Q2 2025 Agilent Technologies Inc Earnings Call
Good afternoon. My name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the second quarter 'twenty twenty-five Adulate Technologies, Inc. Earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to Nebraska.
Washington During this time simply press star followed by the number one on your telephone keypad to withdraw your question Press Star one again.
Speaker Change: You pardon me too who would you you may begin the conference.
Speaker Change: Thank you and welcome everyone to <unk> conference call for the second quarter of fiscal year 2025.
McDonald: With me are porting Mcdonald accident, President and CEO, and Bob Mcmahon <unk> Senior Vice President and CFO join.
Simon May: Joining the Q&A will be Simon may president of the life Sciences, and diagnostics market Scoop Angelica Ryman President of the accident Cross Lab group and Mike Zhang President of the applied markets group.
Simon May: This presentation is being webcast live.
McDonald: The press release for our second quarter financial results Investor presentation, and information to supplement today's discussion along with a recording of this webcast are available on our website at www Dot investor Dr. <unk> Dot com.
McDonald: Today's comments will refer to non-GAAP financial measures you will find the most directly comparable GAAP financial metrics and reconciliations on our website.
McDonald: 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.
McDonald: Core revenue growth is adjusted for the impact of currency exchange rates and any acquisitions and divestitures completed within the past 12 months.
McDonald: Guidance is based on forecasted exchange rates.
McDonald: As a reminder, beginning in the first quarter of fiscal 'twenty to 'twenty five we implemented certain changes to our reporting structure related to the reorganization of our three business segments.
McDonald: We have recast our historical segment information to reflect these changes and have provided the financial details on our website.
McDonald: These changes have no impact on our company's consolidated financial statements.
McDonald: During this call. We will also make forward looking statements about the financial performance of the company.
McDonald: These statements are subject to risks and uncertainties and are only valid as of today.
McDonald: The company assumes no obligation to update them.
McDonald: Please look at the company's recent SEC filings for a more complete picture of our risks and other factors.
Pork: And now I'd like to turn the call over to pork.
Speaker Change: Hello, everyone and thank you for joining today's call.
Speaker Change: Argentina delivered strong second quarter results in a highly dynamic market environment.
Speaker Change: Revenue of $1 $67 billion for the second quarter represented growth of 6% reported.
Speaker Change: Five 3% core compared with the second quarter of 2024.
Speaker Change: Operating margin was a solid 25, 1% as we absorbed some incremental tariff costs.
Speaker Change: We also delivered EPS of $1 towards one cent growing 7% compared with the second quarter of 2024.
Speaker Change: Revenue and EPS exceeded our expectations, marking the fourth consecutive quarter of accelerating growth.
Speaker Change: Our performance was driven by growth across markets and regions speaking to the diversity of our business.
Speaker Change: We also saw another quarter of building momentum in instruments with a book to Bill ratio again greater than one.
Speaker Change: Thank you to the adjuvant team for delivering these results by tirelessly going above and beyond for our customers.
Speaker Change: No matter, where I travelled into wars, our customers consistently say the same thing.
Speaker Change: <unk> team is second to none and for that reason to want to increase their partnership and collaboration with us even more.
Speaker Change: Even during a challenging macro environment. These conditions have prove the efficacy of our three year ignite transformation, which is the execution of our strategy.
Speaker Change: We're already leveraging ignite to create an enterprise operating model that has resulted in multiple arity wins, including tariff mitigation.
Speaker Change: More on that in a moment.
Speaker Change: First let me tell you why our Q2 was so strong.
Speaker Change: All regions grew in the quarter.
Speaker Change: Americas grew low single digits EMEA grew mid single digits.
Speaker Change: China led the way at 10% growth exceeding our expectation while the rest of Asia grew high single digits.
Speaker Change: China saw stable demand conditions sequentially, while a favorable lunar new year comparison year on year growth.
Speaker Change: In Asia, India delivered high teens growth.
Speaker Change: India is a long term high growth innovation driven markets, which is why we've opened our first India solution Center there this month.
Speaker Change: The center showcases adjutants expertise across disciplines to deliver end to end solutions in sectors, such as Gi P. One analysis emerging food and environmental contaminant analysis.
Speaker Change: P fast detection, we also delivered mid to high single digit growth in all end markets, except academia and government.
Speaker Change: Which declined modestly with strong results in Asia moderating expected softness in the U S.
Speaker Change: Pharma grew 6% at the high end of expectations led by small molecule growing low double digits Biopharma continues to recover at a slower pace growing low single digits as we continue to see funding challenges and small and midsize biotech primarily in the U S. Within Biopharma NASD was a standout.
Speaker Change: Growing high single digits in Q2.
Speaker Change: We're looking forward to double digit growth from NASD in the second half of the year.
Speaker Change: In addition, while not yet part of core growth, our buyer Vectra business performed well exceeding guidance by.
Speaker Change: <unk> capabilities are in the sweet spot of tremendous markets. For example, GOP ones on complex Chemistries with terrific medium and long term growth potential.
Speaker Change: We are very excited about the combined offerings of NASD and bio Vectra da.
Speaker Change: Diagnostics and clinical grew 8% ahead of expectations on strong performance of our pathology business in the Americas and Europe.
Speaker Change: Environmental and forensics grew 6% on strong P fast testing demand globally.
Speaker Change: <unk> testing remains strong project globally, and we see it continuing to expand into other end markets, such as food and chemical and advanced materials in Q2, <unk> grew more than 70% year over year globally, with Europe, and China more than doubling their business <unk> provided an incremental 80 basis points to our growth in the quarter.
Speaker Change: And it's now annualizing to well over $100 million.
Speaker Change: We continue to be very optimistic about the long term growth prospects globally, and PFS as regulations and standards continue to be put in place.
Speaker Change: For <unk> testing, our infinity tree and our $64 95 D system is the most sensitive and robust solution.
Speaker Change: The agile team has deep understanding of customer challenges and how we can help them with their testing needs through delivering integrated workflow solutions productivity, a new modality application developments.
Speaker Change: We are tracking over 350 regulations globally and are very confident in the continued momentum into some emerging 1 billion.
Speaker Change: Addressable market by 2000 Torchy.
Speaker Change: In chemicals and advanced materials revenue grew 4% with high single digit growth advanced materials, while chemical and energy was up low single digits globally.
Speaker Change: Overall, we saw growth ex China offset by low single digit decline in China.
Speaker Change: Lower oil prices are net positive to the com business, given that drives lower input prices to our chemical business, which is four times bigger than energy.
Speaker Change: <unk> grew 8% benefiting from strength in Asia through government funded technology refresh.
Speaker Change: Our smallest end markets academia and government declined only 2% in the quarter better than expected performance in the U S and globally.
