Good afternoon. Thank you for attending today's Agilent Technologies Q322 earnings call. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Parmeet Ahuja, with Agilent. Please go ahead.

Thank you, Hannah, and welcome everyone to Agilent's conference call for the third quarter of fiscal year 2022. With me are Mike McMullen, Agilent President and CEO, and Bob McMahon, Agilent Senior Vice President and CFO. Joining in the Q&A after Mike and Bob's comments will be Jacob Tyson, President of the Agilent Life Science and Applied Markets Group, Sam Raha, President of the Agilent Diagnostics and Genomics Group, and Porig McDonnell, President of the Agilent Cross Lab Group. This presentation is being webcast live. The news release for our third 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 www.investor.agilent.com. Today's comments by Mike and Bob 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 12 months. Guidance is based on exchange rates as of July 31. As previously announced, beginning in the first quarter of fiscal 2022, we implemented certain changes to our segment reporting structure. We have recast our historical segment information to reflect these changes. These changes have no impact on our company's consolidated financial statements. We will also make forward-looking statements about the financial performance of the company. These statements are subject to risk 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 risk and other factors. And now I'd like to turn the call over to Mike. Thanks Parmeet and

thanks everyone for joining our call today. In the third quarter we once again demonstrated the strength of our diversified business and the unstoppable One Agilent team. We delivered an excellent quarter, significantly exceeding our revenue and earnings expectations. Revenues of $1.72 billion are up 13% core. This is on top of 21% core growth in Q3 of 2021. Third quarter operating margins are 27.5%. Operating margins continue to expand and are up 150 basis points from last year. Our range per share of $1.34 are up 22 percent. Our strong results in Q3 coupled with orders continuing to outpace revenues highlight the ongoing strength of our diversified business. The momentum in our business continues and we are once again raising our outlook for the year. Let's take a closer look at our Q3 results. From an end market perspective, our results were once again led by strength in our two largest markets, pharma and chemical energy. Our largest market, pharma, grew 16% versus 27% a year ago. Within pharma, both the biopharma and small molecule segments grew double digits. The momentum in our C&E market segment continues with Q3 growth of 22%. This is on top of 23% growth a year ago. The C&E market is being fueled by demanding chemicals along with strong secular demand and ongoing investment within the advanced material space. We're also very pleased to achieve double-digit growth in the food and environmental and forensic markets, with both markets growing 11 percent. In our last call, I shared our belief that the business impacts of the Shanghai COVID-19 lockdown would be transitory. I also expressed that we remain confident about the ongoing strength of our business in China. In Q3, the China team delivered 29 percent growth. These stellar results are driven by continued strong end market demand, coupled with the faster than expected recovery production and shipment activity following the end of the Shanghai area lockdown. We are also very pleased with this result, which highlights the customer focus, drive, and outstanding execution of the Ashland China team. Strength in America has continued as we post another quarter of double-digit growth on top of 32% growth last year. Our European business grew 6% against a 23% last year despite a two point headwind for the cartel of operations in Russia. In terms of business unit performance, the Life Sciences and Applied Markets Group generated revenues of 1.02 billion, up 18% on a core basis. Growth was broad-based but continued strong demand for our LC and LCMS offerings where we posted high 20s growth. Our spectroscopy business grew low 30s, driven by strength in the advanced materials market. Chemistries and consumables, cell analysis, and our GC business each delivered double-digit growth in the quarter. LSAG's in-market growth is broad-based, with particular strength in the pharma and chemical energy markets. Our pharma results are driven by strength in the biopharma segment, which grew more than 20%. We had an excellent showing at the recent ASMS conference introducing several important LCMS and GCMS instruments and bio pharma workflow solutions. These innovative and intelligent LCMS and GCMS systems have been designed to make the lives of our customers easier. The building instrument intelligence and a higher level of instrument diagnostics help maximize system uptime and improve lab productivity by allowing operators to focus on their analysis rather than on their instruments. In addition, we to introduce an industry first hydro inert source for GC single quad and GC triple quad instruments enabling customers to seamlessly migrate from helium as a supplier gas to lower cost hydrogen and rounding out the list of new products announced at asms we introduced the mass hunter bio confirm 12.0 software an integrated compliant workflow targeted at the fast-growing oligo-based therapeutic development market these new products have already been well received by customers and represent the latest addition to ads with history of leadership and mass spectrometry. Our LSAG business also won some important awards during the quarter including a 6560C ion mobility LCQTOL system winning the scientist's choice award for best new spectroscopy product. Earlier this month we also strengthened and broadened our advanced materials and biopharma portfolio with the acquisition of PSS polymer standard service a leader in polymer characterization. We're extremely pleased to welcome the PSS team and their technology to the Agilent family. The Agilent CrossFact Group posted services revenue $359 million. This is up 10% core. We grew 10% core even as lab activity continues to ramp in China. Growth in services was again broad-based across services, contracts, preventive maintenance, compliance, education, and Informatic Enterprise Services. Strong instrument placement and increased connect rates continue to be a driver for our service business as customers continue to see value in our ACG offerings. Another critically important factor in our results is the scale and execution capability of Agilent's world-class global service delivery organization and certain our customers meet their needs. Agilent is seen as the trusted company to work with among our global customers. The diagnostic genomics group delivered revenue of $340 million, up 3% core. This is the worst that compared 37% growth last year. The solid results in our clinical cancer testing and NGS businesses were partially offset by COVID testing headwinds in a QPCR portfolio. In addition, the DGD business in China continues to ramp following the COVID-related shutdowns there. NASD revenues were up modestly in line with expectations. As we noted last quarter, Q3 included the impact of a planned shutdown for Alago manufacturing line in Frederick, Colorado. The shutdown of Frederick was for both routine maintenance and development of key elements of our Train B, our new manufacturing line that would increase our capacity 150 million dollars plus when fully ramped. While we continue to make good progress on the construction of Train B, we have seen some supply chain related delays and are now targeting a mid-year 2023 go-live, a slight delay. We see continued strong demand for oligo-based therapies as the number of approved drugs continues to increase and the pipeline of drugs in development are targeting disease states with larger patient populations. We are more confident than ever in the long-term trajectory of the market and our business. In addition to these highlights, I'd like to also point at the recent beliefs of Agilent's 2021 ESG report. While we've always published our progress in sustainability and addressing societal needs, this year we've taken our approach to the next level. We address these issues a new format that for the first time that looks specifically at our progress in the areas of environmental, social, and governance issues. We hope you have a chance to review our progress in ESG by checking out the report on the Agilent website and learning more about how we're executing our mission to advance the quality of life. Agilent's Q3 results again point to the strength of our diversified business and the outstanding execution ability of the Agilent team. We continue to bring innovative, differentiating new offerings to the marketplace. Acceleration and digital orders growth continues as well as new customer acquisition. In addition, as we started in 2022, we undertook a bold move to create a one Agilent commercial organization to further drive customer focus and growth. The strength of our portfolio and the continued strong execution by our one Agilent commercial organization make a powerful combination, and you see the results we're delivering. Customer satisfaction hit another all-time high this quarter. We continue to outgrow the market. As a result of our strong Q3 performance and continued momentum, we're once again raising our full-year revenue and EPS guidance. Bob will share more of the specifics. It's an exciting time in Agilent with the best yet to come. Thank you for being on the call today, and now I will hand the call off to Bob.

