DATE
Wed, Feb 26, 2025 12:00 AM
CALL PARTICIPANTS
Regina: Conference Operator
Parmeet Ahuja: Agilent Senior Vice President and CFO
Padraig McDonnell: Agilent President and CEO
Bob McMahon: Agilent Senior Vice President and CFO
Simon May: President of the Life Sciences and Diagnostics Markets Group
Angelica Riemann: President of the Agilent CrossLab Group
Mike Zhang: President of the Applied Markets Group
Need a quote from one of our analysts? Email [email protected]
TAKEAWAYS
Revenue: Revenue reached $1.681 billion in Q1 fiscal year 2024, up 1% YoY, driven by strong China stimulus and PFAS solutions performance.
EPS: $1.31, non-GAAP EPS increased 2% YoY in Q1 FY2025, exceeding expectations while maintaining fiscal year guidance.
Core Core Revenue Growth Guidance: Maintain at 2.5% to 3.5% for FY2025 with additional pressures from currency headwinds noted.
PFAS Solutions: Showed 70% growth in Q1 FY2025, significantly boosting company growth with continued strong demand globally.
China Market: Achieved >50% win rate in stimulus-related tenders with $35 million recognized stimulus demand in Q1 FY2025.
SUMMARY
Agilent Technologies' Q1 FY2025 non-GAAP earnings call highlighted revenue of $1.68 billion and EPS of $1.31, both exceeding projections. The strategic focuses include the continued implementation of the Ignite transformation initiative, targeting enhanced pricing mechanisms, digital ecosystem development, and cost optimization. Key Q1 FY2025 growth drivers included PFAS solutions, contributing 75 basis points to company growth, and strong China market performance, with a 50% win rate in stimulus-related orders totaling $35 million. While noting FY2025 foreign currency headwinds of 1.9%, the company maintained its performance outlook, supported by robust product demand and strategic preparedness.
Q1 fiscal year 2024 reported revenue of $1.681 billion marked a 1% year-over-year increase, with currency headwinds having a negative impact of 1.4 percentage points.
Strong growth in core PFAS solutions, contributing 75 basis points to company growth in Q1 FY2025.
Core growth projections (excluding currency and M&A impacts) remain unchanged at 2.5%-3.5% for FY2025 despite increased currency headwinds.
Maintained strategic focus on digital enhancement, customer engagement, and market penetration in China.
INDUSTRY GLOSSARY
Core Revenue Growth: Revenue growth excluding impacts from currency fluctuations, acquisitions, and divestitures.
PFAS: Per- and polyfluoroalkyl substances, a group of man-made chemicals used in various industrial applications.
Book-to-bill ratio: A ratio used to measure demand for manufactured goods, calculated as the amount of orders received (booked) compared to the amount billed (shipped) in a given period.
Full Conference Call Transcript
Operator: 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 First Quarter 2025 Agilent 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 ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, thank you. Parmeet Ahuja, you may begin the conference.
Parmeet Ahuja: Thank you, Regina, and welcome everyone to Agilent Technologies, Inc.'s conference call for the first quarter of fiscal year 2025. With me are Padraig McDonnell, Agilent President and CEO, and Bob McMahon, Agilent Senior Vice President and CFO. Joining in the Q&A will be Simon May, President of the Life Sciences and Diagnostics Markets Group, Angelica Riemann, President of the Agilent CrossLab Group, and Mike Zhang, President of the Applied Markets Group. This presentation is being webcast live. The press release for our first quarter financial results, investor presentation, and information to supplement today's discussion, along with the recording of this webcast, are available on our website at investors.agilent.com. Today's comments will refer to non-GAAP financial measures. You'll find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year, and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past twelve months. Guidance is based on forecasted exchange rates. As a reminder, beginning in the first quarter of fiscal 2025, we implemented certain changes to our reporting structure related to the reorganization of our three business segments. We have recast our historical segment information to reflect these changes, and I provided the financial details on our website. These changes have no impact on our company's consolidated financial statements. During this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. And now I'd like to turn the call over to Padraig.
Padraig McDonnell: Thank you, Parmeet, and thanks to all of you for joining today's call. As you saw in our press release, we had a very solid start to the year, exceeding our expectations for core revenue growth and EPS. Before diving into the details, I want to first follow up on conversations I had with many of you starting at our Analyst and Investor Day in December at the New York Stock Exchange. I will provide an update on the progress of our Ignite transformation. We've stated that Ignite is for our customers, employees, and shareholders. For customers, we want to create a seamless experience across Agilent products, software, and services. For employees, we want to become nimbler and reduce complexity to enhance our ability to serve our customers. And for shareholders, we want to deliver industry-leading shareholder value through differentiated growth. We have set targets to grow core revenues between 5% and 7% annually, expand our operating margin by 50 to 100-plus basis points per year, and deliver double-digit EPS growth. Right now, I want to share three notable accomplishments from the Ignite transformation: focusing on setting new pricing mechanisms, elevating our digital ecosystem, and identifying procurement opportunities. First, the creation of an enterprise strategic pricing organization that will focus on setting our standard approach for pricing across the entire solution set with the cost. Second, our digital ecosystem, a critical enabler in our evolved strategy we unveiled at Investor Day, continues to be a key area of investment for us. Already, we have made meaningful improvements to our website, upgrading the user experience on our e-commerce platform by making it easier to find and purchase the products our customers need, which have been driving top-line growth. In Q1, our progress continued with digital orders growing high single digits. And third, our procurement teams have challenged our historical approach and are identifying significant cost-saving opportunities in many of Agilent's functions.