Speaker Change: Given we were ahead of others talking about potential U S funding impacts in our first quarter earnings call and did better than expected in Q2, we feel we already have adequately captured any variability looking forward.
Speaker Change: When looking holistically across Iceland, we continue to make investments in our digital ecosystem such as our next generation E. Commerce platform. So that we can offer an outstanding customer experience.
Speaker Change: Those investments are paying off as we grew digital orders by 12% year over year to $295 million.
Speaker Change: I also want to highlight acg's, 9% growth this quarter, which exceeded expectations Acg's performance was led by strong growth in automation services and consumables for the first time in several quarters, we saw both on demand and installation services returned to growth.
Speaker Change: These results keep us on track with the long term commitments, we outlined at our analyst and Investor day in December, including 5% to 7% core revenue growth expanding margins 50 to 100 plus basis points annually and driving double digit EPS growth.
Speaker Change: We have momentum at <unk> over the past 12 months my first year as CEO yachts and the team has accomplished a lot. We built a formidable senior leadership team that is working in lockstep to maximize Atkins resources to drive shareholder value.
Speaker Change: We've evolved our enterprise strategy to be market forced and realigned our businesses to our markets. We acquired by a backdrop for roughly $1 billion to expand our <unk> capabilities.
Speaker Change: And we have moved from planning to execution in ignite.
Speaker Change: Before providing further details them ignite I want to pause here and thank our Ashland team members for how quickly they have adapted to change and.
Speaker Change: The company's higher ambition.
Speaker Change: It is no small feat to transform a company and I've been impressed by our colleagues' passion for our mission and vision and their increased ceded to delight customers. So that agile and continue to win in the markets.
Speaker Change: These team members are leading ignite on initiatives that is already yielding incredible results.
Speaker Change: Incredible results include strengthening our strategic pricing capabilities and implementing enterprise wide pricing initiatives in six months, we already have exceeded the full year price contribution from last year and are expecting at least 100 basis points of price realization in 2025 with expectations for an even greater in.
Speaker Change: <unk> and <unk> 26 and beyond.
Speaker Change: Improving organization agility and efficiency by flattening management layers and increasing spans of control by towards 2% to improve our organization has become a nimbler company. Additionally, we expect this to deliver annualized savings of about $80 million starting in the second half of the fiscal year.
Speaker Change: Centralizing, our procurement under a chief procurement officer, and adopting an integrated enterprise wide approach to vendor management, we already see strong momentum exceeding our internal savings targets ramping in the second half of this year, while being essentially in mitigating tariff expense with our suppliers.
Speaker Change: With projected procurement annualized savings exceeding $50 million by the end of 2025 and establishing a strong foundation for additional gains in 2026.
Speaker Change: Ignite is becoming the backbone of our operating system, enabling faster decision, making more scalable growth and over $130 million of profit for fiscal year 2025.
Speaker Change: It is our institution engine for long term value creation.
Speaker Change: Central to value creation is our continued commitment to innovation I am proud to share three impactful new products that demonstrates our commitment in our cell analysis portfolio. We just launched the seahorse excess flex analyzer.
Speaker Change: Its world class, leading sensitivity versatility intuitive design and compatibility with treaty models, the <unk> flex empowers more researchers than ever before to explore cellular metabolism with confidence.
Speaker Change: And at the 70 <unk> SMS Conference next week, we will launch our latest innovation in liquid chromatography mass detection, our new Infinity Lab Pro IQ series.
Speaker Change: Offers unparalleled sensitivity speed and efficiency, making it the ideal choice for customers analyzing complex bio molecules in settings, where performance and productivity are key.
Speaker Change: At <unk>, we will also showcase our enhanced 80 850, GC now coupled with the power of our market, leading dcms that enables our customers to do more with less.
Speaker Change: Reduced to 850, <unk> footprint by 50% and increased throughput up to five times by lowering its energy usage by 45% compared with a conventional bench top GC.
Speaker Change: We also continue to have success with our Infinity tree SC in orders funnel on our attach rates of service and consumables were seeing this success, both geographically with robust growth in India, a particular highlights and across all end markets with our top customers, calling out the infinity tree superior performance intelligence.
Speaker Change: Task automation capabilities.
Speaker Change: To help further drive items internal and external innovation engine I am delighted to announce August spect is joining us next month as our Chief Technology Officer August has spent over 25 years in senior R&D rose in the life Sciences industry Welcome August.
Speaker Change: Ignite also gave us a significant head start on tariff mitigation.
Speaker Change: The media creation of our tariff task force that has allowed us to make changes that will maintain our market strength, regardless of tariff rates, we are proactively managing tariff exposure by taking several targeted actions including <unk>.
Speaker Change: Focusing on specific product lines and production sites, rather than adopting a one size fits all approach.
Speaker Change: Further diversifying our supply chain by leveraging our extensive global sourcing capabilities and manufacturing network, ensuring more geographically even closer to customers.
Speaker Change: Implementing strategic pricing initiatives around the globe that protect our market competitiveness, while we remain vigilant amid geopolitical developments are localized manufacturing proactive tariff mitigation and a diversified customer base gives us greater resilience and agility globally many of our peers.
Speaker Change: Through our tariff task force enabled by our ignite operating model, we feel that we are able to mitigate most of the impact in 2025 and fully mitigated in 2026, even when considering recent developments on the U S. EU tariffs with the task force, we can create targeted analytics in a matter of hours not days.
Speaker Change: That identify key supply chain and commercial opportunities that will allow us to maximize our tariff mitigation efforts.
Speaker Change: Our top priority is ensuring we minimize tariff impacts on our customers and our customers' trusted agila products solutions and services and needs.
Speaker Change: Looking ahead, we are confident that the long term fundamentals and secular growth drivers of our markets remained strong.
Speaker Change: For the year, we are maintaining our core growth rates of two five to three 5%, while incorporating favorable currency movements.
Speaker Change: By leveraging our ignite program, we are fully absorbing all on mitigated FY 'twenty five tariff costs and maintaining our full year EPS guidance, while our results this quarter exceeded expectations. We believe it is important to remain disciplined in our outlook given the ongoing uncertainty in the macro environment and geopolitical landscape.
Speaker Change: We are committed to maintaining guidance that is both credible and achievable and we continue to prioritize long term value creation.
Speaker Change: Bob will now share further details about our Q2 guidance Bob.
Bob Mcmahon: Thanks, Patrick and good afternoon, everyone.
Speaker Change: In my remarks today I will.
Speaker Change: Provide additional details on revenue in the quarter.
Speaker Change: As well as take you through the income statement and other key financial metrics.
Speaker Change: And then cover our full year and third quarter guidance.
Speaker Change: As Paul mentioned Q2 revenue was $1 67 billion.