Thanks, Mike, and good afternoon, everyone. In my remarks today, I'll provide some additional details on revenue in the quarter and take you through the income statement and other key financial metrics. I'll then finish up with our guidance for the fourth quarter and fiscal year. Unless otherwise noted, my remarks will focus on non-GAAP results. We are extremely pleased with our Q3 performance. Results were above expectations, and we expect that strength to continue in the fourth quarter. Q3 revenues were $1.72 billion, up 8.4% on a reported basis and up 13.2% core. FX was a 4.8 point headwind to growth or $76 million. Pricing for the quarter contributed over three points of growth year on year and improved sequentially. The performance was broad based as all end markets and regions grew during the quarter. As we mentioned last quarter, the COVID-related lockdowns in China deferred an estimated 50 to $55 million in revenue from Q2, and we forecasted that revenue would be recovered during the rest of the calendar year. Our team in China did a fantastic job ramping production and shipments faster than expected following the shutdowns. We estimate over half of that deferred total was delivered in Q3, exceeding our expectations. Given this strong performance, we now expect the remainder will be delivered in Q4, which is an acceleration from our thinking from last quarter. The acceleration of the COVID-related shutdown recovery in China contributed to an already strong Q3 for the company. For perspective, we estimate the total business grew double digits, excluding the accelerated recovery. As Mike mentioned, earnings per share of $1.34 are up 22% from a year ago, representing strong incremental flow-through of the better-than-expected revenue growth. This performance is against our most difficult comparison of the year, as EPS grew 41% in Q3 of last year. Now let me dive a little deeper into the end markets. Our largest market, pharma, was up 16%, exceeding our expectations. Biopharma grew 18% and small molecule was up 14%. Biopharma is a focus area for us and now represents 38% of our overall pharma business. We expect that ratio to continue to climb over time. In addition, all three business groups grew double digits in the pharma segment, and our LC portfolio continues to perform very well, growing 25 percent in this important market for us. Chemical and energy continue to show strength, growing 22 percent during the quarter, driven by the chemicals and advanced materials segments of this market. We saw strengths in plastics and packaging for chemicals and ongoing demand in advanced materials coming from the markets for semiconductors and batteries. In the food segment, we achieved growth of 11% on top of 12% growth a year ago. Strength in the food market was led by the Americas and China. Our environmental and forensics market also grew 11% during the quarter, driven by the Americas and China. In the Americas, we saw increased funding to support PFAS testing, while China experienced faster-than-expected recovery post the Shanghai shutdowns for GCs and GCMS. The academia and government market grew 5% on top of a 12% comparison last year, in line with expectations. And rounding out the review of our end markets, our business in the diagnostics and clinical market grew 2% against a very strong 28% compare versus last year. While not material at the Agilent level, this market did experience some headwinds associated with COVID-related revenues being lower than last year. Excluding this, the growth would have been mid-single digits in this quarter. On a geographic basis, China led the way with 29% growth, driven by underlying demand and a faster-than-expected recovery following the COVID-related lockdowns. And looking forward, demand in China continues to be very strong. The Americas grew 11%, another strong showing, and Europe grew 6%, which exceeded expectations. Now, turning to the rest of the P&L, our team continues to execute at a very high level. Third quarter gross margin was 56.4%, up 50 basis points from a year ago, as pricing actions, volume, and productivity helped offset inflationary pressures tied to ongoing supply chain challenges and higher logistics costs. Operating expense leverage, driven by the strong top line and continued attention to cost management helped deliver very healthy margin improvements. Our operating margin was 27.5%, up 150 basis points from last year. Below the line, our tax rate was 14% for the quarter, as expected, and we had 299 million diluted shares outstanding. Looking at cash flow in our balance sheet, we generated operating cash flow of 326 million dollars in the quarter while investing $82 million in capital expenditures during Q3, driven by our NASD expansion. During the quarter, we also repurchased $323 million worth of shares. We paid out $62 million in dividends in Q3, returning a combined total of $385 million to shareholders in the quarter. Year-to-date, we have purchased over $1 billion of shares. Given the ongoing strength of the business, we believe this is a very good investment. Our balance sheet continues to remain healthy with a net leverage ratio of one. Now let's move to our outlook for the full year in the fourth quarter. We now expect revenues for the full year to be in the range of 6.75 to 6.775 billion dollars. This takes into account our Q3 results and an improved outlook in Q4, partially offset by an additional $40 million headwind associated with the strengthening of the dollar. This represents core revenue growth of between 9.9 and 10.3%. We are also raising our EPS guidance for the year to a range of $5.06 to $5.08, representing 17% growth year on year. This translates to Q4 revenue in the range of $1.75 to $1.775 billion. Core growth is expected to be in the range of 10.3% to 11.8%, while exchange rates will be a five-point headwind, and M&A will contribute 0.1 points. In closing out our Q4 guidance, non-GAAP EPS is expected to be in the range of $1.38 to $1.40, up 14 to 16 percent versus the prior year. This is based on a 14 percent tax rate and 299 million diluted shares outstanding. The Agilent team once again performed extremely well in Q3, delivering strong results, driving excellent execution, and building a strong foundation for the future. Our diversified business, and most importantly our team, have put us in an excellent position to again deliver strong results in Q4. And now back to Parmeet as we take your