Padraig McDonnell: Also related to our Ignite transformation, we're assessing our organizational health. On my first day as CEO, I promised our employees we would become a nimbler organization to make decisions faster and accelerate innovation in service of our customers. As a result, we are removing some management layers and increasing spans of control. This is a continuation of our new organization structure we announced in late November. Through that reorganization, we're seeing our business leaders in lockstep on our strategy and transformation. This alignment enables us to make better decisions faster on priorities and trade-offs. As my leadership team and I look forward, we are focused on growing Agilent. A foundational element of growth is innovation—innovation that our customers want. Every time I visit a customer in any part of the world, they say the same thing: They want to partner with Agilent for better outcomes. That's what differentiates Agilent—the deep scientific knowledge of our customer-facing team members that our competitors simply can't duplicate. Customers want everything from the ability to parse massive amounts of data in seconds to automating more tasks so they can focus on complex scientific challenges. In essence, they want to increase their productivity. That's why driving lab productivity is among our key priorities. You could see evidence of this in our collaborative agreement with Zurich-based ABB Robotics to produce automated laboratory solutions. Ones that will help our customers find new ways of improved workflows and make operations more efficient and flexible.
Padraig McDonnell: These are customers across multiple markets, including pharma, biotech, energy, and food. Together with ABB, Agilent can transform the customer lab operations by making workflow processes for research, development, and quality control faster and more efficient. The goal is for all instruments, robots, and software to be interoperable, which is crucial to significantly boosting productivity for our customers. Our customers want to buy whole product solutions, not just a single instrument. To illustrate that, our Infinity Tree series that we introduced in October has seen great adoption from all of our customers. As a reminder, the Infinity Tree has advanced automation that simplifies our customers' daily routines and is compatible with previous generations, which allows for seamless upgrades and technology refreshes. And that has become a differentiator. Customers are saying that the backward compatibility combined with the modularity of the Agilent systems allows them to decide how to upgrade and refresh their instruments. Plus, they're telling us that they're choosing Agilent because of our long-standing quality and technology leadership that's been further enforced with the Infinity Tree. The Agilent Infinity Lab LC solutions are certified by My GreenLab. These instruments optimize lab space and they reduce water, solvent, and energy consumption while also minimizing waste. We continue to see strong momentum and growth in our sales funnel for the Infinity Tree because of its advanced automation, that empowers our customers to be more productive and because of Infinity Lab Assist, our automation software that provides onboard intelligence. So our customers are not simply buying a platform, but a whole product solution. Just as exciting is that the great success for Infinity three provides Agilent an incredible opportunity for us to upgrade our customers' instruments, and it's already happening across our legacy LC platforms representing an opportunity into hundreds of millions of dollars over the coming years. Now I'd like to highlight some key aspects of the Q1 results. You can see from our press release, we drove top-line year-over-year growth while macro market trends such as CapEx spending continue to improve. Our revenue of $1.681 billion increased 1% over the same quarter in FY24. This result exceeded our expectations and was led by excellent growth in PFAS and capturing an outside share of the China stimulus awards. Our instrument book-to-bill was greater than one in Q1, a quarter when it's typically less than one. This is another sign of market recovery, but more importantly, it's a testament to our intense customer focus with products such as a highly successful Infinity Tree, our success driving our market-leading position in China. Additionally, we exceeded expectations in all regions and end markets except for academia and government. In our end markets, revenue was led by food, which grew 9% driven by our success in capturing stimulus orders in China. In China, our accelerating share gains were apparent in recording a win rate of more than 50% on stimulus-related tenders. With our long history in the region elevated by our local manufacturing capabilities, we are well-positioned to expand our market leadership in China. Now let me talk about our businesses and some growth vectors in each. Our Life Science and Diagnostics Markets Group grew 1% in the quarter, reporting $647 million. Performance was driven by a nice result in our LC and LCMS instruments, which grew high single digits during the quarter, on the heels of our Infinity three launch. Within LDG, we remain focused on the integration of BioVec and we are delighted by the response we're hearing from our existing potential customers who are interested in leveraging BioVectra's unique capabilities and Agilent's expertise. It's clear that BioVecra capabilities are in the sweet spot of tremendous markets with a terrific growth potential. The Agilent CrossLab Group grew 3% reporting $696 million which was in line with our expectations led by services. We are especially excited about the new ACG that now includes services, automation, consumables, and software informatics. Software and informatics are among our key priorities and we've had an overwhelmingly positive response to both our Infinity Lab Assist automation software and our OpenLab CDS. The Infinity Lab automation software offers remote notifications, troubleshooting, diagnostics, and maintenance that paves the way for a fully automated digital lab. And our OpenLab CDS provides time-saving steps in analysis, interpretation, and reporting workflows while technical controls ensure work quality. Effective records management, and enhanced data security. In short, software is an incredible area of opportunity for us that we are poised to capitalize upon. Already customers are telling us that the Infinity Lab Assist and the OpenLab offer differentiated functionality and solutions in high throughput environments. Our Applied Markets Group reported $338 million in the quarter, a 2% decline better than expected related to strong China stimulus orders. We are very pleased with our team's ability to compete and win in these tenders. We continue to invest in the applied markets for next-generation technology innovation and as I said, support our customers with lab productivity. Every customer we meet has expressed the desire to partner with Agilent to make better use of their instrument fleets to integrate with front-end solutions. And we're happy to help them find ways to create customized solutions so they can deliver products faster. Before I hand over to Bob, I want to address topics that have been in the news of late. Regarding the recent news around tariffs, we have a diversified supply chain with a manufacturing presence in all major regions of the world. Our teams are already taking action to mitigate the impacts on our business. In terms of potential reductions to NIH funding, as we've shared with you before, our exposure to NIH-related programs is limited to around 1% of our revenue. We currently believe the forecasted impact is manageable and within our current guidance. Bob will now delve deeper into our Q1 results as well as our outlook for Q2. After Bob delivers his comments, I will be back for some closing remarks. Bob.