Speaker Change: Above the high end of our guidance.
Speaker Change: On a core basis, we posted growth of five 3% while reported growth was 6%.
Speaker Change: Currency had a negative impact of one 6%, which.
Speaker Change: Which was half a point better than estimated as the dollar weakened during the quarter.
Speaker Change: M&A also contributed two 3% coming in nicely ahead of expectations.
Speaker Change: Now, let me talk about our performance by business group.
Speaker Change: The Adjuvant Cross lab group reported revenue of $713 million growing 9%, which was ahead of our expectations.
Speaker Change: Double digit growth in consumables and automation and high single digit growth in services drove Acg's performance.
Speaker Change: Our life Sciences, and diagnostics market group reported revenue of $654 million in the quarter growing 3%.
Speaker Change: Core growth was driven by our pathology business and NASD.
Speaker Change: <unk>, which delivered high single digit growth.
Speaker Change: And our LC and LC Ms instruments that grew mid single digits.
Speaker Change: Our cell analysis business returned to growth up.
Speaker Change: Low single digits.
Speaker Change: Performance was partially offset by an expected mid single digit decline in our NGL business.
Speaker Change: And our applied markets group reported $301 million in the quarter.
Speaker Change: Flat versus last year on a core growth basis.
Speaker Change: Growth in spectroscopy, and gcs was offset by some timing related declines in gas chromatography.
Speaker Change: Before getting into the rest of the P&L I'm going to cover additional details on Q2 revenue that were influenced by the April tariff announcements primarily in China.
Speaker Change: While there was no revenue impact to agile and overall, we did see some shifts by group in the quarter.
Speaker Change: Specifically, we saw roughly $15 million of in country ACG lab consumables revenue pulled forward into Q2 from Q3.
Speaker Change: However, this was offset by longer processing time through customs on some select instrumentation and both AMG and LPG.
Speaker Change: Again, this does not impact our overall revenue for Q2 for our Q3 outlook, but we've taken that into account by group looking forward, which I'll talk to in a minute.
Speaker Change: It is also important to note we've seen a return to normal customs processing times here in May.
Speaker Change: Now, let's move on to the rest of the P&L.
Speaker Change: Gross margin was 54, 1% in the quarter roughly in line with our expectations after accounting for 55 basis points of incremental tariff costs. It.
Speaker Change: It is down versus last year with the delta being equally distributed among tariffs currency and product mix.
Speaker Change: We drove operating margins of 25, 1%.
Speaker Change: While flat versus last year, excluding the 55 basis points of incremental tariffs. It would have been an increase year on year. So overall a strong showing.
Speaker Change: Below the line, we had $2 million of income while our tax rate of 11, 5% was better than expected.
Speaker Change: And we had 285 million diluted shares outstanding in the quarter.
Speaker Change: Putting it altogether Q2 earnings per share were $1 31.
Speaker Change: That was ahead of our expectations and up 7% from a year ago growing faster than core revenue.
Speaker Change: This is a very good result in the face of the dynamic macro environment, which is a testament to the agile team forging close collaborative partnerships with our customers now.
Speaker Change: Now, let me turn to cash flow and the balance sheet.
Speaker Change: Operating cash flow was $221 million in the quarter and.
Speaker Change: And we invested $114 million and capital expenditures.
Speaker Change: We purchased $165 million in shares and paid out $70 million in dividends during the quarter.
Speaker Change: And we ended the quarter with a net leverage ratio of one so we continue to have a very strong balance sheet.
Speaker Change: Now, let's move on to our outlook for the fiscal year and third quarter.
Speaker Change: As Paul mentioned earlier, we are maintaining our core growth outlook for the year and increasing our reported revenue guidance by $50 million to reflect incremental FX benefit since our last guide.
Speaker Change: This results in an increase to our full year reported revenue to be in the range of $6 73 billion to $6 $81 billion.
Speaker Change: Increasing reported growth to three four to four 6%.
Speaker Change: Currency is now expected to represent a one one percentage point headwind for the year versus a prior one 9% headwind while our M&A guidance is unchanged at plus two to two 2% revenue impact for the year.
Speaker Change: Core growth is still expected to be between two five to three 5% for the year. We believe this is a prudent way to manage considering the dynamic macro environment.
Speaker Change: Now to help you with your models I wanted to provide some additional perspective on our end markets.
Speaker Change: In pharma, we are monitoring the progress of U S pricing policy proposals, but are not seeing a change in customer behavior.
Speaker Change: As a result, we continue to expect low to mid single digit growth for the year with the second half of the year continuing to show steady improvement versus the first half.
Speaker Change: For diagnostics and clinical given Q2s performance, we now expect growth to be towards the upper end of mid single digits.
Speaker Change: And we expect growth for both chemicals and advanced materials and food to continue to be in the range of low to mid single digits.
Speaker Change: While the environmental and forensics market is a solid mid single digit growth on PFS strength.
Speaker Change: And lastly, as a reminder, academia and government is our smallest market at 8% of total revenue with NIH related research, representing only about 1% of revenue.
Speaker Change: We are maintaining our outlook from Q1 of a mid single digit decline in total with the U S market being the driver.
Speaker Change: While we performed much better than we expected in Q2, we feel this is a prudent approach for the year.
Speaker Change: We are also maintaining our full year EPS guidance of $5 54 to $5 61, while covering the incremental tariff costs that I'll explain in more detail in a moment.
Speaker Change: This represents a year on year increase of $4, 7% to 6%.
Speaker Change: For clarity, let me briefly summarize the tariff assumptions, we've incorporated into our FY 'twenty <unk> guidance.
Speaker Change: Based on the tariff rates that are currently in place.
Speaker Change: We estimate that the gross incremental tariff exposure in the second half of our fiscal year is $50 million.
Speaker Change: This is on top of the roughly $10 million, we have already absorbed in the first half of our fiscal year.
Speaker Change: 30% of the exposure is represented by trade between the U S and China about evenly split.
Speaker Change: Of the remaining 70% 30 percentage points is from the EU into the U S and the remaining 40% is from the rest of the world into the U S.
Speaker Change: As Paul mentioned, we have mobilized our team using the ignite operating model to quickly move our procurement and supply chain to minimize the tariffs and build inventory.
Speaker Change: We are using a combination of supply chain moves like moving LC production into the U S.
Speaker Change: Surcharges in some of the ignite driven savings that poor previously highlighted to offset the incremental cost.
Speaker Change: Importantly, we expect our actions to fully mitigate the costs in fiscal 2026.
Speaker Change: Yeah.
Speaker Change: The tariff landscape continues to be dynamic and hard to predict.
Speaker Change: However, given the recent news of potentially increasing tariffs on EU source products to 50% as early as July night.