questions. Parmeet? Thanks Bob. Hannah if you could please provide instructions for the Q&A now.

Certainly. If you would like to ask a question please press star followed by one on your telephone keypad. If for any reason you would like to remove that question please press star followed by two. Again to ask a question press star one. As a reminder if you are using a speakerphone please remember to pick up your handset before asking your question the first question is from the line of Matt Sykes with Goldman Sachs please proceed hey

good afternoon Mike Bob congrats on the quarter good afternoon Matt sure maybe just maybe just starting on LSAC we had a really good quarter just interested to know one what drove the operating margin expansion of the quarter relative your expectations and last year and then specifically I know it was broad-based strength across instrument categories but was there one or two areas that really surprised you to the upside where you feel is either underappreciated or could see continued momentum in the

back half of the calendar year? Yeah so I'll take the first part of that and we'll jump in and have Bob and Jacob add their thoughts here as well. So I think relative to the strength and why the operating margin is so high as one is I think we've been we've really benefited from the the leverage impact of having those higher than expected revenues but more importantly we've been working on the pricing side and really ensuring that we are receiving the value for our offerings and Bob I think we were well over three points of price appreciation overall for the portfolio in LSAG I believe. That's correct, that's correct. And we are as you may have picked up in my script it was a cross the board great quarter for LSAG and across all product categories but Jacob I think a

couple really stood out for you don't they? Yeah I think as you know we We continue to do really well in the LC-LCMS space, but this quarter is really a spectroscopy that was standing out. We have, especially in our atomic spectroscopy field, we have really seen a lot of momentum based of course on the dynamics in the markets, but also the innovations that has been created over the past years. And I think we really see the impact of that these days.

Yeah, I think it was a little race to see who had the highest growth rate spectroscopy or LC-LCMS. They both did extremely well. They were close.

And then maybe just a follow-up. I know Europe. Yeah, I should just say for a follow-up.

Yes, yes, yes.

Oh, yeah, sorry. Just for a follow-up on Europe, 6% growth. I think getting a lot of questions on just the spend environment in that region. What are you seeing there? Are there any kind of concerns you might have in terms of, you know, demand either from the currency fluctuations or just overall demand in certain end markets within Europe?

Yeah, sure, Matt. So, you know, we posted a 6% growth rate, core growth in the third quarter, albeit there was actually two points of headwind for the retirement of our rush operation. So, it really was high single digit, 8% on a restated basis. And, you know, Europe clearly is a watch area for us, but we haven't seen any significant signals of movement to the downside.

Yeah, I think, Matt, to build on what Mike is saying, I think in particular we continue to see very strong growth in our pharma business. And that really is a global phenomenon. But we also saw very nice growth in our chemical and energy businesses as well. And so, as Mike mentioned, it is a watch area, but the demand, you know, from what we're seeing in the health of the order funnel continues to be there.

Thanks very much.

