assuming this guide change so far it's only pharma correct, but we're not reflecting any any other end market changes.

Okay.

Yes, so there's a lot to unpack there Bob So maybe we can tag team on this but let's first of all I'll talk about the pace of business. So.

As you are right Vijay it really is a tale of two cities I mean look at how we performed for the first half double digit core growth double digit EPS growth continued margin expansion, but we saw and we had been signaling a level of cautiousness in our in our customer base and we've talked about the uncertainty that was assumed in our second half guide we've been talking about that for.

For Q few quarters, but what I would tell you is that we actually start and is really a late quarter phenomena.

<unk> seen a little bit and maybe last week or so of March really centered in April .

Where the level of caution from our customers increased.

Deal cycles, we're continuing to get further pushed out deals werent closing and that really was the reason.

Reason for the push in terms of downward guide for the second half.

What I can tell you what we're seeing so far through May I think that was also one of your questions is yes.

Today orders, if you will are tracking towards our revised order expectation.

We haven't we've.

<unk> been through these cycles before in terms of downturns.

These are always hard to predict because it's always hard to know exactly when when the cycle startup, but our experiences there.

At least 12 months kind of kind of cycles 12 to 18 months. So.

And I think Thats really.

The question that we need to work through here in the next few quarters and again as Bob and I have said in the past we take one quarter at a time, where we're trying to do here is comment to you today is what we're seeing today in the marketplace and it's a level of increased cautiousness on capital on capital deployment.

Hey, Vijay maybe just add a couple of other <unk>.

Comments to what Mike was saying in the second quarter.

We talked about.

Revenue exceeding our orders and that was really at the towards the backend.

And we came into Q2 was still greater than normal backlog and so we were able to our Oss team was able to actually drive down our backlog and leverage that and if you took the backlog impact out of our numbers, we would have been at mid single digits.

Transparency in Q2.

That we had.

Enter into into our forecast.

We just didnt refill the funnel as much as we thought we were going to coming into Q2, which means.

It resulted in a lower expect change expectation for the second half of the year.

That's extremely helpful. Bob and then sorry go ahead Mike.

I was just going to say too, but I think it's.

I think it's fair to say relative to our guide assumptions, we're mainly looking at.

Farmers market, although this level of cautiousness of inquiry level cost as we're seeing is really across all end market segments, but really centered in pharma.

That's helpful, Mike and just one quick one.

Back half EPS and margins Bob.

I think <unk> operating margins from the mess.

And just rough math here suggest back half operating margins to be up 300 basis points from Q2 levels with revenues coming down can you just walk us through on what gets us to that or.

It drives that margin expansion.

Yes, Youre right on in Q2, we did.

We had higher revenues.

Than expected and.

When we did have some negative mix effect.

That resulted in a lower than <unk>.

Expected margin now we did expand we just didn't expand as much as we had anticipated.

And as a result of the lower guidance as Mike talked about doubling down on cost efficiencies. So we've taken a number of actions too.

Dreamliner R.

Our spending profile in the second half of the year.

In order to drive.

Greater.

Margin expansion in the second half to drive the EPS.

And VJ I'd also point out there is the level of variability in our pay plans tied directly to adjust for the company's performance Center are assumed in our guide for a second half.

Thanks, guys.

Alright.

Your next question comes from the line of Puneet <unk> with SBB Securities. Please go ahead.

Yeah, Hi, Mike Thanks for taking my question so sure.

Thanks, Mike.

First one is really on.

Obviously, China very strong in the quarter.

Can you elaborate a bit on sort.

The stimulus contribution that happened this quarter and what are you, obviously youre expecting moderation in the second half.

Also if you could talk about if youre seeing anything.

Relevant to the new Covid wave, that's emerging there and thats something baked into your guide in overall just expectations for for China for the full year.

Yes, why don't I start out with.

And then the last question first and then I'll point eventually to you Bob to our guide assumptions, but in terms of I think you mentioned the new Covid wave.

We have not considered that and into our second half guide and I don't believe we would because we.

We have experienced pretty significant COVID-19 ways throughout the years as we've shown each quarter. We can we can really well there.

Very easily not easily but we can navigate through that in fact that was the story board that you may recall from Q1 of this year.

Relative to stimulus.

On record in the story remains the same as we've seen no material impact from China stimulus, which in fact, we understand.