Speaker Change: We felt it important to frame that exposure.
Speaker Change: If implemented on July nine we estimate that would add another $40 million in gross exposure in the second half of the year.
Speaker Change: But through additional pricing mitigation and the inventory we built up we anticipate the net impact would be minimal for the year.
Speaker Change: This is the power of our tariff task force.
Speaker Change: <unk> enables us to address tariffs at the enterprise level and align agile <unk> key senior leaders. So we can quickly leverage our strong and diverse supply chain footprint and adjust to the market driven approach of our unified commercial team.
Speaker Change: Finally for your modeling we are now projecting an increase in other income and expenses to $15 million in income along with a 12% tax rate for the year and 285 million diluted shares outstanding.
Speaker Change: Moving to the third quarter, we are guiding to revenue of $1 645 billion to one $6 75 billion.
Speaker Change: This range represents an increase of one 7% to three 6% growth on a core basis and an increase of $4 two to six 1% growth on a reported basis.
Speaker Change: Currency is a 0.6% tailwind and M&A impact is expected to be a one 9% benefit in the quarter.
Speaker Change: Again, while the Q2 stocking of logistics dynamics I mentioned earlier do not affect the total revenue in Q3, we do see it playing out differently by group.
Speaker Change: For that reason, we thought it helpful to provide a perspective on group core growth guidance in Q3.
Speaker Change: Given the Q2 impacts.
Speaker Change: We see <unk> growing mid single digits in both ACG and AMG growing low single digits.
Speaker Change: Third quarter non-GAAP earnings per share are expected to be between $1 35, and $1 37, representing growth of two 3% to three 8%.
Speaker Change: Now I'd like to turn the call back to <unk> for closing comments.
Speaker Change: Thanks, Bob before I close I want to thank our retiring board member highly coombs for many years of service with adjuvant and I want to welcome <unk> and Judy Gaelic Brown to the board Pascal <unk> CEO of Astrazeneca and Judy is currently founder and CEO of downtown Advisory after holding senior leadership positions at Amgen and Perrigo.
Speaker Change: Both bring decades of global leadership experience from the pharmaceutical biotechnology and health care sectors with a proven track record and strategy innovation operations and finance.
Speaker Change: I look forward to working with you both.
Speaker Change: It's an exciting time to be part of the adjuvant growth story to.
Speaker Change: To be part of building on our foundational strengths of being an established leader in $80 billion market is driven by secular growth, having leading market share and sustainable competitive advantage through our intense customer focus on re accelerating growth through innovation and market share gains.
Speaker Change: And we continue to look at the long term as Bob mentioned, we have a strong balance sheet and remain focused on augmenting our internal innovation with external growth opportunities.
Speaker Change: We have a robust pipeline of opportunities of all sizes.
Speaker Change: That are aligned with our strategy. We explained in December and we will further build this great company.
Speaker Change: In a highly dynamic macro environment items is excelling we remain confident.
Speaker Change: Confidence in our ability to deliver on our full year 2025 commitments and in our long term trajectory towards financial framework, we expand at Investor day, but at night scaling on our pace of innovation accelerating items is well positioned to outperform regardless of the near term market dynamics.
Speaker Change: After one year as CEO I'm, even more energized by what we're accomplishing at adjuvant.
Speaker Change: We're only getting started.
Speaker Change: Thank you for your attention.
Speaker Change: Hand, it over to permit to kick off our Q&A permit.
Barak: Thanks Barak.
Barak: <unk> if you could please provide instructions for Q&A now.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Our first question comes from the line of Patrick Donnelly with Citi. Please go ahead.
Patrick Donnelly: Hey, guys. Thank you for taking the questions.
Patrick Donnelly: Maybe one just on the order trends that you guys saw in the quarter can you just give us some color how those progressed as the quarter progressed.
Patrick Donnelly: Our unique timing probably saw a little bit of a pharma tariffs the actual tariffs come in just curious if you're willing to talk about April certainly may would be welcomed as well, but what you saw on the order front did you see any pull forward around the pharma tariffs I know you've talked about the ACG pull forward on our consumables, but just curious what youre hearing from customers.
Patrick Donnelly: Then what you thought on the order front versus the revenue side would be helpful as well.
Patrick Donnelly: Yeah. Thanks, Patrick So I can I can start here. So first of all our book to Bill was greater than one.
Patrick Donnelly: And our orders grew low single digits in Q2 and overall for the for the first half orders grew mid single digits. So in terms of any pull forward from pharma, we haven't seen anything we've seen actually very stable business.
Patrick Donnelly: Across across the regions of course as Bob talked about in the script, we did see a pull forward in consumables.
Patrick Donnelly: Comes out in the wash given.
Patrick Donnelly: Some of the issues, we had with customers et cetera in April but not back to normal now so but I would say its peak pharma customers are in particular are still spending on key projects and replacement cycle continues so no changes there and we do expect that this gradual recovery to continue in the second half.
Patrick Donnelly: Okay. That's helpful.
Patrick Donnelly: And then maybe just on the NASD bio Vectra piece it sounds like those performed quite well in the quarter.
Patrick Donnelly: Can you talk about I guess expectations for the rest of your it sounds like NASD as maybe creeping a little bit higher which is great.
Speaker Change: Can you talk about the visibility there I know, sometimes you get orders well out a few quarters. I mean are you into 'twenty six on some of these order books and maybe just talk about the visibility in what Youre seeing in those businesses would be helpful. Thank you guys, yes, I'll start and I'll hand, it over to Simon. So first of all really really pleased by the progress in our <unk> business and.
Speaker Change: <unk> with high single digit growth when we buy a vectren to high teens, we're seeing the combination of these businesses right in the sweet spot of of really important therapeutic areas coming together, but I'll hand, it over to Simon for more color on that.
Simon May: Yes, I'd say overall in the CMO businesses. We were pleased on a couple of major fronts for the quarter. Just passed we saw progression of some early commercial programs in the NASD business, we talked about that a few times previously and we're now starting to see the revenue mix.
Simon May: <unk> moved from 50 50 towards 60 40 in favor of commercial we think that bodes well for the future and then in the by virtue of business. There was also some really notable progress <unk> manufacturing programs, we saw successful scale up.
Simon May: We saw some nice process efficiency gains are now beginning to become a pretty meaningful contributor to the CMO business overall as we think about going forward in the near term on say, we're pretty confident about the second half of the year as we look at NASD in particular, we've got very clear line of sight.
Speaker Change: The double digit growth.
Speaker Change: <unk> mentioned in the script, so to say because the orders in house that we need to fulfill that and then longer term. We continue to think we're extremely well positioned in this space and again these combined capabilities of NASD and buyback sure really put us in the sweet spot of advanced therapeutic modalities.