Thank you. The next question is from the line of Brandon Kilyard with Jeffrey. Please proceed.

hey thanks good afternoon um mike could you elaborate just on the core order growth that you saw in the third quarter and given the strength of you know order momentum over the last several periods how does that inform kind of your initial thoughts on 23. i mean should we still think about you know five to seven still being relevant and then bob should we expect a normal 30 to 40 percent incremental next year any headwinds to consider

maybe the new NASB line? Hey, Brandon, we're probably not ready to talk about 23, but what I'll leave you with is a couple of thoughts here, which is very clearly the business has momentum. And even though we had the highest revenue quarter ever for Agilent in this recent third quarter, we still built backlog, both globally and also in China. So our orders exceeded our revenues. So it sets us up nicely, I think, for 23, but we'll get to 23 guide when we get there.

Yeah, and I think, Brandon, on your core incrementals, I mean, I think that if you look at historically, that's where we've been. Obviously, we do have some startup costs in 23 for NASD, and we'll spell those out when we get to the numbers. But I don't think that there's going to be anything fundamentally different on an incremental basis going forward.

Okay, that's helpful. And then on the NASD train B line, like you said, it's pushed out a little bit in terms of the launch timeline. Is that like one or two months? I thought the plan was already mid next year. And could you elaborate a little more specifically on kind of where the supply chain issues, exactly what those are that are pushing the delay?

I think you got the right timeframe in there, which is a month or two. It's really been sort of specialized steel that's required. So I actually had a chance to see myself where you go into a room where the steel pipe fitters are working and getting the area ready, and they can't close things off because they're missing one valve or something. So we've had, you know, bits and pieces that have been missing that actually caused us certain delays. I mean, the team's been all over. I think the global supply chains have pretty well publicized. But we thought we should, in a spirit of transparency, let you know we're still on track for revenue coming out of the facility in 23. but maybe a month or two later than he thought initially.

Yeah, and I think, Brandon, there is one more important piece. I think based on what we know today, you know, we still expect to be at capacity at the exit of FY23 as well in terms of a ramp up.

Great. Thank you.

Thank you. The next question is from the line of Vijay Kumar with Evercore ISI. Please proceed.

Hey, guys. Congrats on a really strong quarter here. um hi mike thank you uh congrats on the print and uh one uh maybe on on the guidance here um you know q4 at the midpoint is that 11 organic you guys just just at 15 percent uh the comps do get easier for q4 uh i'm curious sequentially when you think about it uh is the change just because of the cadence of how the china deferred revenues will recognize more on cq versus q4 So let me just talk about the sequential assumptions here for the 4Q guidance.

Sure, Vijay. And again, we were very, very pleased with the print. So thanks for the feedback. And Bob, we didn't use it in our script, but I think the word prudent may apply to our Q4 guide as well. That's right.

Yeah, I think, Vijay, if you think about kind of the moving pieces within China, what we did was we pulled forward some of the revenue that was deferred into Q3, but we also pulled Q1 revenue into Q4. So Q4, I would say, didn't have a material change one way or another. We actually feel very good that we're going to realize that full, you know, $50 to $55 million here in the fiscal year versus having it bleed a little into Q1. And as Mike said, I mean, we're not out of the woods, certainly in supply chain challenges and in COVID situations. And so we thought at this point in time, you know, a double-digit core growth is very good, but also prudent, as Mike said.

I love that word, prudent. Maybe one on some of the moving parts were at 23, Mike. And I'm not asking for a guidance, but if I look at pricing contribution, I think we started with the year at 100 basis points. We're running at 300 basis points. i think that pricing should continue until it analyzes until mid effect that uh mid of next year you didn't mention orders uh coming in about uh revenues what is the backlog conversion is that a three month or six month or 12 month visibility that you have from backlog any impact from nasd and sorry on cne very strong but obviously with the macro should be perhaps be prudent for 23.

Yeah, so great question, BJ. So I think I'd like to, the headline here was, as the way Bob closed off his red marks, we're building a strong foundation for the future. So we've got, you know, we had record revenues in Q3, yet we still build backlog. And, you know, some of that backlog obviously will carry into 23. And, you know, we, it's probably a three to six month visibility for sure on the revenue coming from the backlog. And, Bob, I don't know if you do that. And we agree with your thesis around pricing and impact that it will have on our 23 business as well. And, Bob, maybe you want to add a few comments.

Yeah, the only thing I think you're spot on, Vijay, I would say there's not a material change right now in terms of how we're thinking about NASD. And, you know, if I think about the various pieces there, they certainly set us up for a, you know, a good momentum going into FY23. Now, there's still some unknowns in terms of kind of the macro environment. But, you know, we're expecting to have stronger than normal backlog. We certainly have that right now and are expecting to continue that into 23. And then obviously pricing is continuing to anniversary, and I would expect it to be a higher contributor to growth next year, all things being equal.

Understood. Thank you, guys. Thanks, BJ.

Thank you. Okay, the next question is from the line of Kunit Suda with SCP. Please proceed.

Hi, Mike, Bob. Thanks for taking the questions. So first one, just LSAG, obviously a very strong quarter. I mean, obviously congrats on the quarter here. When you look at the 25% growth that you're seeing in LSA, overall the order book being strong, can you maybe just characterize sort of, you know, from an end-of-market perspective, It seems like biopharma continues to do well, but geographically, can you just characterize this contribution from biopharma China in the quarter, and how should we think about this sort of order book? Can you maybe characterize this order book more geographically, and do you expect this again in line with some of the other questions? How should we think about this order book flowing through into 2023?