Was was closed off at the end of February .

And that initial stimulus program for my understanding was really focused on more on the high end research space things such as <unk>.

<unk> and <unk> products that where we don't have an operating or compete.

We're not seeing much happening at all on our on our front relative to stimulus now there is some discussion in the marketplace that maybe theres another one coming.

If that would occur that would be upside to our forecast for the year as were assuming really no changes in the current environment and those stimulus is assumed in our second half guide and Bob I know, we've made some adjustments to the outlook for China for China for the year, Yeah Puneet.

If we look at Q2, we always assume that Q2 was going to be a very strong given what we were facing an easier comp and we talked about that in our prepared remarks, we're Shanghai was shut down for roughly six weeks that deferred.

$50 to $55 million of revenue that now showing up in Q3, and Q4 of last year, which will make it much tougher comps and to give you a perspective last year. We went minus three in Q2, 29% growth and then 44% growth. So we're always expecting moderated growth expectations in the back half of the year, just given that tough comp now.

What we've seen is is not a pickup in the performance in the marketplace, particularly in pharma, which we were expecting coming out of kind of the first quarter.

After the elimination of the zero Covid and we're assuming that that this this current performance will maintained through the second half of the year, we're not going to see a recovery.

Got it.

That's super helpful and then.

If I could touch on the early stage biotech customers.

Could you just remind us for the overall company I know you provided pharma, but for the overall company whats the mix there and then also.

Is there any impact that you saw.

Their front and the NASD business or your cell therapy offerings.

As a result of that.

And.

Just given the number of questions we're getting here.

At a high level, Mike instrumentation very strong over the last two years one of the remarkable.

The cycle of instrumentation placements that we have seen over the last few decades.

When do you think we get back to sort of a normalized order pattern.

Our instrumentation. Thank you again for taking all those questions.

So maybe we start with the biotech and <unk>.

In E&C business questions first so no impact at all in our NASD business I think Sam we can say that pretty pretty quickly right.

Yeah and to give you a perspective.

Emerging biotech puneet is roughly it's less than 5% of the total company is roughly closer to three.

The percent for the full for the.

Full company in terms of revenue.

And your last question is.

Is the toughest question, which is sort of if you will your crystal ball question. We've typically seen 12 to 18 month kind of cycle historically.

And as Jacob and Bob talk in the past we've always felt that this is more of a mid single digit kind of growth market with for instruments, which is still very healthy end market growth rate and particularly when you build around the servicing consumables piece.

We're not calling for that.

<unk> yet to occur this year.

So.

I think the only other thing I would say is.

For for a large majority of our instrument business. It's a replacement cycle, we've talked about that time and time again and so these products are in the installed base. They will have to be replaced the question is when.

And and again interest and demand remains high I mean.

Our backlog is strong.

As we mentioned in prior calls an industry, we emphasize that again today cloud backlog remains high no significant order cancellations.

Poor likes to say, we're adding fresh funnel too.

Two the backlog so it points to future demand, but we're just not seen indications of when they're buying behaviors are going to change.

Got it alright. Thanks, Thanks, guys I appreciate it.

Sure.

Your next question comes from the line of Matt <unk> with Goldman Sachs. Please go ahead.

Hey, good afternoon, Mike and Bob Thanks for taking my questions sure Matt.

My first question is just clearly the it seems to be the delta and the changing full.

Full year guide is largely concentrated pharma, both large and small but given the sort of resilience you've seen in the strengthen.

The chemical and advanced materials space with that 16% growth what is your kind of outlook.

On that end market I mean should we expect a level of durability of demand certainly relative to what youre seeing in pharma over the course of this year that could help offset.

Some of the growth impact you're seeing at El <unk>.

That's a great great question, and I think Thats actually what we've assumed in our in our full year guidance, maybe want to share some of the specifics Matt.

What we built into the if you looked at where we were at the beginning of the year.

The largest changes in pharma, where we were at high single digits and as I mentioned go into low single digits, our chemical and advanced materials, where we're still assuming a mid to high single digit growth for the full year, certainly front end loaded given kind of the challenges that we see in terms of the comps with China, but we are seeing we are.

We're expecting that to be more resilient given the.

Some of the fundamental secular drivers of Semicon and batteries has continued to be strong and are expected to stay strong in the second half of the year as well.