Bob McMahon: Thanks, Padraig. Good afternoon, everyone. 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 cover our updated full-year and second-quarter guidance. As Padraig mentioned, Q1 revenue was $1.68 billion, just above the top end of guidance despite the strengthening of the US dollar during the quarter. On a core basis, we posted growth of 1.2%, beating expectations. Adjusting for the timing of Lunar New Year impacts, core growth is estimated to be just over 3%. On a reported basis, growth was 1.4%. Currency had a negative impact of 1.4 percentage points, which was over one percentage point higher than estimated at the start of the quarter. And M&A contributed 1.6%. Padraig discussed our business group results, so I'll focus on deeper details about our end markets. We exceeded expectations in all of our end markets except for our smallest one, academia and government. Our business in the food market grew 9%, benefiting from our excellent performance in China's national stimulus program. In environmental and forensics, we grew 6% as we continue to leverage our best-in-class PFAS workflow solutions to grow our market-leading position. We continue to capitalize on the strong demand for PFAS testing that we are seeing globally. Our 6495 triple quad LCMS is the most complete instrument in the PFAS testing market, with a specific performance edge in small and fragile molecules, where many of the emerging PFAS exist. Along with our new offerings in PFAS-specific consumables, and our workflow deployment services, Agilent provides the fastest, highest quality, and most reliable way for customers to add or expand PFAS testing capabilities in their labs. Now looking across all end markets, PFAS grew 70% in the quarter, contributing 75 basis points of growth to the company. Pharma was flat during the quarter, with low single-digit growth ex-China offset by a high single-digit decline in China. Globally, biopharma and small molecule performed roughly in line with the all market. In chemical and advanced materials, revenue declined 2% with growth ex-China, offset by a high teens decline in China, which was mostly impacted by the timing of the Lunar New Year. Our business in the diagnostics and clinical end market grew 7% led by strong results in the Americas and Europe. Academia and government, our smallest market, saw a decline of 7% with soft results around the globe. Now moving on to our regional performance. The Americas grew 3%, Europe grew 2%, and Asia ex-China grew 2%. All slightly ahead of expectations. China revenue declined 4%, also better than expectations on the strength of our stimulus performance. For your models, we estimate that Lunar New Year was a $10 million revenue headwind in the quarter, which we expect to come back in the second quarter. This compares to a $25 million favorable Lunar New Year impact in the first quarter of last year. So combined, a two percentage point year-on-year impact. Let's move on to the rest of the P&L. Gross margin was 54.7% in the quarter, down versus last year, primarily due to mix, currency, and the Lunar New Year timing. We drove operating margins of 25.1%, roughly in line with our expectations despite currency headwinds. While down versus last year, we expect improvement throughout the year as the results of our Ignite transformation continue to deliver. And below the line, our net interest expense was better than expected, as was our tax rate of 12.5%. And we had 287 million diluted shares outstanding in the quarter. Putting it all together, Q1 earnings per share were $1.31, that was ahead of our expectations and up 2% from a year ago, growing slightly faster than revenue. Let me turn to cash flow and the balance sheet.
Bob McMahon: As we continue to enjoy a very strong balance sheet and healthy cash flows. Operating cash flow was $431 million in the quarter, and we invested $97 million in capital expenditures. We purchased $90 million in shares and paid out $71 million through dividends during the quarter. And we ended the quarter with a net leverage ratio of 1.0. In summary, we had a good start to the year and expect continued steady improvement in the market through the year. Now let's move on to our outlook for the fiscal year and the second quarter.
Padraig McDonnell: While we exceeded core growth expectations for Q1,
Bob McMahon: we're maintaining our core growth guidance of 2.5% to 3.5% for the year. This guidance incorporates an element of prudence reflecting the uncertainty over the US federal funding environment even though it is a small part of our business. However, we are adjusting our full-year reported revenue to be in the range of $6.68 to $6.76 billion to reflect the strengthening of the US dollar. If you recall, our initial guidance back in November incorporated only a very modest FX headwind. Since then, the US dollar has appreciated and based on current exchange rates, we are now projecting an incremental $110 million in currency headwinds relative to our prior guidance. Currency is now expected to represent a 1.9% headwind for the year versus a prior 20 basis point headwind. We have also left our M&A guidance unchanged at plus 2% to 2.2% revenue impact for the year. Full-year non-GAAP earnings per share are unchanged at $5.54 to $5.61, representing an increase of 4.7% to 6%. Relative to our prior guide, currency net of hedging is an estimated additional nine-cent headwind for the year, which we are covering. This assumes flat other income and expense, a 12.5% tax rate, and 286 million diluted shares outstanding. Now for the second quarter, we are guiding to revenue of $1.61 to $1.65 billion. This range is a bit wider than we typically use for the upcoming quarter, reflecting the uncertainty around US federal government spending. This range represents an increase of 2.5% to 5% growth on a core basis and an increase of 2.4% to 4.9% growth on a reported basis. Currency is a 2.1% headwind, and M&A impact is expected to be a 2% benefit for the quarter. Second-quarter non-GAAP earnings per share are expected to be between $1.25 and $1.28, representing growth of 2.5% to 4.9% year-on-year. Currency, net of hedging, is expected to be a two-cent headwind to EPS. Now I'd like to turn the call over back to Padraig for some closing comments. Padraig?
Padraig McDonnell: Thanks, Bob. Before we end the call, I want to take this opportunity to highlight more of the Agilent team's tremendous work. This quarter, the World Economic Forum named our factories in Shanghai, China, and Penang, Malaysia as global lighthouse networks. This recognizes Agilent for its breakthroughs in scaling AI, 3D printing, robotics, big data analytics, and the industrial Internet of Things. I was delighted to be able to accept those awards in person this year at the forum in Davos, Switzerland. Shanghai and Penang are two of our four Agilent manufacturing sites that have earned this prestigious distinction. In 2022, the forum named our Singapore and Paul Brunn Germany site as lighthouses. Still today, Agilent is the only analytical and clinical laboratory technology company in the world to be recognized by the World Economic Forum. Also during the quarter, Newsweek ranked Agilent number ten out of six hundred on its 2025 list of America's most responsible companies, up seven places from 2024. This is our sixth consecutive year on the prestigious list and is a recognition of Agilent being a leading sustainable lab partner to our customers. We are proud to be among the US-based companies who are making a positive global impact. At Agilent, we're only at the start of our Ignite transformation journey and already we're seeing early benefits like the ones I described at the start of this call. In less than nine months, we've made incredible changes that are improving our customers' productivity in an era when the pace of science is faster than ever. We're also becoming nimbler for employees to better serve our customers. The outcome we're enabling is faster decision-making so that we can accelerate innovation and create differentiated growth. And that in turn leads to industry-leading shareholder value. What we are doing at Agilent is turning a good company into a great one. We are committed to continuous improvements and adapting to changing market dynamics. Thank you for joining today's call. Let's move to Q&A. Parmeet.