Puneet, you packed in a lot in that one question. We'll try to address it.

I was going to say, maybe you want to handle that, Bob. But, you know, I think the answer was really across the board. I mean, both, I mean, clearly biopharma and pharma, you know, our portfolio is doing really, really well there. And as I mentioned to the team the other day, we just got the most recent ALTO report, which shows market share movements. And as my Danish colleagues like to say, it was green as a Danish forest. Did I get that right, Jacob? That's right. That's right, Mike. It was, you know, across the board, but I think it's the same story holds geographically well. So it really is a nice global story. But I think it's more than just pharma. I know you're getting some good CME growth, right, in the advanced materials, LC, LC, MS. You know, we post some really good numbers in food and the environmental market, which also are big users of LC and LC, MS. So I think it was really a broad-based story there, if I remember correctly, Jacob.

Yeah, correct, Mike. I think we're really seeing good performance across the board as you were saying, Mike, and we are also seeing that the customers are really, really interested in our full solutions. I think PFAS is a good example of where we see a lot of interest right now, both right now, but also what we see some of the big bills that is coming through in the U.S. where PFAS have a prominent exposure. So we expect to continue to see in momentum in that space.

I think, Puneet, you know, just to build on what Mike and Jacob were saying, I think one of the things you're really seeing come out in Q3 is just the strength and breadth of our portfolio. And while we haven't talked about spectroscopy a lot in the past, you know, it continues to be a very important part of our portfolio and solution set. And I think it fits nicely across multiple end markets. And, you know, the LC and LCMS get a lot of headlines, but we're more than just an LC and LCMS.

business got it um thanks for that and then just I'll keep it simple from a follow-up polymer standards acquisition can you characterize sort of what's the contribution this year and you know how does that enhance your offering for columns and sort of biomolecules and and should how should we think about that overall acquisition overall fitting into the LSHV group you want to take the first piece that yeah

Yeah, I'll, you know, it's not a material business. We estimate that's less than $10 million annualized today. You know, that's the 0.1% that we built into our guide for Q4. But more importantly, I think strategically, I'll let Jacob talk about the merits of the portfolio and how we think it's going to continue to drive growth for us.

Yeah, thanks for that. And we have a longstanding relationship with PSS, so we knew exactly their strengths. And we've been very impressed with what they've done in the polymer business for a long period of time. And particularly, our interest was intrigued when we also see polymer science going from advanced material into biopharma, where we see a lot of opportunities. And PSS have done a wonderful job using our instrumentation together with their columns and also an informatics pack they have built to really go after a segment of the market and also the expertise in in in the field they have more than 500 application nodes within this field so we can really leverage that with the strong presence we have across across the globe to really accelerate the the that business opportunity that happened up over the past decades really got it

okay great thanks guys congrats again thank you appreciate it

Thank you. The next question is from the line of Rachel Vattenstahl with JPMorgan. Please proceed.

Thanks for taking the questions, and congrats on the next quarter. So, first up on China. Yeah, great to hear that some of that catch-up in China was pulled forward there, and then you also pointed to double-digit growth in the region for that X-acceleration recovery. So, first off, can you just walk us through specifically what drove that pull forward on the catch up from lockdowns and are you seeing an acceleration of demand catch up in China and then second how are you thinking about that longer term growth within China and could that be a source

of upside for the year great so I'll start Bob here so I'd have to say it was an extraordinary effort of our team in China I mean people sacrificed and worked tremendously hard we had people coming into our factories and living at the factories they slept and worked at the factories for entire period of when before you couldn't really get out beyond back to your your local community so they did that for several weeks both in our logistics operation as well as our factories and that allowed us to get our our global GC production going as well as the import export of our product as well so I have to say really was extraordinary effort of the team that that made that happen and you know we're very optimistic about ability to continue to grow well in China in Q2 I think we talked about a greater than 20 percent order rate we posted a number of 29 percent growth in Q3 yet we still built backlog in in the third quarter in China so I think we're well positioned for for the fourth quarter and Bob I'd say I probably does represent a level of upside potentially with things continue to develop as we as we hope you know the wild cards from my perspective are you know how much money could come into the segment from you know government stimulus I know they're they're they're talking about some of the things we haven't seen any specifics so that would be something that would be there on a positive but again our demand really is coming from the core private sector commercial sector around pharma and C&A and we think those things are sustainable.

Yeah exactly Mike I think you mentioned Q2 kind of order growth rate and Q3 was in that same range and so we're seeing very strong demand and been able to do a fantastic job of ramping up that capacity, and we expect that to continue into Q4.

Great to hear. And then last one from me, just on the C&E segment. So 22% growth is quite impressive, and that growth has really continued to accelerate in recent quarters on that end market. So how should we be thinking about that longer-term outlook for C&E, especially given some of the macro dependence on that portfolio?