Speaker Change: <unk> not really excites us like Aldi goes in antibody drug conjugates and bio conjugation generally is a really high growth area, where we've got real strong capability in buyback. So a lot to be pleased about in the quarter as always I'd caveat. This business is lumpy it will continue to be lumpy, but.
Speaker Change: We're on a clear.
Speaker Change: Trajectory here, we feel like we're nicely positioned and we got a good line of sight to the rest of the year.
Speaker Change: Great. Thank you guys.
Patrick Donnelly: Thanks, Patrick.
Speaker Change: Our next question comes from the line of Jack Meehan with Nephron Research. Please go ahead.
Jack Meehan: Thank you good afternoon.
Jack Meehan: I wanted to follow up on Patricks first question is just around the in quarter impact you saw on ordering just around the tariffs.
Speaker Change: $15 million of consumables that got pulled forward what what are you hearing from customers is that just the reason for why that happened just curious about that and then on the instrument side does the guide assume you recapture that in the fiscal third quarter or do you think that could come later in the year.
Jack Meehan: Yes, Hey, Jack this is Bob.
Jack Meehan: And.
Jack Meehan: As you can imagine.
Jack Meehan: In China, given the high tariff rates that were being proposed at the time at mid April there was a desire to try to get ahead of that from some of our customers and we had inventory and in country and so we just we just saw some stocking of orders that would normally be throughout Q3 being pulled into Q2 and being.
Jack Meehan: <unk> delivered.
Jack Meehan: On the flip side because of the changing tariffs there were a number of longer delivery times and logistics.
Jack Meehan: Activities that were happening at the ports in China, as well that primarily impacted our instrument business because if we bring those in and so that offset in total that in.
Jack Meehan: In China, and so when we look at that we would expect.
Jack Meehan: No change we didn't see any change to our overall revenue in Q2 just some.
Jack Meehan: Moves between instruments and consumables and that will reverse itself. We expect here in Q3, but again in total for Q2 and Q3 the total results.
Jack Meehan: Hi.
Speaker Change: Got it that makes sense and I think that explains where I was going to go with my second question as to why.
Jack Meehan: Kinda was much better than I was thinking so I do have one other follow up which is.
Jack Meehan: Bob just can you boil it all down now on the margin side for the year kind of what the guide implies for operating margins.
Jack Meehan: Yes so.
Jack Meehan: Yes.
Jack Meehan: The the margin given obviously the.
Jack Meehan: Costs associated with the incremental tariffs.
Jack Meehan: Our.
Jack Meehan: Covering that with a combination of of tariff mitigation activities as well as some pricing surcharges and then some of the ignite.
Jack Meehan: But given the impact of that it'll be closer to flat versus year ago. If you took that out we would still be on track for the margin expansion similar to what we saw here in Q2 as an example, so we were flat year on year.
Jack Meehan: But if you took out that 55 basis points, we've been right on track. So we still feel good about that cadence going forward, particularly when we talk about 2026, when we when we talk about mitigation that means that we will eliminate the gross impact of the tariffs it through.
Jack Meehan: Through some of the supply chain moves that are already ongoing.
Jack Meehan: Okay. Thank you.
Speaker Change: Our next question comes from the line of Matt <unk> with Goldman Sachs. Please go ahead.
Speaker Change: Hi, This is Anthony on for Matt Thanks for taking my questions.
Speaker Change: So the first one in the past you've noted that the majority of your exposure within your pharma business is in clinical versus earlier stage research.
Speaker Change: Have you seen any differences between the ordering patterns of these two applications, especially with the recent uncertainty in the research spend from these customers.
Jack Meehan: Yes, no I would say the lion's share of our business is actually on the QA QC and development side and we saw small molecule actually grow 10% in the quarter was which was a fantastic result, so we see across pharma that actually that's the part that's more resilient currently and particularly in the future where you see potential reassuring that may have.
Jack Meehan: Over over a few years of course.
Jack Meehan: QA QC testing benefits from that and of course benefits by the way from from supply chain changes with pharma around the globe as they look at to mitigate things themselves. So overall I would say a very strong quarter in that site and we continue to expect we do actually of course serve our customers on.
Jack Meehan: The R&D side on the development side, but the vast majority would be on the QA QC side.
Speaker Change: Okay, Great and then within PFS seen some potential easing of regulation within water in the U S have you seen this impact orders as customers have worked through the uncertainty and then how much can growth and food and product testing of offset potential weakness in Nevada regulation.
Speaker Change: Yes. So first of all just a tremendous result in <unk> in Q2, we grew 75% year over year.
Speaker Change: Also saw tremendous growth around consumer moves on connect rates with our systems.
Speaker Change: To give a little bit of color as well Europe and China.
Speaker Change: Really grew well and of course with EMEA. So lots to like about is if you think about some of the recent announcements it's actually.
Speaker Change: Very very it's sometimes it's harder to get some of the details on those announcements with the restructuring that's going on but I think youre going to see waters.
Speaker Change: The water testing continue over the next few quarters, especially in especially in the broader area outside the U S. I think the larger part of our <unk> business in the U S. Over the next year or the next half of it is going to come from industrial based testing that's around wastewater soil and discharge is that's where you see people worried about litigation.
Speaker Change: You'll see a lot from the EPA EPA coming out to.
Speaker Change: To pay for any infringements. So so we also see that.
Speaker Change: Material testing globally on water testing in EMEA APAC to drive business over the next two quarters. So I would say, we're very very we're expecting very strong results for the year, but beyond the year extremely extremely strong as well. There is also one emerging thing thats coming up quite a bit is that <unk> testing is going to start more into air and volatile.
Speaker Change: Which is right in our sweet spot for Gcs.
Speaker Change: Currently that's about I would say, 2% to 3% of the market, but over the next 12 to 18 months, we expect that to go to 80% or sorry, 8% to 12% of the markets, where we will have a very high market share win rate on that so that gives a color on PFS.
Speaker Change: Thank you for helpful. Thank you.
Rachel Barnes: Our next question comes from the line of Rachel Barnes <unk> with J P. Morgan. Please go ahead.
Rachel Barnes: Great. Good afternoon. Thanks, so much for taking the question. So I wanted to follow up on your commentary and your question regarding lease range you've had a few of your peers call. This out as a potential tailwind just given the number of capacity announcements from pharma companies in recent months. So can you walk us through how do you have any concrete conversations with customers regarding need capacity.
Rachel Barnes: And how do we think about the timing of when we could see a little tailwind.
Rachel Barnes: Im sorry.
Speaker Change: Yes, great question rich and so having spent three decades in this industry and actually the earlier parts of those decades in Ireland. When there was a lot of pharmaceutical being built in Ireland in terms of capacity generally the way. These things happen. It takes it takes quite a bit of time, what we're leading with is our strategic account program. So we're at the very high.