Got it. Thanks, that's really helpful. And then just second question for you guys. Maybe park just on ACG just given if if we do have to sort of 12 to 18 month cycle.

You've talked in the past about the ability for ACG on the services side, whether it's extended warranties or others in terms of kind of helping to offset some of the weakness you might see in sort of capital equipment purchases by extending those services are increasing the services revenues I realize it's a smaller portion of revenue relative to our side, but I'm. Just wondering if this is sort of a tall task.

18 month cycle could you see some level of acceleration or at lease durable.

Low double high single digit growth in ACG over the course of that time period.

Yes look at I think our breadth of product offerings across many of the hardware hardware platforms enables as Todd all types of customer.

Hope so.

All types of customer operations and what we're seeing is extremely strong demand for our services as utilization of the installed base happens and in particular.

We are seeing Leboyer enterprise service offerings, a big demand for <unk>, where we're helping customers with their efficiency through asset management and so on so I think it's a very durable business and I think it's going to continue to be durable over that timeframe. I think durability is the right word to use <unk> and Matt and.

This is a resilient part of our company's portfolio, we've talked about these recurring revenue businesses.

I think the story here is even bigger done before then.

Extension of instrument lines. If people are deferring replacement purchases. We also believe we have been picking up share and particularly again doing really nicely job on the enterprise level I would also say, Mike we still have a big opportunity to attach a service.

Contracts sensitive business and of course.

As we as we go through this likely we continue to accelerate that.

Alright, thanks, very much guys.

Sure.

Your next question comes from the line of Rachel.

Tal with J P. Morgan. Please go ahead.

Hi, <unk>.

Couple of questions.

I'll wrap up here just on back, yes, hi, guys.

So first just maybe some questions on backlog you noted that you worked on your backlog. This quarter. So could you just tell us how many months of backlog do you have on that instrument portfolio today, and then last quarter. You noted that you work down the backlog on the instrument portfolio, but for the total business orders grew faster than revenues. So can you kind of give us kind of that context as well in terms of order booking.

Backlog trend between instruments versus the rest of it.

Hey, Rachel Thanks for the question as you know we don't report on a book to Bill above where we can use it how to qualitatively describe the backlog and Bob I think we would use the word normalized backlog from the elevated levels. We had seen in the quarter. So we are at a normal level of backlog in terms of the month's supply so and we've been talking about this movement toward.

Normalization in terms of the backlog and where they are now.

Yes.

Yes.

Rachel you right.

Our orders grew greater than revenue in Q1, and as I mentioned earlier in the call.

Q2 and reversed.

<unk> revenue was greater than greater than orders.

And we did eat into backlog, both in Q1, and Q2 and the and the instrument side.

Supply.

Delivery times.

Declined we thought that that was a healthy thing.

And we're back at normalized delivery times as well as our normalized back backlog.

Hey, Bob I think we did have some pretty tough compares in terms of our prior year order growth, but and I think ACG and DDG continue to grow that's right in the quarter yes.

Great question.

Michael you guys grew 16% in the corner.

One is there any comments on this market. So can you just walk us through what are you exactly.

And what do you expect for the full year for our <unk> growth and then finally, you spend some time today about share gain.

About that until recently as well.

So can you just talk to us about kind of what parts of the market, whether that's geographically says our customers technical I think youre doing a coffee. Thank you.

Yes, I'm going to I'm going to pull Jacob into this call, but he is on.

Turning to join in the conversation, but I think the story board here for LC is very consistent with the overall macro environment describe which is an increasingly cautious instead.

Set of decisions being made by customers relative to new instrument purchases.

And as you know we've been talking for some quarters about the.

Moderation, we were expecting to see in small molecule.

LC placements.

That the 20 plus growth rates that the industry had been seen for a number of quarters, we'd actually with C level of moderation start to occur and that's what we saw.

In this recent quarter and we would expect to see that continue throughout this year and perhaps you want to add some of your thoughts here as well Jacob of them take on the question about market share as well absolutely and thanks, Paul for the question I mean first of all we continue to.

See good market share gain in the LC business and we see that as Mike was mentioning also over the last year, we have really seen high growth in India business over many of our end markets. Obviously, it's been fueled significantly in the pharma, both small and large molecules and as both Mike and Bob was talking about.