Parmeet Ahuja: Thanks, Padraig. Regina, if you could please provide instructions for Q&A now.
Operator: The first question will come from the line of Rachel Vatnsdal with JPMorgan. Please go ahead.
Rachel Vatnsdal: Great. Good afternoon, and thanks so much for taking the questions. So first up, I just kind of wanted to dig into some of this prudence that you mentioned in the guide. Obviously, you're talking up some of the progress that you guys have seen on your order book, but you're also acknowledging some of that headline that we've seen on the funding side the last month and a half or so.
Padraig McDonnell: Yeah. So thanks for the question, Rachel. You know, our guide is a prudent one as we see a lot of changes happening. I will say from our customer base and, you know, particularly in our pharma base, activity has increased sentiment is increasing as we talk to our customers. Of course, things are on the macro side are changing with NIH funding, which were less than 1% and, of course, tariffs which we can mitigate. So I would say our guide is a prudent one. We'll be able to monitor that as we go through the next quarters. But Bob, I don't know if you want to add more detail.
Bob McMahon: Yeah. Hey, Rachel. Good afternoon. And to your point, around the prudence, we did raise, you know, increase the range for our second quarter guide, you know, to roughly $40 million in between the low and the high. It's typically anywhere from $25 to $30. As I mentioned in the prepared remarks, our NIH funding is roughly 1% at the maximum. So given the strength that we had in the first quarter and the fact that we're not raising guide, we feel that we're well compensating any potential downside into Padraig's point, we haven't seen any of that materially impact our business and the activity in our customers.
Rachel Vatnsdal: Perfect. And then just on my follow-up, I hate to ask specifically on FX, but I think it's a question that a lot of us have on the line here. Can you just walk us through how much of the EPS number in the fiscal 2Q number especially is impacted by that FX given how much rates have really moved within the quarter. And then, you know, same idea just on the margin front, especially around that 2Q and for the full year at all. What would that look like without these FX impacts? Thanks.
Bob McMahon: Yeah. That's a great question, Rachel. So let me give you a little more data. So for the full year, that incremental, you know, $110 million is a nine-cent impact for the full year as I mentioned before, and that really is roughly a 50 basis point headwind to the overall company. That we're covering. If I look at it for the second quarter, it's about a $30-$32 million headwind in the quarter, roughly 2.1%, and it's two to three cents in the quarter. And we're in roughly the same kind of impact from a profitability standpoint.
Operator: Our next question will come from the line of Matt Sykes with Goldman Sachs. Please go ahead.
Evian: Hi. This is Evian from Matt. Thanks for taking my questions. So the first one, can you talk through the opportunities within PFAS given the 70% growth you saw in the quarter? How much of this demand is coming from Europe following the packaging regulation? And then also, what do you think the growth contribution going forward could look like for this market?
Padraig McDonnell: Yeah. Thanks for the question. So the demand for PFAS solutions remains extremely strong. During Q1, PFAS solutions growth accounted for 75 basis points at a company level and while most of the volume came on the environmental side, we're seeing actually exceptional growth in food and chemical materials as well. And the opportunity in Q1 grew 70%, but also if you look at that compared to Q4, it was a big step up in growth rates. And while the environmental market still accounts for the largest part of the PFAS revenues, we saw increased customer purchasing in CAMs in the CAM market with water discharge in some of those areas. And really, we see all regions doing well. We saw a little bit of a pause in China, which had great sequential quarters of growth in PFAS, but that's normal as labs tool up on the equipment side. Europe was very strong. We expect that to be very strong. And this is a market and this is an area where it's going to continue to morph and grow depending on new regulations and expanding into new modalities. And I will say, you know, at the core of this is our 6595 D triple quad, which is the leading sensitivity in the market, which has with emerging PFAS characterization. And, of course, our ability to offer consumables and workflow deployment services are really important as customers get set up quickly in their labs.
Bob McMahon: Yeah. And Evian, just to build on what Padraig was saying, we ended last year, you know, approaching $100 million in revenue and the first quarter, we're well over that piece. As you can imagine. So it's a I think we're uniquely positioned given all the things that Padraig just said, and it's become an even bigger component of our growth story going forward.
Evian: Okay. Great. Thank you. And then can you talk through how much of the growth in instruments is due to true end market recovery versus replacements being driven by the Infinity three launch and then any updates on how that launch is impacting your overall win rate?
Padraig McDonnell: Yeah. I mean, if you look at our core on the LC and LCMS side of pharma, which is we grew high single digits globally and ex-China, we grew double digits actually on that what we're seeing is a continued improvement in pharma's willingness on CapEx spending undertaking opportunities in PFAS and GLP-1's as well. Infinity three has gone extremely well for us. We're seeing significant rise in win rates. We're seeing, of course, that the productivity gains that this system gives out is resonating with customers extremely well. And as we look at our refresh of our installed base, whether it's 1100, 1260s, or 1290s, there's a lot of opportunity there. Some of that is actually scored by end of support on the 1100 side in some areas. So we're seeing our tech refresh momentum has really started around the Infinity three. So really good momentum.
Operator: Our next question will come from the line of Patrick Donnelly with Citi. Please go ahead.