Rachel Barnes: <unk> levels with our pharma customers.
Rachel Barnes: Discussions are extremely early so I wouldn't say any concrete out of that yet, but generally what happens is you see to.
Rachel Barnes: The plans for Decitabine put up you also see qualification plans for the size generally construction tenders are out and then from the construction tenders people think about lab capacity and that is the point, which is really critical to begin with.
Rachel Barnes: We feel very good about our position with strategic accounts also by the way you hear of metrics moving early so maybe it moves from the U S. EMEA to the U S. So we find out from our large installed basis, where those methods are going to go but we don't expect auditing I would say youre going to see something maybe at the end of two to three years, but it will be.
Rachel Barnes: It will be a tailwind for us, giving the amount of systems and also the proponent.
Rachel Barnes: A portion of QA QC and doses.
Speaker Change: Great and then just for my follow up I wanted to ask on pricing can you talk about your ability to pass on price in this environment given the dynamic environment, we're seeing in light of tariffs and in general what's embedded for pricing for the rest of the year.
Speaker Change: I'll take the first part and I'll give the second part to Bob on it so we have.
Speaker Change: Enterprise pricing capability that we built through ignite so we do it in a very we do surcharges in a very structured way, we actually were clearly we're looking at our competitive situation around in different regions and making sure. We stay focused on the customers. So based on the work we're already optimizing our pricing and we have.
Bob Mcmahon: It has been it's been a it's been it's been a quite a big part of our mitigation going forward, but Bob I don't if you want to talk about guide, yes, Hey, Rachel just to build on what <unk> said just to reiterate what we said in the prepared remarks, we've already achieved what we achieved all of last year through the first six months of this so a very good performance there.
Speaker Change: If you recall in our guide we had about 100 basis or not we had 100 basis points of price. We're on track for that for the year, probably a little bit higher with that with the pricing mitigation activities that.
Speaker Change: Are being established as a result of tariffs as you can imagine depending on the <unk>.
Speaker Change: Competitive nature there.
Speaker Change: Type of pricing that we would have vis vis the supply chain activities, which would be a permanent mitigation. We're balancing all of those as well as the ignite pricing activities as well or excuse me savings activity. So we are not.
Speaker Change: Taking all of the mitigation from tariffs at a price. We think that is something that will help us with our customers as well.
Speaker Change: And looking to move things around to have what we would call internally kind of no regrets moves to be able to manage our supply chain globally, given the dynamic nature of.
Speaker Change: How these rates are moving back and forth. So that's kind of how we're thinking about the second half of the year and again in 2026, we would expect to have.
Speaker Change: All of the.
Speaker Change: Tariff rates being mitigated.
Speaker Change: Our next question comes from the line of Puneet <unk> with Leerink partners. Please go ahead.
Speaker Change: Yes, Hi, <unk> and team thanks for taking my question.
Speaker Change: First one on the replacement cycle, you talked about book to Bill being more than one just trying to understand how should we think about the infinity three replacement cycle. How is it doing in the environmental labs versus the pharma labs.
Speaker Change: What are you seeing in the field of early traction maybe you just help us understand how.
Speaker Change: How should we think about the anatomy.
Speaker Change: Placement cycle for Ashland.
Speaker Change: Yes, I'd be happy to happy to go through some details the infinity tree Ram continues at extremely well, we see a lot of very strong adoption and customer feedback continues to be very positive. Our order funnel is really growing nicely with the infinity tree and we.
Speaker Change: We're really pleased with market acceptance.
Speaker Change: What we're actually seeing with infinity tree under replacement cycles, we're seeing actually a higher connect rate in servicing consumers without system, which really bodes well for the future, but overall replacement cycles on the IOC side I'll focus on that for US and then maybe talk about sort of broader.
Speaker Change: Broader portfolio.
Speaker Change: We've been we've been seeing a continuous ramp on that we expect that to continue over the next few quarters. We have thousands of 11 hundreds we have $12 60 to $1 90, as we're moving through that that replacement cycle, but of course, it doesn't happen in one quarter. It doesn't happen sequentially quarter. After quarter, you see it gradually build and generally I would say.
Speaker Change: The phone was the closes but six to nine months to close an LC orders. So we continue to see that increase but very pleased with the adoption and of course, there's a much broader continuum around a replacement cycle given our GC GC MS Center Lts installed bases that are already.
Speaker Change: I think continuing to start to replace.
Speaker Change: Hey, Paul just to build on that just to reiterate some of the proof points that you talked about when we talk about small molecule QA QC, which is the lion's share of the installed base that grew double digits in Q2 from a revenue.
Speaker Change: All in inclusive of service consumables and instrumentation. So it speaks to the full workflow solution into your question about environmental.
Speaker Change: That's our sweet spot and we grew in PFS over 70%. So I think you can kind of tells how well that's being adopted.
Speaker Change: In the environmental space as well.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: Follow up is can you size, how much of the China growth in the quarter was from the sort of the lunar new year timing perspective, how long their new year played out this year versus last year versus the sort of the consumable pull forward that you saw.
Speaker Change: What was the China stimulus in the quarter.
Speaker Change: Yes.
Speaker Change: Yes, I'll start.
Speaker Change: On that puneet.
Speaker Change: So the pull forward of the consumables that that we were talking about actually had nothing to do with lunar new year. It was really driven by the tariff so.
Speaker Change: That I think is a.
Speaker Change: <unk> seen cradic activity that wouldn't continue the lunar new year played out the way we expected it to for the full year guide so theres roughly about two points.
Speaker Change: Total company.
Speaker Change: When you look at the change year on year and it kind of played out the way we expected it to.
Speaker Change: And so.
Speaker Change: If you look at our revenue dollars in China sequentially, it's actually a very good performance is still well above $300 million.
Speaker Change: Speaks to the stability in that market.
Speaker Change: And in terms of.
Speaker Change: The last question that you had around stimulus.
Speaker Change: We continue to be pleased about the performance. If you looked at the applied markets. We had some very good performance in food some of the other implied markets. Most of our stimulus was actually in Q1, but we're very optimistic about the funnel activity right now for the next.
Speaker Change: Stimulus, which we are starting to work with our.
Speaker Change: Customers and putting together bids for the second half of this year probably will be revenue.
Speaker Change: <unk>.
Speaker Change: And at the end of our calendar year here potentially in Q4 that would be upside. If it is in Q4, we haven't built that into our numbers.
Speaker Change: But feel very optimistic about our ability to do that given our made in China.
Speaker Change: Abilities.
Speaker Change: Got it okay. Thank you.
