Earnings Call Transcript - A Q1 2023

Operator, Operator

Ladies and gentlemen, welcome to the Agilent Technologies Q1 2023 Earnings Call. My name is Bill and I will be coordinating your call today. I will now hand you over to your host, Parmeet Ahuja, to begin the conference. Parmeet, please go ahead.

Parmeet Ahuja, Host

Thank you, Bill and welcome, everyone, to Agilent's conference call for the first quarter of fiscal year 2023. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO. Joining in the Q&A after Mike and Bob's comments will be Jacob Thaysen, President of the Agilent Life Science and Applied Markets Group; Sam Raha, President of the Agilent Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news 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 www.investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Our guidance is based on forecasted currency exchange rates. During this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. And now, I'd like to turn the call over to Mike.

Mike McMullen, CEO

Thanks, Parmeet. And thanks, everyone, for joining our call today. The Agilent team delivered an excellent start to 2023, exceeding both top and bottom line expectations. Q1 revenues of $1.76 billion are up 10% core. Agilent's broad-based portfolio and resilient growth model were on full display during the quarter, with growth across all end markets and geographic regions. Operating margin in the quarter was 27.1%, up 80 basis points. Earnings per share of $1.37 were up 13%. Let's now take a closer look at our first quarter performance, starting with end market highlights. Chemicals and Advanced Materials led the way for us with another outstanding quarter, delivering 14% core growth with strength across all geographies. The strength in our pharma business continues and is up 11%, with both large and small molecules growing nicely. This is on top of 17% growth last year. Our environmental business grew 12%, while the academic, government, and food markets both grew 8%. On a geographic basis, China led the way again. Our China team continued their record of strong execution, overcoming any disruption associated with COVID and delivered 13% growth during the quarter, exceeding our expectations. In Europe, we also delivered stronger-than-expected results, growing 10%. The Americas showed solid results with 8% growth. Looking at our performance by business unit, the Life Sciences and Applied Markets Group delivered revenues of $1.03 billion, up 11% core. LSAG delivered growth across all end markets and regions. Our LC and LC/MS platforms continued their strong performance during the quarter, growing faster than the market at 16%. Demand in the Chemicals and Advanced Materials end market continues to be strong, particularly for materials used in manufacturing semiconductors and batteries. Our Spectroscopy business grew more than 20% in the quarter, and we continue to strengthen our base in spectroscopy across multiple end markets. In Q1, we announced an appointment in the Insight200M. This system is used at checkpoints throughout the London Heathrow Airport to enhance security and ensure passenger safety. The CrossLab Group posted revenue of $381 million in Q1. This is up 13% core as the team continues to take advantage of record instrument placements over the past 2 years along with continued growth in attachment rates. Our team's deep knowledge of customer lab operations continues to drive consistently high levels of customer satisfaction. The breadth and diversity of our product offerings is driving record renewals for support contracts. At the same time, our Enterprise Services business continued its strong momentum, driving growth and converting competitive accounts. The Diagnostics and Genomics Group delivered revenues of $342 million, up 5% core. Our pathology-related business performed well with double-digit growth led by the Americas and Europe. NASD posted another strong quarter, growing 22%. Our Train B manufacturing expansion remains on track to come online mid-calendar year. In January, we announced an additional $725 million expansion of our NASD facility that will double our oligo manufacturing capacity. Just two weeks ago, we were pleased to have the Governor of Colorado join us in our groundbreaking ceremony at the Frederick site. In addition to organic investments, we continue to invest externally in new technologies and partnerships. In the quarter, we welcomed the Avida Biomed team into Agilent, further enhancing our genomics capabilities. Avida is an early-stage life sciences company designed to assist clinical researchers using NGS approaches in the study of cancer. We also continue to partner with new technology platform companies to drive our solutions in the marketplace. This quarter, we announced a partnership with Akoya Biosciences to combine our companion diagnostic and IHC workload expertise with their solutions to drive multiplex tissue assay development for biopharma. In addition to these business group highlights, Agilent was again recognized among the top 100 most just companies in the U.S. by Just Capital and CNBC. We are very proud to be the leader in the medical equipment and services industry for our treatment of employees and focus on customer relations. The Agilent team navigated challenging market uncertainties in Q1 and once again produced excellent results. It was a great start to the year. Q1 was another outstanding example of the work we've done to build a resilient company with multiple growth drivers. Those growth drivers, created through targeted investments that aim to expand and enhance our business in high-growth areas, are at the heart of our Build and Buy growth strategy. As we look ahead to Q2, we remain confident in the strength and resilience of our business. We have an unstoppable One Agilent team that continues to execute at an extremely high level and is well prepared to deal with any challenges they face. Given the strong start to the year, we are raising our full-year core revenue and EPS guidance while also keeping a close eye on macroeconomic conditions. I will provide the detail on our overall outlook but overall, we remain convinced our strategic focus and unmatched execution capabilities will continue to drive strong results. Thank you for joining us today. And now, Bob, over to you.