Patrick Donnelly: Hey, guys. Thanks for taking the questions. Padraig, maybe just on China. You know, I know you talked about seeing an outsized share from the China spin-off. I know when we chatted a month ago, you guys were pretty positive on that piece as well. Felt like you were getting more than your fair share given where those dollars are going. It felt like a little more, you know, GCs and industrial. Can you just talk about what you're seeing there, the traction? It feels like there could be some nice upside there. I know there's more tenders coming as well, so it would be helpful to talk through China stimulus and the impact around GCs and the industrial piece.
Padraig McDonnell: Yeah. No. Thanks, Patrick. And, you know, we did see a really nice uplift to our excellent performance and winning outside share of tenders in the National's stimulus program. Total stimulus demand for Q1 was around $35 million and we recognized all of that in the quarter. We won 50% of all stimulus orders. And with this round, our China team is now expecting the next round of stimulus to come later in the year. That's yet to be quantified. It is going to be broad and I think it's going to be slightly more fragmented in the type of customers, but the size of that round is really not clear as of yet. So but I think we're at this point, we're not assuming that all stimulus we booked in Q1 would be fully incremental for the year. I think that's important to say. We expect that some of that is likely pull forward and our thinking is about 50% of that is pull forward. We did not see, you know, a meaningful improvement in the underlying business in Q1. I'd say it was what I would say the China market is stable, and we're otherwise maintaining our expectation on the base business resulting in a modest increase for FY25 expectations. And while we're increasing our expectations for the year, the total remains within our low single-digit guide range.
Patrick Donnelly: And, Bob, are you rolling that second tender into the guide or would that be upside?
Bob McMahon: Yeah. That's a good question, Patrick. We have not we're staying consistent with how we did it in the beginning of the year, which is we have not rolled that any incremental into the guide. So that would be a source of upside, Patrick, once we understand more about what the scope and timing of that will be. We do believe that, you know, based on the folks, our team on the ground, that it will happen in the second quarter of the second half of this year. Whether that shows up in our, you know, second or third and fourth quarter, or by the end of the calendar year is still to be determined. But needless to say, we are very given our strong performance in this first cycle and the fact that we have a strong ability to produce all of our products in China for China.
Patrick Donnelly: Yes. No. That's okay. And then maybe just on the NASD business, can you talk about what you're seeing there? I know last quarter, talked about high single-digit growth expectations, maybe some potential for double digits. So we'd love to hear the latest thoughts there. Any color commercial versus clinical would obviously be
Padraig McDonnell: Yeah. I'll kick it off, and I'll hand it over to Simon. So very much as expected in Q1, demand continues to be very strong. No change in guidance for the year, which is guiding at high single digits and, of course, nudging to low double-digit target. But, Simon, you want to add more color?
Simon May: Yeah. I think you said it well, Padraig. Demand very much in line with expectations. Revenue profile also in line with expectations. The full-year outlook remains absolutely intact. I think we still have a dynamic in NASD, which bodes very well for the future where we've got a lot of process qualification work from all and that coupled with the order intake patterns that we've been seeing for quite a while now make us very enthusiastic for the future. So confident about the 2025 guide and even more confident and enthusiastic about the longer term.
Patrick Donnelly: Thank you, guys.
Operator: Our next question comes from the line of Tycho Peterson with Jefferies. Please go ahead.
Jack: Yeah. Hi. Good afternoon. This is Jack on for Tycho. Appreciate you taking our question. I guess, just one on the replacement cycle. Appreciate the color on Infinity three. And kind of the influence there. I guess, any other data points that spike out to help us understand where we sit today and kind of better understand the shape and pace of the replacement cycle and how it could play out over the next two to three years.
Padraig McDonnell: Yeah. I mean, LC replacements, it happens at different times within different installed bases. And so on. What I will say about us in terms of Infinity Tree, it really has kicked off that replacement cycle. And, you know, what we've seen is that typically, the replacement cycle is about nine to twelve months. And because of our installed base and a lot of 1100s out there that are some of those are coming to end of support. It really has created momentum around it. So we expect that to be a steady replacement cycle. We don't expect a super cycle in any particular quarter, but as we move forward, our installed base will move with it. What I will say as well, we've made significant improvements in our life cycle management process. So how we can look at where the installed base is, how we can inform customers for better productivity and so on. And the good news is Infinity Tree has all those capabilities.
Bob McMahon: Hey, Jack. Maybe just to build on what Padraig is saying is, you know, I would say we're still in the early stages of that recovery. We had a very strong performance in Q1 with the uptake of Infinity three, the feedback continues to be very positive. And I would also look at when we look at the average age of our installed base is still older than normal. And so we're very excited about this. I would also say that order growth outpaced revenue growth in the quarter. So again, another positive instance. And that's on top of overcoming Chinese Lunar New Year. That's across the board. So certainly, early days, very positive with all, you know, for all the things that Padraig was talking about in the call, and I think there's a long runway here for us to be able to take advantage of not only our own installed base, but also competitive installed base as well.
Jack: Appreciate it. Thank you.
Operator: Our next question comes from the line of Jack Meehan with Nephron Research. Please go ahead.
Jack Meehan: Thank you. Good afternoon. Padraig, you mentioned, I think, early in the script some changes in the management layers within Agilent. Is there any additional color you can share on what you're doing? And then just is there any associated savings attached to that that you would call out?
Padraig McDonnell: Yeah. Thanks, Jack. So first of all, we layered let we talked about our new organizational structure at the Investor Day at JPMorgan and one of the key elements of our customer-centric strategy we introduced was becoming more nimble. That's going to speed up decision-making and also increase innovation. These are crucial to our strategy, and we know they're going to deliver many benefits to our customers. So what we're really doing is we're looking at layers in the organization where we can flatten a little bit, increase our span of control so we can improve our decision-making and also get a better coverage in our management layer. And while I would say the focus of this is truly strategic, it really is leading with our strategy. There will be some cost reduction associated with these changes later in the year, and that's where you have those baked into our guide.
Bob McMahon: Yeah. Hey, Jack. Just, if you recall when we talked about the Ignite savings at the beginning of the year, we talked about some being in the second half more in the second half. This is this was, you know, that's where you'll see the activities that we're going through right now.