Speaker Change: Our next question comes from the line of Vijay Kumar with Evercore ISI. Please go ahead.
Vijay Kumar: Hey, guys. Congrats on the nice execution here and thanks for taking my question.
Speaker Change: Maybe my first one on the guidance here.
Speaker Change: You look at ACG, I think I think X X. The pull forward. It was still a pretty healthy six plus maybe high singles kind of number.
Speaker Change: Why is it slowing down too.
Speaker Change: And those I think you said in CQ and when you apply that to or our company.
Speaker Change: I think it is stepping down by 250 basis points sequentially I know look on a year on year basis like the comps maybe explain what are the stack comp base. It looks maybe a little conservative so maybe talk about the third quarter assumptions.
Speaker Change: Yes, thanks, I'm going to hand over to Angelica now to give some color on that one.
Angelica: Yes, thanks for the question.
Angelica: Coming back to the tariff related consumables pull forward right. We made those adjustments and so once we make those adjustments for the quarter on quarter growth rates and normalize them.
Speaker Change: The guidance in the mid single digit range.
Speaker Change: So thats really accounting for it but when you look more holistically the fundamentals that ECG remain incredibly strong as we look towards the rest of the year, we're well positioned to continue to support customers as they are maximizing the assets in their laboratory three of the broad portfolio, whether that's consumables.
Speaker Change: Services and as well as some of the other offerings and ECG portfolio. So.
Speaker Change: Yes.
Speaker Change: Where we just suggested and still a healthy growth rate across ECG for full year.
Speaker Change: Understood and then maybe one on the P&L I think on the margins.
Speaker Change: I thought I heard you say gross margins just in line, where it looks like versus the street, maybe numbers came down sequentially gross margins were down.
Speaker Change: Maybe talk about what happened on gross margins within the mix impact. Thank.
Speaker Change: Thank you had a restructuring charge, which wasn't there in prior quarters is this a new cost actions.
Speaker Change: This initiated thank you.
Speaker Change: Yes, when we were talking about the gross margins if you look at it.
Speaker Change: Year on year, we did have the unplanned tariff activity, which was about 55 basis points in gross margin that the hit in Q2, if you look at it versus year ago.
Speaker Change: There was a combination of.
Speaker Change: Tariffs product mix, which we had incorporated as well as.
Speaker Change: <unk>.
Speaker Change: Some currency related activities, so feel good about kind of where that.
Speaker Change: Is in terms of restructuring, that's probably more on a GAAP basis.
Speaker Change: Vijay and we would have taken that out from the numbers that I was just referencing on a non-GAAP basis, but that that would have been part of some of the.
Pork: Organizational health activities that pork had mentioned as part of ignite.
Speaker Change: Thanks, guys.
Operator: Our next question comes from the line of Tycho Peterson with Jefferies. Please go ahead.
Tycho Peterson: Hey, Thanks, I want to go back to NASD, the comps get easier here in the back half so presumably double digit growth could that business be double digit for the full year or should we think about high single digit for NASD also can you talk about capacity utilization as we think about train CND and then also bio that cross sell finished and then a third question.
Speaker Change: On that is just with the onshoring theme are you seeing more interest from pharma given that most of that business is U S. And then some in Canada.
Speaker Change: Is that kind of peaked and then picked up interest from pharma companies.
Simon May: I'm going to give that Simon.
Simon May: Yes, so obviously as we think about the backend of the year.
Simon May: NASD and we've been saying all along that way.
Simon May: <unk> high single digit growth in <unk> double digit growth.
Simon May: Say there is a growing confidence that we think we can notice the double digit growth as we look at the forecast that we're seeing beginning to crystallize for Q3.
Simon May: Q4.
Simon May: And then as far as <unk> goes I think we're going to see a sequential dip in the third quarter. We're looking at some planned equipment shutdowns there.
Simon May: As those come online again, which we anticipate in Q4 provided that all goes to plan then I think we'll be back to firing on all cylinders.
Simon May: Not as concerned as we're trying to see and trying to you know we've been through this dynamic for a while now where we were coming through the backend of the IRI impacts and then we started to see our order insight really improving 2024. Thus continue through to 2025 again I think we've got pretty much all of the orders in hand now.
Simon May: To deliver on 2025, so that utilization of train see trading D is starting to become a positive tailwind driver for us now and.
Simon May: I would say, we haven't seen any impact at all from potential tariffs and farm et cetera, reassuring our shifts at all in that business and any conversations we noted our farmer behavior, thus far.
Simon May: And it very closely.
Speaker Change: Okay, and then follow up on replacement cycle I appreciate the commentary and color. You gave previously are you able to give us what percentage of <unk>.
Speaker Change: <unk> systems are infinity three at this point is it 15% 20% of the mix and then you.
Simon May: You haven't talked much about the GC replacement cycle, you did kind of allude to that how are you thinking about that as well.
Simon May: Yes, I mean, it's steadily growing I mean, we're six months into the launch are a little bit more than that on the infinity tree. So it's building over time, but we don't give out the exact percentage of our installed base on that one but I can I can assure you, it's going extremely well Tycho and given what we're seeing on the cadence from our older systems and even up to the $2012 60 in 2019 as customers are.
Simon May: Voting for Infinity treatment.
Speaker Change: When they replace but im going to ask Mike Zhang gear on the GC replacement cycle, Yes, I can definitely we're the leader in the Dcs Dcms and we have a very.
Simon May: Okay and have been working with our customers and I can tell you that yes, we have a large installed base that we have.
Simon May: I was thinking of the aging of it that well we actually are very excited to see some strong momentum with our customers about the GEC and also gcs math.
Simon May: If you look at our order pace I think it's very encouraging and we hope they will have been exciting innovation, we just launched a new DC and we have an exciting innovation.
Simon May: What I can tell is in the next few quarters next few years, we're going to see a significant opportunity coming to materialize.
Simon May: Thank you.
Speaker Change: Our next question comes from the line of Brandon Couillard with Wells Fargo. Please go ahead.
Speaker Change: Hey, Thanks, Good afternoon, Bob I saw you took down the operating cash flow guide for the year is that driven by tariffs and any inventory built in but could you quantify the impact of currency on EPS in <unk> and then what's embedded for the full year now.
Speaker Change: Yes so.
Speaker Change: Youre spot on it from a from a cash flow perspective that is in fact, what we have done is.
Speaker Change: Looked at building inventory.
Speaker Change: Which is impacting our cash flow, it's kind of a onetime activity as well as some some capital equipment.
Speaker Change: As well as building up we didnt change our overall.
Speaker Change: Capital forecast, but there is some.
Speaker Change: Working capital there as well so.
Speaker Change: That's what we have.
Speaker Change: In terms of the.
Speaker Change: <unk>.
Speaker Change: EPS.