These markets are changing right now so while we will see a change in the market dynamics and thereby also some of the growth rates.

The strategy that <unk> been case pharma LC LC, Ms and pretty much the whole portfolio has been to build these workflows that is based on robust reliable instruments, and and really solution oriented and we expect and we see that this is what our customers are looking for and hence I'm expecting that that while the markets are down we will continue to see.

Market share gain in this business and also in the <unk> business.

Okay.

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

Hi, Thank you.

Going back to the mic.

So your comment on large pharma mid and large pharma that 90% of the business is not emerging biotech within your reported pharma segment.

Do you have any sense or any theory from your field team on why that customer base has gotten more cautious and wide deal cycles have lengthened I wouldn't think it would be very GDP PMI tethered and I wouldn't think that the silicon Valley bank or what have you would be that material for that customer set.

On by poor again. This I don't think you can point to Silicon Valley, but you can point to the pressure that the pharma companies run relative to their P&L.

And they are cautious they are really cautious about deploying new capital.

And it's.

Yeah, and I would add Mike the approval levels that we're seeing are going open open at the highest levels within pharma comes from making decisions on capital purchase. So so a lot of caution around us and Dan I have to say in all transparency, a little bit hard to figure out right because.

We had a similar thesis which was.

The markets would be more resilient, although we expect with some level of pressure as we assume that second half guide a little more resilient in the face of slowing GDP, but things have obviously things that move more quickly than we had anticipated and this level of increased caution as it was is something we've seen in the last probably four to six weeks.

And it's difficult to figure out from the standpoint is there is no obvious external catalyst. We just know we're seeing it across a broad section of our customer base.

I appreciate that and a separate question can you zoom in a bit more on what's going on in the genomics market within your <unk> business do you think theres any share shifts happen is it all all the pressures market related and when would you expect that that could improve.

Yes, Selman invite Sam into this but I think what you'll hear from us and we'll talk to you about it's really a U S centric phenomena not a market share issue and there is that level of capex. There thats on the instrument side that we're feeling that as well, yes, absolutely Mike and thank you for the question.

What we found is that when you think about translational research we've already talked about pharma.

Here also as it used to genomics for diagnostic testing to Theres, just become a slowness in decision, making not only in instruments, but even in.

The usage of consumables, particularly on the instruments I will tell you that even within the quarter, our NGF QC backlog for consumables really then just QC, that's actually grown in our orders have grown so we're doing well there, but there has been a slowness that we're seeing that's broad based.

To answer your question about share we don't believe that we're losing share.

Similar to what you had heard about the instrument, it's not that we're losing orders the time in which the orders are being placed.

Is just being lengthened and in U S particular little bit in China is where we're seeing the impact and we are assuming the level of improvement in our genomics business in the second half in our guidance I recall Bob.

Not full recovery, but but improvement I would say Dan some of our some of our end customers have had a really challenging time and shut down sites and that has affected our volumes. We saw that in Q1 and it's continued into Q2 as is Mike Youre, saying, we start anniversarying some of those.

<unk>.

In the back half of the year and expect it to perform better.

But some of those are customer specific.

Understood. Thank you for all the color.

Sure quite welcome.

Your next question comes from the line of Derik de Bruin with Bank of America. Please go ahead.

Hey, Thanks for taking the question this is.

My question on for Derek.

Just following up on a previous point on.

Pharma Big pharma slowing down you used a lot of comments in a slower deal velocity, taking longer to close deals et cetera.

You just said you are not seeing an obvious catalyst.

Is there any risk you're going to see slower deal velocity elsewhere. As you go through the year I mean, the academic and government.

Applied materials. These leisure sector as it also had I would say above trend growth in recent years within the fiscal first half so but.

But youre not building in any conservatism in those areas for the rest of the year. So how.

How would you characterize the risk there.

Just given how quickly pharma turned.

Sure.

Bob I think we've got a realistic forecast here.

And that's why we're asking you to think about guidance at the midpoint.

We had already assumed some level of slower capital investment in those end markets in our previous guidance, there's really no change to that.

We think that.

Outside of maybe the chemical side of Cam.

Other end markets will hold up relative to our guide expectations.