Jack Meehan: Okay. And then, be great to get an update on BioVecra. It looks like it had M&A added $26 million of sales in the quarter. Has your target for the year changed at all? I think I had $145 million in the model. And can we just talk about how things are going there? Thank you.
Simon May: Yeah. Thanks for the question. I'd say overall, as we are going through the integration process with BioVecra, we're increasingly excited about what we're seeing there. I think the more we get under the hood, the more the capabilities that we have there are resonating with our internal experts and also with our customers. We think it's still very early inning and we're absolutely in the sweet spot there. With those capabilities and relative to where the puck is going with therapeutic modalities. We were slightly soft on revenue in the first quarter. The focus there is really very heavily on bringing certain aspects of the operation up to the Agilent NASD standards. With process and quality, and that's progressing really well. But then with regard to the full-year guide, we're holding to the previous guidance and no change there.
Jack Meehan: Okay. Thank you, Simon.
Operator: Our next question comes from the line of Vijay Kumar with Evercore ISI. Please go ahead.
Vijay Kumar: Hi, guys. Good afternoon, and thank you for taking my question. I guess, Bob, when we Oregon, on your book-to-bill commentary here being about one versus, you know, seasonally being built sub-one x. Is that, you know, being driven by stimulus or, you know, perhaps, you know, timing of the Chinese New Year? Maybe talk about this the book-to-bill trends and what does that signal in?
Bob McMahon: Yeah. Hey, Vijay. It's Bob. Yeah. Actually, the Lunar New Year didn't have a big impact on that. Actually, I would take that as a sign of the continued recovery, particularly in the instrumentation market. We did have an impact or a contribution from the Lunar New Year, but the real big area is both LC and LCMS. And so, you know, typically, what we see is just because of our the way our fiscal year is, that our first fiscal year, because January is the last month of the quarter, the instrument book-to-bill is typically lower than one. And so the fact that it's above one is a very positive sign from our perspective. Perspective that that recovery continues. And as we were saying, it's really been led by some of the new products in the unique attributes of our LC, you know, the Infinity three portfolio and has given us a allowed us to, you know, have, you know, renewed conversations with customers and so forth.
Vijay Kumar: Understood. And, Padraig, maybe one for you on I think I heard you mentioned you've identified a few hundred million dollars worth of replacement opportunity. What is the average age of the fleet? And when you do that math, what is incremental of the few hundred million we're a normal replacement cycle? And when you think about the attach rates on services and chemistry, do you feel like that part of the business is is Chrome make the high single serve? Where are we on services and consumables?
Padraig McDonnell: Yeah. I'll take the first step piece, and I'll hand it over to Angelica to give more color on the services and consumables. But, you know, we're older than the median, I would say, of the age of the installed base. And, you know, the installed base is very large, very disparate, a lot of different equipment in it. So we expect that we're going to see the pace of that change continually improve throughout the year on that and it's there's a huge opportunity there in terms of opportunity for replacements. And also when that comes, of course, we have attach rate with new Infinity three both on the services on the consumer side. So I would say as well, you know, just to mention that we did see an improvement at the year of end of year orders. It's not back to pre-COVID days, but there was a sequential improvement in terms of December orders, in terms of budget flush versus the previous year. Which again was in large part about installed base. Install base change. And I would say when I talk to lab managers out there and we talk to high-level procurement people, you know, there's a lot of pent-up demand for instrument changes. Lab managers are really pressing that. And we do see the purse strings loosening a bit within our pharma customers. Angelica on service and consumers.
Angelica Riemann: Yeah. Great. Thanks, Padraig. To add to what you've already said, you know, it is going to the replacement cycle is going to occur over a period of time, and it's probably going to be a mix of some incremental placements of new instruments as well as replacing some of the aging instruments on the lab bench. And what that really allows us to do is, you know, continue our focus on increasing our ability to connect services and consumables as those new instruments are being put into service. And we know that that motion allows for greater and longer customer lifetime value both in how the customer is using that instrument, but also in terms of the continued revenue stream that generates for Agilent. So there is upside and incremental opportunity for sure.
Vijay Kumar: Understood.
Operator: Our next question comes from the line of Brandon Couillard with Wells Fargo. Please go ahead.
Brandon Couillard: Hey. Thanks. Good afternoon. Bob, can you just help us understand what's going on with gross margins, you know, down over 30 basis points in the first quarter. Was that in line with your expectations? How much did currency affect that? And what are you expecting kind of the next few quarters?
Bob McMahon: Yeah, Brandon. You know, what I would say is if we looked at the bottom line, you know, our operating profit was in line. Gross margin was a little lower just because of some of the mix of products. It wasn't anything material, and I would expect that to improve throughout the course of the year. If you as you can imagine with a large stimulus in China that did have some pressure on our margins at the gross margin level, but very profitable at the operating profit margin. And currency did have an impact as well in Q1. And that impact was, you know, roughly, you know, 20, 30 basis points in the quarter for the total company. And, you know, I'd expect some of that to continue throughout the course of the year. We do get some benefit because we do hedge but still the drop through of that is greater on the gross margin. So the one thing I would say, Brandon, to offset that is we were actually pleased with the pricing. Padraig mentions about the pricing. It actually was trending a bit higher than what we had expected in Q1. And are expecting that to continue through the course of the year.
Brandon Couillard: Okay. That's helpful. And then be great if you could get an update just on the pathology and genomics pieces and how those performed in the first quarter. I think genomics is actually up in the fourth quarter. Didn't update. Be helpful. Thanks.
Simon May: Yeah. As I said, you know, we saw its puts and takes in the first quarter. We saw some negative impacts from the funding situation. In the US with academia and government. And then on the flip side, we continue to see really strong traction with our Magnus automated NGS prep system that's on a very strong growth trajectory. And the Aveda chemistry as well, still is pretty they're pretty small acorn. But the customer adoption there is looking pretty strong. So as we look to the full year, I still think we see a path to return to growth in genomics. But again, the near-term headwinds at least with academic and government funding slightly outweighed the positives from Magnus in the first quarter.