Well, we think that the structure of this market plays a change over the last few years and yes there's still a segment that's that's tied directly to what happens to the the global GDP situation but we hide it in my in my comments you know there's secular demand happening here particularly in advanced materials when there's investments being made in in battery technology more sustainable materials semiconductors on showing a production so we think those trends are here here for a number of years I think our view is the sector's probably got a higher growth rate than we viewed as having a couple years ago because of the secular aspect of growth in C&E. And Bob, what else might you add there?

Yeah, I think, as you said, I think one of the things that I think is really important, don't take 22 and build it into your model because we don't think that that growth rate is going to continue. We certainly are pleased with it, but I think the other more important pieces, you know, we have a very strong right to win in the C&E business. We're a leader in this space and feel good about our portfolio. And as Mike said, you know, this is an area that, you know, we are seeing kind of a renewed sense in some of these areas that we do think that has many years to come in terms of investment. I might use the word undisputed leader in this space.

I won't disagree. Thanks for the question, Rachel. Great. Thank you.

Thank you. The next question is from the line of Derek DeBruin with Bank of America. Please proceed.

Great. Thanks for taking the question. This is Mike Riskin on for Derek. I want to follow up on your comments on price. You sort of indicated that price continues to sort of grow as you go through the year. Is that a factor of the timing of when orders are converted to revenues and when you're recognizing those revenues so this is just more of a a dynamic of that or is this an incremental price increase that you're building in as you go through the year and just you know alongside that any comments you could take in terms of reception to price and you push back in any particular areas where you would have take more versus less just sort of you know give us an update on the pricing dynamic as you go through the year yeah hey Mike this Bob

I'll take I'll take that near it's it's the former and and so when we take price you know it takes some time to get through the backlog and and so we're seeing the price realization from the orders that you know the price increase that we took that we took back in the beginning of the calendar year and you know really what we're trying to do is cover our costs and you know we're seeing increased logistics costs and an increased material costs and so we've taken it across the board, but also recognizing where the costs are higher, we've taken those prices up higher. We haven't really heard any pushback, I think, as evidenced by, you know, our strong order growth. And then also we look very closely at cancellations within our order book, and that continues to be very low. And so I think our customers understand why we're having to raise prices because of the inflationary environment. And I think to date, we've been able to actually generate more price than I think we anticipated at the beginning of the year.

Okay, great. And then for the follow-up, you commented on the balance sheet and sort of getting the leverage lower and lower. I've done a couple of deals here and there in the past couple of years, but they definitely tend to be on the much smaller side. So could you talk about your willingness to lever up a little bit and put a little bit more of that capital in work, and if so, what are the types of assets you're looking for? Are sellers willing to engage in this market, or how are things proceeding on that front, on the BD front? Thanks.

Yeah, I think we've been public about being willing to take on bigger deals than what we have had historically. I think we're still, we have the benefit of having a very strong balance sheet, we're going to first invest in our business. We think that that's the greatest opportunity, but we're always out on the lookout for M&A. And as you said, I would say the pipeline continues to be healthy. You know, the dynamic has certainly changed in the last nine months, particularly on the public market side. And I think there's some good assets out there. It's probably taken a little longer on the private market side, which is where we tend to focus our efforts. But I can tell you that the beauty of our model is that we have organic growth first, and M&A is kind of an adder on top of that. And so it is something that we're continuing to look at and would be not uncomfortable levering up a little higher than where we are today uh for the right deal and if the if the economics work absolutely bob is that three to four times lever or i'm not that's that's pretty rich um but uh you know i i think um it all depends on what the right uh uh asset and what it looks like got it thanks thank

you next question is from a line of josh waldman with cleveland research please proceed

hey thanks for my hey hey thanks for taking my questions um just two for you guys first mike mike wondered if you could provide more context on the supply chain situation you know how supply and costs attract versus your expectations over the last 90 days have you seen any relief on supply. And then it sounds like you've built backlog in Q3. Curious whether your fourth quarter guide assumes any work down in the backlog, given recent order rates? Yeah, so I'll let Bob handle

the second question, and I'll start with the first one. So, you know, supply chain challenges are still out there, but our team continues to do an excellent job navigating them, getting the material that we need for our customers. We continue to have very, very low order cancellation rates. It's something we watch like a hawk. And I think we're managing the price changes. So I think in the early days of things, we were kind of surprised at what things would cost on the market for chips and others. But I think we've now found ways to work that and then offset that with some of the pricing actions that we mentioned earlier. So I think if anything, it's probably trending in more positive direction albeit is still challenging out there yeah and I would say on the second

question Josh I would say first and foremost demand continues to be very strong in our in our marketplace and so we're we're expecting order growth to continue in into our fourth quarter as you know that typically is one of the larger quarters that we have for our sales organization and certainly for our customers as well that being said you know I would expect maybe some slight degradation in backlog, just given, again, the deferral that we're talking about within China. But don't interpret that as us seeing anything slowing in the marketplace.

Got it. Then kind of along those lines, I wondered if the group has any initial thoughts on pharma budget flushing this year, given the strength in orders from these accounts. Curious at this point if you're getting any indication that maybe the strength in order book is reflecting her pull forward or just not seeing that yet? Yeah, Josh, I'm going to pass this call over to

Porek. He's the closest to what's going on. As you know, he heads up our one commercialization in addition to running our ECG services business. So, Porek, what's your thoughts on that?