And listen we know we've had we've had the experience in these cycles before and Mike one of the things I wanted to mentioned earlier to a previous caller's question was we know when the market's low this is actually Lindsay hatchment team, even China further we always gain market share in down market. So I'm absolutely convinced you heard it in my prepared remarks, I am going to come out of this thing.

Stronger I think the only debate is how long the cycle is going to be.

Right right.

Yeah and then.

Kind of to that point.

For the fiscal second half I think youre pointing to three and a half decline core growth core sales growth in <unk>, but then implies roughly flat and <unk> you touched a little bit on comps with China, moving around and things like that but still.

Sequentially, that's a pretty big Reacceleration in the fourth quarter, regardless of how you look at it.

Even in absolute dollar terms. So are you assuming any re <unk> are you any indication of that happening in terms of orders I guess why isn't that really fiscal <unk>, that's being hammered here.

Yes, I mean, we typically do have some.

Some seasonality built into our results if you not just looked at last year, but historically our Q4.

Does have.

A typical ramp up from Q3.

And we're looking at if you looked historically kind of how we're looking at the seasonality.

That's kind of how we built it in.

We are expecting.

Stronger both revenue and order growth.

Performance Q4 relative to Q3 based on what we know today.

Okay Alright.

Alright. Thanks.

Sure sure Mike.

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

Great. Thanks, Thanks, guys for the questions.

Mike Bob.

And maybe just.

Question, just kind of clarifying some of the numbers here on emerging biopharma.

What does that business do in the quarter itself I don't think I caught that I know Bob you said, it's going to decline as part of your guidance. So could you just flush out like what what youre assuming for that for the rest of the year for emerging Biopharma and then kind of what does that imply for the commercial biopharma and.

I didn't hear any as Rafael Sag like did you guys talk about what youre expecting <unk> to do in the back half of the year.

Yes, I would say let me take.

The last one first.

Our <unk> business.

We were assuming for the full year kind of mid single digit growth.

With it front end loaded we're now expecting low single digits.

Just above zero, so we're actually expecting a decline in both the second.

<unk> third quarter and fourth quarter for OCG driven.

In part by the buyer emerging biotech and.

And the <unk>.

<unk> molecule in terms of the Biopharma Biopharma actually in total grew 616% in the.

<unk>.

Q2 results.

And that was benefited obviously from NASD. If you took NASD out it was it was.

It was 11.

Percent. So what we saw was this change in the quarter and we're assuming that change will stay pretty consistent.

In the back half of the year.

Yeah.

Got it Okay and then maybe just wanted to ask since you brought it up.

Another terrific quarter can you just unpack a little bit on kind of what the funnel looks like there.

At the same level of growth kind of persist in second half.

Now that you're bringing on and are working on the new training kind of what's the durability of that growth, but as you look out beyond beyond year end. Thank you.

Yes, we're super.

Take that one yes super.

Super pleased with the performance of NASD and as we look out to the second half of the year, we feel good about the performance.

<unk>.

Alrighty excited about train B coming online and we are.

We're having conversations with customers as we look to fill that.

That train up and what I would tell you is kind of stay tuned for that standpoint, but what I would say long term.

We're extremely excited about this that's why we're investing another $700 million.

And adding train C&D as well so.

We think that we're in the early stage of <unk>.

Therapeutic discovery here in terms of <unk>.

RNA <unk> RNA based.

Therapies and.

There will just be more larger indications.

As those move through the through the clinic.

Absolutely.

Okay.

Great. Thanks, guys.

Youre welcome.

Yeah.

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

Yes.

Thank you good afternoon.

Yes Jack.

So.

I have one more question on China, obviously, great quarter, even if you exclude the comp, but you're talking about some incremental caution here can you talk about like what customers in the China region Youre seeing some of this incremental caution.

<unk> was one of those just any color on specific customers in the region would be great.

Yes, sure maybe I'll tag team with <unk> on this one so.

As Bob mentioned, even adjusting for the <unk>.

<unk> shut down last year, we did 10% core.

In China in Q2, we are bumping up some pretty hefty compares in 2944, if I remember the numbers correctly for Q3 and Q4.

But I would say that the China market is really reflective of what we're seeing in the United States as well so it's our farmer customers in China.

It's our it's our chemical customers in China, albeit.

The advanced materials piece of the of the China market continues to hold up quite nicely.