Padraig McDonnell: And the diagnostics and clinical overall grew 7% and pathology was flat year over year, but, you know, I see very steady growth rates as we go through the year on that side.
Brandon Couillard: Right. Thanks.
Operator: Our next question comes from the line of Puneet Souda with Leerink Partners. Please go ahead.
Puneet Souda: Yeah. Hi, Padraig and team. Thanks for taking my question. One, if you could just elaborate a little bit on the China stimulus, we were expecting more orders and maybe more continued orders. And so I'm just trying to understand. So why are you expecting it in the second the rest of the, you know, instrumentations and growth from stimulus potentially in the second half. Maybe can you elaborate what you saw? What are you hearing from the ground in China?
Padraig McDonnell: Yeah. So the, you know, the stimulus order was within the food area, within the Chinese customs government departments and, you know, it was very broad-based in terms of instruments. It actually helped most of our platforms in as we won 50% of that stimulus order, which is around $25 million and it was recognized essentially, all of that was recognized in the quarter. That's a very extremely high win rate. And, of course, we think it's not all of that as incremental. We believe about half of it is kind of run rate pull forward. Half of that is incremental but it shows when these stimulus come in, the Agilent team can really win its oversized share of it. And as I said before, you know, we're expecting more stimulus, which we haven't baked into the guide into the second half. But rest assured, when that arises, the Agilent team will be there to help customers.
Bob McMahon: Yeah. Hey, Puneet. To build on what Padraig is saying, I actually see this as a really positive that we were able to not only get that revenue in, the orders in, and actually deliver it. It's a real testament to the Agilent team, and so it actually gives me increased confidence. So that when the orders come in, we will get more our fair share in the second half of the year. So I think we still feel very optimistic about not just this year, but, you know, if you remember, this is a multiyear kind of stimulus program. And so we feel very good about the momentum that we have. I wouldn't look at it quarter to quarter. I'd look at it, you know, year over year. And just maybe adding one point to me, what is absolutely crucial for those orders and to come in is having Made in China capabilities and having our ability now to make all our platforms within China for China is really a significant advantage for us.
Puneet Souda: Got it. That's thanks for clarifying that. And then a question on the margin side. With Ignite efforts, can you elaborate the margin contribution? You talked about pricing on one end. Number of cost efforts, and also reducing some of the management changes that you have in place. So just wondering if you know how should we think about the margin contribution? Do you if you have a target this year for from Ignite? Thank you.
Padraig McDonnell: I'll start off and I'll hand it over to Bob. So yeah. No. Of course, we have a very well-defined program as we go through the year. Actually, Ignite is a three-year program. And, you know, what we said is over the three years, 70 to 100 basis points plus in terms of margin expansion. And, of course, all of this doesn't happen all at once. Right? So we've seen early benefits both from the procurement direct and indirect procurement side and from pricing in terms of what we're seeing. But, of course, we'll see more in the second half and as we go into next year. Bob, I don't know if you want to give more color on that?
Bob McMahon: Yes. I was going to say we're on track with what we had talked about at the beginning of the year, Puneet, which was, you know, 50 to 70 basis points this year. We're gonna have to work harder for that because of some of the currency. But, you know, pricing has held up here in the quarter, and we're on track as Padraig mentioned for some of the other areas.
Puneet Souda: Got it. Helpful. Thank you.
Operator: Our next question comes from the line of Doug Schenkel with Wolfe Research. Please go ahead.
Doug Schenkel: Good afternoon, guys. And thank you for taking my questions. When we caught up with you guys, in January. It sounded like similar to the rest of the peer group you had a strong December in terms of instrument budget flush, especially in the pharma end market and I'm guess I'm just wondering if Yeah. One you know, I wanna confirm that was the case, that the end of the fiscal year came together. Strongly. And if so, it would be interesting to hear if there's anything interesting that occurred in terms of a particular rebound in specific instrument categories. Specific geographies, specific end markets, and then kinda building off of that, you know, with January normal. Or did you know, kinda go into the second topic I wanted to cover given the change in administration, you know, if December felt a little more normal, did January feel maybe less normal given all the uncertainty? Terms of pharma regs, academic funding, food and water testing, any commentary on all of those things would be really helpful.
Padraig McDonnell: Okay. Thanks. So I'll start off on the hand hand over to Bob. So it was, you know, certainly as we talked before December, it did play out as we expected. You know, we did have that strong momentum. And you know, what was driving that, you know, overall demand I would say particularly around Infinity Tree, but also we talked about PFAS testing and including also what we're seeing in the GLP-1 areas. And, you know, January and the administration comes in, a lot of changes. And of course, we're mitigating those changes as we go through it. The only area where we've seen some softness is really in academia. With NIH funding where things have really slowed down a bit, but of course, that's a very small part of our business and it's not within the guide on us. In pharma, when we talk to our customers, actually, there's a lot of questions, you know, you see a lot of discussions around Aira, etcetera, what changes might happen about international pricing index, etcetera. But I would say that hasn't impacted on the pharma side. We're seeing the this we're still seeing a steady business coming out of that side. But everybody's really really watching that. On the PFAS side, just going back to the pharma side as well, you know, people were talking about FDA you know, changes within the FDA. I think that hit more of the med medical device companies areas within within that expertise, but we haven't seen anything on it. Yet. And within PFAS, you know, that business continues to be strong. We still see it in January, there's been no change in that as it happened. So it's it's it's an area we're gonna continue to watch very, very closely usually dynamic, but I would say January is is a steady progression from December.
Doug Schenkel: Thank you very much.
Operator: Our next question comes from the line of Dan Leonard with UBS. Please go ahead.
Dan Leonard: Thank you. You mentioned a couple of times that you saw an improvement in pharma CapEx. And what I'm curious about is you know, how much of that improvement was narrowly relevant to QAQC versus broader and inclusive of R&D function. Functions in pharma and other product categories in your portfolio like cell analysis.