Yeah, no, I think it's pretty steady, Mike. We're not seeing any pull forward at this point. And, of course, the team are very focused on key end markets and workflows where we have the best chance to meet the customer needs so we're uh we're seeing a very steady state order rate with with and how much pull forwards got it appreciate it you're welcome thank you the next question is

from the line of jack mahan with nephron research please proceed thank you good afternoon so i wanted

to ask about the chemical and energy good afternoon so the chemical and energy acceleration um my first questions on the chemicals customers so your commentary sounds pretty bullish there's certainly been some headlines you know from some of the big European chemical players that have been a little bit more mixed though so would just be great to get your perspective on how you feel about the durability of that customer class and kind of squaring your view versus what we might be hearing from others in the market yeah that may be more regionally

specific to to Europe where we did see a level of growth a little bit slower than we've seen in America and China. So I'd say that's probably more regionally specific. And as we mentioned earlier in our call, you know, Europe remains sort of a watch area for us because of obviously obvious challenges in that region right now. I think we think it's pretty durable right now. I mean, I think it's, you know, remember the chemical pieces going into some of these supply chains, you know, as fabs go up and other things. So it's fueling some of the efforts in the advanced materials area. And I know that you and Jacob looked at this a little more closely. I don't know if there's anything else you'd add to that.

No, I think you're spot on, Mike. I mean, if we looked across, all regions grew in C&E, as Mike, you were saying, but, you know, Europe was below the average. And so, but I think over time, you know, that investment in some of these areas, you know, we think is, you know, ongoing demand.

And then, you know, it was only a week ago, the Chips and Science Act got signed into law I'm not sure if you have any early perspectives as to what this might mean for Agilent if you can call out kind of the businesses that you think you know could benefit from some of the funding that's going in and you just maybe call out what did the advanced materials business grow this quarter thanks yeah

so I'm gonna I'll let Bob handle the second question he's got more numbers on the pages than I do in front of them but relative to the recent enactment by Congress we see some real upside for us and we actually were just talking about that before this call I think the big debate is when is it actually gonna gonna release but you know Jacob mentioned earlier PFAS there's what we can see there's some there's some funding in there for PFAS which will help our LCMS and GCMS business and then you know tied to the chips you know both the upstream and downstream side of semiconductor fabs that play right in that spectroscopy strength that that we mentioned as well and Jacob perhaps you

want to add a few others yeah I think I mean actually even though spectroscopy and GC are the big winners in in the in related to the CHIPS Act we actually see across the board it's both the mass spec business also the LC and LCMS that Mike was mentioning and then of course a lot of our consumables also and so we see a lot of opportunities here I think both both the CHIP Act but also the other bill the was called the infrastructure bill and the inflation bill here all of them are driving some of our technologies so we see a lot of opportunities in that now it all comes down to timing here yeah

in the answer to your last question it was above 30% thanks okay super thank

you guys welcome Jack thank you the next question is from the line of Elizabeth Garcia with UBS please proceed hey guys thanks so much for taking the question

congrats no problem thank you very much yeah great so um maybe I just didn't catch it but I know there was the plan shut down this quarter for Naz but just thinking about kind of how we should think about kind of quote this quarter and then maybe sequentially as we head into the next quarter for the 4-2.

Bob, you and Sam on a tag team on this one? So, yeah, we had a plan shut down this quarter. Expect return to strong growth in Q4 for NASD.

And Sam, I don't know if you want to add some comments about what you're seeing on the market as well.

Yeah, yeah. Thanks, Mike, and thanks for the question. I mean, listen, it was a good quarter. We had the plan shut down you already heard about. But I want to note that we are very pleased with the trend that we're seeing that increasingly these very therapeutic oligos that we're working on, that the treatment modalities beyond the more rare indications are expanding into diseases for larger populations. You know, for example, you might have seen just recent news from L-nylam that reported favorable results on their Phase III study for Fetisterin, and this is for patients with ATTR for cardiomyopathy. And as L-nylam supplier for the API and Fetisterin, you know, we're, of course, excited. We also think this is indicative of just generally the trend that we're starting to see in the promise of therapeutic oligos. And, you know, our book of business remains strong as we go into the quarter and, you know, as we'll go into next year.

Yeah. Hey, thanks, Sam. I probably should have elaborated a little more, Elizabeth, on the routine. I think it's also important to understand why we were shutting down, right, is both for routine maintenance, but also the critical milestone in the construction of train B. So we tied the infrastructure together. So that's why we're speaking with confidence about our ability to get revenue in 23.

Great. Great news. And I guess just one more for me saying on the theme of kind of biopharma. So you kind of announced the collaboration with APC for real-time process monitoring. You also had an announcement, MERCS, around downstream PAT. It would be great to kind of get your thoughts around this space and kind of the work you're doing here.

Yeah, I'll make some high-level comments. And then, you know, Jay, if you want to provide some specifics as well. So we love this space. And we've been putting a lot of our investments over the last several years. It's targeted at the biopharma space, and you see it reflected now in the growth rates and actually how we're shifting the mix of our pharma business, both in the lab, but also plays outside the lab. And, Jacob, I know you've got a lot of interesting things happening there. Yeah, thanks for that, Mike.