Pork I know you've been in conversations with our China sales leader and what are you hearing from them, Yes, No I think you said it well Mike its a very similar dynamics in China from what we're seeing in the rest of the world.

Which is quite simply customers have become more conservative capex budgets and spending decisions, albeit on the on the EV EV markets and so on that's particular strength.

Going to continue to see both of them I think.

That's what we're seeing.

Great and then.

One market you didn't call out in Cam was the <unk> testing was wondering if you could give us an update on that and just how you or if theres been any change in terms of the market dynamics there. Thank you.

I think we remain very positive on that Jacob yes, absolutely I think that we are still in the to use the baseball term year or the early angle.

American Baseball terms, I think I am but we're still in the early innings here. We have been we've seen a lot of growth last year and we continue to see obviously diagnostics has also a lot of funding through the government its little bit lumpy, but if you look at for the long horizon.

This is a huge opportunity for us and we have a very strong position with with our LC CMS business here and we're also seeing is expanding into new areas with the <unk> business.

So so I'm still very bullish on that.

Continuing to see a lot of business here and take I think it's also fair to say, it's primarily a U S and a little bit of European phenomenon.

To see new rigs being deployed and implemented in China, and Japan, which down the road could be a source of continued growth on a global basis, Yes, you're absolutely right. Mike I mean, there's a lot of things going on here in U S and thats been regulation in certain states right now.

Driven by regulation, so when regulations gone on bought in online in different countries you see a step up in that so that's definitely more to come here.

Got it thank you guys.

Sure.

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

Hey, guys. Thanks for taking the question Patrick.

Sure Hey, Mike how are you.

And then just one quick one.

Just following up on the <unk> piece.

Again, a good amount of inbounds on that I know you don't want to talk about the book to Bill, Mike, but just given the level of focus and the visibility here I know you mentioned the backlog back down to normal it seemed like you guys eat into it a little bit this quarter can you give us a sense on the orders I mean were they down double digits.

Bob maybe just the magnitude of what that decline could look like in <unk> in terms of the <unk> Rev. Sure It would be helpful.

Yes, sure we want to give you some additional insights Bob So I think you've got some yes. So if you looked at our overall.

Order.

<unk> orders they were down low single digits as Mike mentioned.

ACG.

And DDG grew and.

<unk> was down mid to high single digits and.

In the quarter and as I mentioned before our guide contemplates a.

Decline for <unk> in both Q3 and Q4.

Okay got it.

And then maybe just the margin piece I know you talked a little bit about the second half.

And Mike I think you flagged maybe some additional cost savings in the second half can you just talk about I guess, where you guys are pulling some costs from how nimble you can be and how aggressive you want to be as well Mike you, obviously sound good on a long term kind of dealing with this pullback here.

It looks like it's transitory. So how do you think about just the expense management in the near term in that second half margin ramp.

Yeah. Thanks, Thanks, Craig.

I'm really glad to have opportunity to address this head on so because you hit one of the key messages. We still are very positive on the long term.

Both opportunities in these markets. We serve we think we're in a pause in certain segments of our market, but we remain very bullish on the long term and markets and the trick here is to make sure you're doing the right thing to to manage the business in the short run in terms of being able to deliver.

Leveraged earnings growth for our shareholders and that's why I talked about the confidence we have in our shareholder value creation model, but at the same point in time make sure that we don't cut off things that are going to get in the way of our long term growth and we know how to do this we've done this before we've got some variable pay programs. We have things we look at relative to.

Travel and other things that are associated with the expense things that arent necessarily immediately near term revenue generating and then what we'll do is we'll prioritize we'll make sure that we're focusing on the on the.

On sustaining our ability to realize the growth opportunities in a lot of these businesses, which are growing right. Now one thing that came out today is it's a story of of the multiple growth drivers across Agila clearly, we're having some near term challenges right now in our analytical instrumentation business, yet pathology is growing well.

NSE growing well services consumables, so we've got a pretty rigorous program.

What I can assure you is that we will make the reductions in areas that we don't think it will get in the way of our ability to continue to sustain what we believe to be out market growth and Bob I know you put a lot of thought and time and as we've already we've already been activating a lot of the software already so we didn't wait to the earnings call to get started on this but I know that we think are the path forward here for us yes.

Just just to build on what Mike is saying obviously.