Robert McMahon, CFO

Thanks, Mike and good afternoon, everyone. In my remarks today, I'll provide some additional details on revenue in the quarter as well as take you through the income statement and other key financial metrics. I'll then finish up with our updated full year guidance and initial guidance for the second quarter. Unless otherwise noted, my remarks will focus on non-GAAP results. We are extremely pleased with our Q1 performance. It was a very solid start to the year. Q1 revenue was $1.76 billion, exceeding our expectations. Revenues were up 10% core and 5% on a reported basis. Currency was a 5-point headwind, which was an improvement from the beginning of the quarter, while the M&A contribution was as we expected. Pricing for the quarter was higher than the full-year forecast as well. Now I'd like to share some additional detail on our end markets. Results in our largest market, pharma, were again very strong. Pharma grew 11% following 17% growth last year. Performance was solid across both small and large molecules. Small molecule grew 12%, while large molecule grew 9%. And as Mike mentioned, Chemicals and Advanced Materials also continued to be very strong, growing 14% during the quarter on top of 15% growth last year. The chemical and energy subsegments of the market are doing well while the advanced materials market continues to deliver outsized growth. Semiconductors and batteries are driving demand, helped by government investment in this area. The food market grew 8% during the quarter, driven by double-digit growth in China. The environmental and forensics business grew 12%, led by the Americas as increased testing for PFAS chemicals drives customer investment in this area, and recently approved U.S. legislation prompts broad spending in the environmental market. Our business in the diagnostics and clinical market grew 4% versus 11% growth last year. Pathology led the way for us here, partially offset by industry-wide challenges in the genomics market. The academia and government market was up 8%, led by LCs and services. Regionally, Europe and Asia showed strong results. On a geographic basis, the China team delivered 13% growth, and Europe grew 10%, both exceeding expectations. The Americas had another solid quarter coming in at 8%, in line with our expectations. Now let's turn to the rest of the P&L. First quarter gross margin was 56.5%, up 40 basis points from a year ago. The gross margin performance, coupled with good cost discipline and SG&A helped drive our operating margin to 27.1%, up 80 basis points from last year. Below the line, our tax rate was 13.75% for the quarter and we had 297 million diluted shares outstanding, both as expected. And putting it all together, earnings per share were $1.37, up 13% from a year ago. In summary, Q1 ended with 10% core top line growth and 13% earnings per share growth, a very good start to the year. Now some metrics on cash flow and our balance sheet. In Q1, we generated $296 million in operating cash flow, up 16% versus last year, while investing $76 million in CapEx. CapEx spending continues to be driven by our scale-up of our Train B manufacturing line and other capacity expansion projects. In the quarter, we returned $142 million to shareholders through $67 million in dividends and by repurchasing shares worth $75 million. We also announced we're increasing our dividend by 7%, along with a new $2 billion share repurchase authorization continuing our successful balanced approach to capital deployment. Our balance sheet continues to remain healthy as we ended the quarter with a net leverage ratio of 0.8. Now let's move to our revised outlook for the year and the upcoming quarter. The macroeconomic environment remains dynamic, and interest rates and currencies continue to be volatile. However, given the good start to the year, we are increasing our full-year revenue to a range of $7.03 billion to $7.10 billion. This increase updates our full-year core revenue guidance to a range of 5.5% to 6.5%, increasing the midpoint of our guidance to 6%. We've also seen the dollar weaken against major currencies in the first quarter, although it has rebounded somewhat in February. As a result, the full-year guide reflects $100 million of favorable currency movements since our initial guide in November. For the full year, we still expect currency to be an almost 300 basis point headwind to reported growth. Additionally, we're raising our full-year EPS guidance to a new range of $5.65 to $5.70 per share. Lastly, given the recently announced NASD expansion to double our oligo manufacturing capacity, we are updating our forecasted capital spending for the year to $500 million, up $200 million from our guidance at the beginning of the year. Now turning to Q2, we expect revenue in the range of $1.655 billion to $1.680 billion. This represents core growth of 6% to 7.5% and reported growth of 3% to 4.5%. Currency is expected to be a headwind of 3.1 points, while M&A will contribute 0.1 points of growth in Q2 as it did in Q1. Second-quarter non-GAAP earnings per share are expected to be between $1.24 and $1.27, representing growth of 10% to 12% versus the prior year. I'm pleased with how the team has delivered in the first quarter. We are focused on the things we can control. Our team is driving strong execution in the marketplace, and coupled with our broad portfolio of products and services, we expect to continue to grow faster than the market as we move through the year.

Parmeet Ahuja, Host

Thanks, Bob. Bill, if you could please provide instructions for the Q&A now.