Speaker Change: It's close to just looking at my notes here.
Speaker Change: It's about a point or two from an EPS standpoint for the full year impact Brendan and we can get you the details post call.
Speaker Change: Okay. Thanks in part I mean big picture of the balance sheet is very clean right. Now are you less likely to consider a larger deal right now given the macro tariffs interest rate volatility or are you seeing more attractive valuations for assets. How do you think about those trade offs.
Speaker Change: Yes, I mean, we don't make any decisions based on the news that we see every.
Simon May: Every week.
Simon May: Around how are we going to deploy capital going forward, but I can say a few things.
Simon May: We have a very.
Simon May: Very strong list of opportunities it's wedded in our strategy. So we've done a lot of work and of course valuations are down a little bit but of course, we're going to remain very disciplined in what we what we do going forward, but.
Simon May: We'll say that M&A will become a bigger part of our story over the next few years.
Simon May: Thanks.
Speaker Change: Our next question comes from the line of Michael Raskin with Bank of America. Please go ahead.
Michael Raskin: Great. Thanks for taking the question guys.
Speaker Change: Focus both on them on the margins and sort of the cadence through the year.
Speaker Change: Bob you talked a lot about the impact of tariffs on CQ, the 55 bps, but it wasn't at the gross margin guide. Thank you.
Michael Raskin: It's not the guide, but the deep high numbers as kind of flat for the throughout the rest of the year, maybe down 100 bps year over year. So the.
Michael Raskin: The implied opex step up in <unk> and <unk> specially.
Michael Raskin: I guess coming off from the SG&A side could you just talk us through how much of that is just.
Michael Raskin: Whether that's volume leverage or the ignite transformation coming through.
Mike Zhang: Yeah, Hey, Mike.
Bob Mcmahon: Yeah, Hey, Mike This is Bob yes.
Bob Mcmahon: It's a little of both as you could.
Bob Mcmahon: Probably imagine if you look at our kind of normal seasonality kind of first half to second half, we do have a step up in and margin. Some of that is related to volume. We also have more holidays and lower spending in the second half of the year.
Michael Raskin: And then you've got the full impact of ignite transformation that I talked about we talked about this $80 million of annualized $40 million of that will happen here in the second half of the year, which will help us offset.
Michael Raskin: Some of the tariff so you're right more of our margin improvement in the second half.
Michael Raskin: You're going to show up in the Opex, because tariff show up in the gross margin.
Michael Raskin: So we've got some mitigation at the gross margin side, but also the mitigation activities in the <unk>.
Michael Raskin: Opex side as well.
Michael Raskin: Okay, and then on the tariff side your point on like you just said partially offsetting as you go through the year on the growth side, but then fully offsetting and in 2026. So how do we think about gross margins either as a percent or whatever for 'twenty six like what's the right jumping off point, because optically youre going to have a.
Michael Raskin: Really easy compare of $54 555 for the year, but a lot of that is artificially depressed. So are we going to expect a nice gross margin jump in 'twenty six because.
Michael Raskin: Those offsets and that mitigation kicks in for next year.
Michael Raskin: Yes, I would say if I could forecast what tariffs are going to be here.
Michael Raskin: By 'twenty six.
Michael Raskin: That would be something but that being said if they stayed the way. They are I would expect us to be able to have an improved gross margin next year.
Michael Raskin: For a couple of reasons one is exactly what you just talked about the <unk>.
Michael Raskin: <unk> will be eliminated its not just in mitigation, we will eliminate it through the resourcing or re shoring of our.
Michael Raskin: Our supply chain, you'll have the benefit of volume and as well and then we also talked about the pricing capabilities.
Michael Raskin: We would expect to have more price next year through price realization than we had here as a result of some of the pricing capabilities that <unk> talked about so still early days. So I don't want to we're not giving guidance here for 2026, but certainly.
Michael Raskin: There is some opportunities more from a tailwind perspective in gross margin going into 2026.
Michael Raskin: Alright, thank you.
Dan Leonard: Our next question comes from the line of Dan Leonard with UBS. Please go ahead.
Dan Leonard: Yeah.
Dan Leonard: I was hoping you could perhaps elaborate on trends you're seeing in China by end market. I think you mentioned industrial's was down low single digits, but elsewhere between pharma environmental et cetera.
Dan Leonard: Yes, so I think in China, we've seen a pretty.
Dan Leonard: Very stable business I mean, the state except for that pull forward on us I would say that you see that industrials are down a little bit, but pharma is pretty stable and I would say that there's a lot of excitement I would say a building in China around the second phase of the stimulus, which is going to be more broader based.
Dan Leonard: Actually going to be more much more broader based on it was the last time. The funnels are looking extremely strong for that but I would say overall is stable.
Dan Leonard: Yes, I would agree if you look across.
Dan Leonard: Dan.
Dan Leonard: Pharma academia and government.
Dan Leonard: Food and environmental.
Dan Leonard: Forensics were up.
Dan Leonard: Diagnostics clinical it's our smallest market was flat and then Cam was down just slightly and some of that had to do with some of the.
Dan Leonard: Instrumentation delays.
Dan Leonard: Through customs.
Dan Leonard: That happened now you may ask why in China, because actually even though it was made in China that has to go through a bonded warehouse and Thats still has to go through customs and it actually takes a little longer time, so no customer.
Dan Leonard: No tariff impact from that standpoint, but it's still required going through customs and so we expect that to come back here in Q3.
Dan Leonard: Yeah.
Speaker Change: Okay. Thank you and then Bob to follow up on guidance Q3 guidance overall, it looks like the midpoint of organic revenue growth is about 2% and that is the sequential step down from the five you just reported I know theres, some China timing issue there, but can you walk me through the main bridge factors between the Q2 result.
Dan Leonard: The lower Q3 guide.
Dan Leonard: Yes, so a couple of things I think we're taking a prudent prudent approach given some of there's still.
Dan Leonard: Uncertainty in.
Dan Leonard: The tariff announcements here.
Speaker Change: Feel very good about our momentum going into Q4, and maybe or excuse me Q3.
Dan Leonard: And we also have a little little more difficult comp.
Dan Leonard: In Q3, then we have Q2, so I wouldn't read.
Dan Leonard: Too much into it when I look at the sequential numbers in Q3 versus Q2.
Dan Leonard: Thank you very much.
Dan Leonard: Thank you.
Mr. Yehuda: And Mr. Yehuda I will turn the call back over to you.
Mr. Yehuda: Thanks, Regina and thanks, everyone for joining the call today.
Mr. Yehuda: With that we'd like to turn the call have a good rest of the day everyone.
Mr. Yehuda: This concludes today's conference call you may now disconnect.
Mr. Yehuda: Yeah.