Padraig McDonnell: Yeah. So kick it off and maybe hand it to Simon on this one. So, you know, we're of course, we have heavy fleet and a lot of capabilities when QAQC and development for QAQC. So we saw that across the board on that side. I would say in R&D, you know, you see a lot shifts in terms of where customers are spending money. So we did actually see a good continuation of positivity on that side. But in the pharma QAQC and the development areas of labs, we've seen continued, I would say, steadiness and incremental strength in it driven around a replacement of fleets and driven by the Infinity Tree. But, Simon, I don't know if you wanna add anything to that.
Simon May: Very little. So I don't there was a reference in the question to cell analysis tools, and as I look at that overall, I'd actually sell on the academic and government side, we've had some impact there in cell analysis with our lower end in instrumentation where although at company level, the exposure is very minimal within cell analysis. It's a little higher. But generally speaking, the funnels are robust in biopharma across the entire continuum. We're seeing really nice adoption of our NovoSite platform. The spectral flow cytometry, and the site the citation C10 is also performing really well. So if you puts and takes in cell analysis.
Dan Leonard: Oh, okay. That that's really helpful. And then a follow-up question. I think, Padraig, you mentioned in your prepared remarks that you've taken specific actions in
Padraig McDonnell: Yeah. No problem. So, you know, we have a very diverse manufacturing capability around. And, you know, if you talk about the three areas where tariffs were talked about in Mexico, we have no manufacturing. In Canada, we do have manufacturing with BioVectra, but it's about 30% I think is put into the US. And, of course, in China, we have in China China on it. So we believe the overall impact is about $5 million. And we actually believe that's very mitigated mitigatable down much less than that, and we're working on it. Just to give you a sense of it, you know, we were able to shift our supply pretty quickly in areas from, say, China back into the US, and into Singapore as well, which really is very mitigated.
Dan Leonard: Thank you.
Operator: Our next question comes from the line of Michael Ryskin with B of A. Please go ahead.
Michael Ryskin: Thanks, guys. Maybe a little bit of cleanup, but touched on this a couple of times in terms of the academic and government. I just kinda wanna make sure I understand the timing of it. If I'm just gonna go back to the slide deck, you the negative seven in the quarter, you call out softness globally, and then anticipated slowdown in government spending. Impacts willingness to some customers to spend. So this thing, if you started seeing back in November, December, is this trying to think of the timing of what was happening in the quarter. As it relates to know, election inauguration, all of that. Any query there is helpful.
Bob McMahon: Yeah. Hey, Mike. This is Bob. You know, what we saw actually was, you know, a pretty consistent performance across all of the regions. So they were all down. That's what we were talking about when we did see globally. We did see maybe a slight more in January incremental softness towards the end as people were trying to figure out the NIH activity. I wouldn't say that that necessarily is super material for us. And as you know, you know, the academia and government can be kind of lumpy at times. So the one area that I would say got disproportionate impact actually was China, and a lot of that is some of the impact of the timing of the Lunar New Year. And so, I think that they were the most negative, for the full Q1, and that it we have a slightly larger exposure in academia and government in China than we do relative to the rest of the world. So I wouldn't read too much into it. Hopefully, that kinda clarifies what we were seeing.
Michael Ryskin: Yeah. It does. It does. And I think I mean, just right now in response to, I think, Dan's question, you're talking about cell analysis specifically. Is that just another area where you have overlap where it's you know, it's concentrated and then a handful of different parts of the portfolio. You know, imagine there's not a lot of GCs going into academic and government labs.
Simon May: Yeah. That's the true statement. And again, in cell analysis, the way I'd characterize it is that we began to see hesitance three in academia and government in the run-up to the election last year. People were kind of in wait-and-see mode to see what happened with the election. Now what we're starting to see, of course, is that the impacts are real. And just to say it again in cell analysis, we've got proportionally higher exposure there in academia and government. Do in many, if not all, other parts of our portfolio. So your statement there about the relative impact is a true one, and we don't see that elsewhere.
Michael Ryskin: Alright. Thanks. That's all for me.
Operator: Our final question will come from the line of Eve Bernstein with Bernstein Research. Please go ahead.
Eve Bernstein: Yeah. Thanks a lot for taking the question. This has been asked a couple of ways, but maybe just to follow-up on Mike's question for academic and government. You said you were starting to see a little bit of softness at the end of January. How is that trending into February? You just give us a take now where you stand today?
Bob McMahon: Yeah. What I would say is, that's why we have a little wider guidance. In the Q2 guide between the low and the high. And we have, you know, I wouldn't say it's any materially different than what we saw in January from a trends perspective. It hasn't deteriorated, but you know, where we're just being prudent there from a standpoint of, you know, what potentially would be there. And then, you know, for the full year, we're not changing our it.
Eve Bernstein: Okay. Fair enough. Thank you. And then we've talked quite a bit about the LC replacement cycle. Within GC, is there opportunity for an up cycle here as well? You know, you've mentioned several times that in LC, different customers, different applications are going to improve at different times. But how do you anticipate GC playing out through the rest of the year in terms of improvement pace timing? And can you just give a little color there?
Padraig McDonnell: Yeah. No. That's a great question. And, of course, you know, GC replacement is a different timing than LCs because of the technology. But I'm gonna ask Mike Zhang to give color here.
Mike Zhang: Yeah. Thank you, Padraig. Obviously, we have strong leadership in the GC market, and we're very, very strong install base. We actually have introduced a new GCMS to the market, and we're seeing very strong response from customers. So we're very optimistic about opportunities, but certainly, it will be again, you know, it's over time, it's and your long-term opportunity. So we're very excited about that.
Eve Bernstein: Right. Thanks.
Operator: And, Mr. Ahuja, I turn the call back over to you.
Parmeet Ahuja: Thanks, Regina, and thanks everyone for joining the call today. With that, we would like to end the call. Have a good rest of the day, everyone.
Operator: This concludes today's conference call. You may now disconnect.