We've got we've been looking at discretionary spend and things like <unk>.

Travel, but also <unk>.

Demand related if theres not demand, we're not going to spend the same level of marketing funds. As an example, and we continue to really drive productivity, we talked about that at the very beginning of the year.

A year around.

Productivity in our in our workforce and we will continue to do that from.

Making sure that we don't get ahead of ourselves in terms of adding more people relative to the business.

Understood. Thank you guys.

Sure.

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

Hey, guys. Thanks for squeezing me in.

Absolutely Mike.

Yeah, Hey, Mike curious what year over year orders were an LC and mass spec where orders are down kind of in the mid teens range and then within large pharma I think you mentioned the funnel remains healthy, but it's just taking longer to close deals I guess based on conversations with key accounts recently.

Anything you can point to that gives you confidence that the slower orders here are more reflecting delays in the purchasing process as opposed to just.

Tighter budgets and maybe lapsed re prioritizing capital to other instrument categories, maybe outside of El CMS, Yes, I'm going to tag team with pouring on this and then I'll go back to the order question to Bob but.

Yes.

What we're hearing and what Ive heard directly is customers aren't cutting their budgets.

And I happen to be in.

In Europe last month and at our demo facility involved around Germany is fully booked for the next three months I mean, so theres a lot of interest.

A lot of interest in that and the solutions we just.

Get the PEO through their approval process.

Inside their companies. So that's why we think it's transitory, although we have to acknowledge what we're seeing today and thats reflective of the revised guidance for the second half, yes, no look I think youre right, Mike I think the customer activity remains high I think one thing that we've really seen is no uptick in cancellations whatsoever.

Those remain intact and actually we are adding fresh formula in certain cases, so so I think it's.

It's really a case of slower deal velocity.

And on and on orders Josh.

We won't disclose individual product lines, but as I mentioned, the order growth for <unk> was down.

Mid to high and they were higher than that.

Klein was greater than the average.

Okay, and then just a follow up I think on Jack's question can you provide more context on what within pharma in China has been softer than expected any examples of customers any examples of customers have provided on why they are pulling back.

And then curious if the softness has been pocketed within a few large accounts there or if its been fairly systemic.

I think theres no real significant difference between sub segments of the overall pharma market and I think the and poor correct, if I'm wrong, but I think the overall sentiment is.

As economic uncertainty.

And just being cautious.

Right.

And it's.

It's like I said earlier is a hard one to initially figure out.

Because there's no obvious external catalyst because we deal on this but.

This is what we're seeing.

We just thought it is important to share that directly on the call today, Yes, I think Josh the one thing that we did see and we talked about this at the beginning of the year because there was a lot of talk about the stimulus that stimulus was targeted at higher end applications and instrumentation that we don't necessarily have the.

The product portfolio or compete in and so I don't think that has moved budgets.

But it created a stimulus for potentially areas that we're not as exposed to as maybe some other players in the marketplace.

Yeah.

Okay I appreciate all the detail.

You're quite welcome.

And your final question comes from the line of Lisa Garcia with UBS. Please go ahead.

Afternoon. Thanks for squeezing me in I appreciate it.

Coming back to the margin progression in the guidance and just kind of.

And I appreciate all the clarity on kind of the cost potential but also with.

And then the second train line kind of ramping in thinking about that I know that you've talked about how those should be accretive.

China, India should be accretive to the overall margins, but just as we think about it ramping can you just give some context to how to think about.

That train line coming on and its impact in the back half.

Bob you want to take that yeah sure.

So Liz if you looked at that in isolation actually there is.

Margin compression given the train B startup.

But we've taken that into account we have that.

Our initial guidance.

That's money that's good money to spend because we've got.

A lot of opportunity there and so.

The cost savings that we've been talking about.

Is really.

Not in that area, it's in the other parts of the business.

Great.

I think I caught this but.

I'm, assuming pricing is still tracking to.

That's still kind of what we should be thinking about the guidance.

That's correct that's correct it was actually a little over four for Q2.

Great. Thank you so much guys.

You're quite welcome.

Yeah.

Okay.

Thank you.

Okay.

Thanks, Sara and thanks, everyone for joining with that we would like to end the call for today have a great rest of the day everyone.

Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.

Okay.

Yeah.

Yeah.

Yeah.

Yeah.

Okay.