And, you know, we are very interesting in the bioprocessing space, especially from the analytical instruments perspective, where we truly believe that instruments will start to move into the manufacturing. You know, historically, we have had in the small molecule space, the QAQC sitting in a different lab, and now we see the opportunity to bring AdLine Online, LC and LC-MS technologies into the bioprocessing space itself, manufacturing space itself, and hence we have decided and we have made collaborations with leaders in that space, Merck being one of them, where we're developing, of course, based on our individual strengths, new solutions to address But we're looking at the multiple partnerships in this space here, and we are really bullish around that.

Great. Thanks so much.

You're quite welcome.

The next question is from the line of Patrick Donnelly with Citi. Please proceed.

Hey, guys. Thanks for taking the questions.

Hey, Patrick.

Sure. Mike, maybe one for you. Hey, how are you? Maybe one for you just on China specifically in terms of the linearity of the border. Can you just talk about, I mean, it sounds like things clearly picked up as we went, obviously, on the supply side. You guys kind of got back online. Can you talk about the demand environment as well? You know, obviously, you guys are the only ones who have kind of a full July in the quarter. So, just curious what kind of ramp you saw throughout the quarter. And then, again, as we work our way through August here, I mean, it certainly seems like the order growth has been encouraging. But maybe just talk about how things trended there throughout the quarter and kind of going into this quarter.

Great question. Yeah, sure. Happy to do so. I think it's a great question. And I'll parse my response into two areas, orders and revenue. So I think I would say the order intake throughout the quarter was there. It was, you know, linear, smooth, no big lumpiness. In fact, that's what we saw in the second quarter as well. So now, as you know, the revenue side has been a different story because, you know, the ability to get product in and out of China as well as produced in China was affected by the COVID-19 shutdowns. That's where we saw maybe a slower start. you know, first few weeks of Q3, but then the team's efforts really started paying off when we were able to get back into our facilities. So I think the ramp rate of revenue looked at a little different profile throughout the quarter. And Bob, I don't know if you did anything.

Yeah, no, that's exactly right. I mean, if you think about the months in our quarters, May was very light. As we talked about, we were ramping up, and I think we exited May at like 25% capacity. And then the teams really started kicking it in gear as the COVID restrictions started to ease. And July was very strong as they not only got the production up to full capacity, but then were able to not only satisfy existing demand, but also some of that deferral to bring

it in. And they were really focused on meeting the expectations of our customers who wanted the product uh and as i mentioned earlier in my in my early comments you know we had teams working a lot of overtime working in the factories over the weekend so really some heroics that got us back

on track yep it's encouraging to hear and then bob maybe one for you just on the on the margin side you talked about pricing a few times on the call um can you just talk about i guess the flow through to the margin side you basically said it's offsetting some of the increasing costs maybe just talk about the give and take on that front in terms of the pricing increases the cost increases and how we should think about kind of that algorithm going forward on the margin piece.

Yeah, I think if you looked at our, you know, 150 basis points year on year, it was roughly 50 basis points in gross margin and then 100 basis points in leverage on the SG&A OPEX side. And I think if you looked at that, you know, there was some productivity, as I mentioned. Price probably would have kept things flat, and then the other 50 basis points were a benefit of some productivity that the OFS team did and the volume. You know, that's the thing that really, I think, really helped drive a benefit in gross margin is just the amount of product that was able to be produced through the factories. And so that, I think, think about pricing is covering our costs. And then if, you know, those incrementals around, you know, better than expected revenues drove the margin improvement on the gross margin side. what i would say is you know we continue to leverage the opex side to to drive our our productivity you know as a company overall helpful thank you guys you're welcome thank you

the last question is from the line of 10 daily with wealth fargo please proceed hey everyone

thanks for the time um quickly wanted to touch back on um nasd here so you know if we're just thinking about when we're past the train B build out things have kind of normalized a bit you're starting to leverage those investments and upfront costs here what the clean run rate margin profile to think about in that business you know I guess initially when we get past that capacity build out

period it's in that question brought a smile to Bob's face I'll let him answer that I would say very good yeah I'll leave it at that we love the company

average right yes yep all right I can work with that so you know another strong quarter of buybacks you know just thinking about the go-forward outlook how should we be you know despising this in our heads you know the 1 billion you've already hit in 22 with a quarter left to go is that a good base for the out years just kind of just general thoughts on the capital allocation hierarchy you you know, as some assets are probably getting a bit cheaper and more attractive here.

Yeah, I mean, I think our methodology really hasn't changed. You know, I think what we do is invest for growth first internally, and then we look for value accruing M&A. But if there isn't anything imminent, we're also not going to keep cash on the books. And, you know, if I looked at historically, we've generated roughly 2% of earnings per share growth kind of below the line through share repurchase and I think that that's probably a fair way to look at it going forward but you know in terms of to be very clear our priorities are investing for growth internally and then M&A before we would do share repurchases and we're also committed to continuing to grow our dividend as well

all right great that's it for mine thank you you're quite welcome there are no

additional questions waiting at this time so I will turn the call back over

to me for closing remarks thanks Hannah and thanks everyone for joining with that we would like to wrap up the call for today have a great rest of the day

that concludes today's call thank you for your participation you may now disconnect your line