Operator, Operator

We take our first question this afternoon from Matt Sykes of Goldman Sachs.

Matt Sykes, Analyst

Mike and Bob, maybe we'll start on ACG, just given the quarter that it had and the comp it was facing last year. You've talked in the past about areas of under-penetration. I think China was a region you called out. Could you just maybe give us a mark-to-market on where you feel from sort of an end market and regional standpoint, there's still a lot of room for that growth in ACG if we see it continue throughout this year and into next?

Mike McMullen, CEO

Yes. Thanks, Matt. First of all, I appreciate the recognition of the numbers we posted, and we think there's still a lot more opportunity in front of us. I want to provide a little bit more color on where those opportunities may lie.

Padraig McDonnell, President, Agilent CrossLab Group

Yes. I think the broad product offering across the hardware platforms, where we've had value to customer operations, has been broad-based. We see a lot of our offerings, particularly around asset utilization and so on, being used outside pharma in different industries, and we see that as an opportunity to grow. I think also, given our big installed base and our ability to attach in different markets and sectors, is going to continue as we move through the year.

Mike McMullen, CEO

Yes, I think we see a lot of opportunity, obviously, in China, and that's something we've flagged in the past. The other area that we're pointing to is where a lot of the growth has historically been centered in the pharma space. We're seeing growing interest in the CAM space as well. So from an end market perspective, that's an area we would expect to see some more growth. Geographically, the China story still hasn't fully played out yet. I would also remind you of some points we made in the call, record renewals for support contracts and clearly taking share at the enterprise level. Those attachment rates we keep talking about are going up as well. So a lot to like here.

Matt Sykes, Analyst

Great. And then maybe just kind of refresh us on your outlook for instruments. I mean, you've kind of guided to a mid-single-digit growth for the full year. Given that we're a little ways into this year, you probably have a little more visibility on that backlog. How are you thinking about sort of the back half for instruments overall?

Mike McMullen, CEO

Yes. First of all, let me take a bit on this with Bob, but let me talk about the backlog first of all. I think it's very important to remind the audience that the quality of our backlog remains extremely high. You can see the great work of our team working down the backlog, and we're not seeing any cancellations or anything pulling out of backlog. That gives us a level of confidence around the revenues we can forecast. There isn't anything new to talk about today regarding the second half; we still want to acknowledge the uncertainty about it. So really no new news here. It's very consistent with what we talked about in November. You're going to hear a lot about normalization of growth rates and deal cycle times from us. The funnels remain healthy, and the deal cycle times are more toward historical levels. Bob, I don't know if you'd add anything to that?

Robert McMahon, CFO

No, I think you're right. I mean, we had a very strong start to the year with double-digit growth from LSAG, but we will be going up against very tough comps in the back half of the year with the recovery of the business. But as Mike said, we are pleased with the good start, but nothing material has changed.

Operator, Operator

The next question comes from Brandon Couillard of Jefferies.

Brandon Couillard, Analyst

Mike, I think you said China was up 13% in the quarter. That's a lot better than we've heard from some of the other counterparts. Could you unpack that a little bit for us? Could it perhaps have been due to the fact that you're one month later? Maybe talk about linearity in China through the quarter and if your outlook for the full year has changed at all.

Mike McMullen, CEO

Well, I'm glad you noticed, Brandon, and if you were in the conference room here, you would see a lot of smiles in the room here because we're really proud of what the team has done here. I don't think it's all a timing issue. It's about execution and the capability of this team to execute because our teams were hit with waves of COVID during the quarter. We know how to execute and we've also enhanced our ability to interact digitally with customers. So while people may not have been able to go to the office or customer sites, they were able to support our customers. We were just delighted with the performance out of China in Q1. Bob, I think it was a broad-based story. We had growth in double digits in pharma, chemicals, and food. So we were really pleased with the results. I know our narrative is different than what others are saying, but I also think our team in China capability is quite different.

Brandon Couillard, Analyst

Got it. And then on the NASD Train C expansion, could you just talk about the timeline for that build-out? A good amount of Train B was already earmarked for customer demand. Is the same case this time around for the current expansion?

Mike McMullen, CEO

Yes. I want to tag team a bit with this with Sam and myself and Bob. We refer to Train B, that's the latest expansion that's coming online this year. We had a chance to see that firsthand when we went to the groundbreaking ceremony for what we call Project Endeavor. It looks really good. We're on track for that mid-calendar year go live and we have a full book of business; it’s just a matter of ramping up. And again, projects up.

Sam Raha, President, Agilent Diagnostics and Genomics Group

Yes, happy to do so. As you mentioned, Mike, we're tracking right on plan for Train B, midyear coming online. It was great to see firsthand; the facility is looking really nice. A lot of validation work happening, miles of stainless steel piping, and other infrastructure that’s being put in place. We opened the groundbreaking ceremony for Trains C and D. These projects will take some time but we have started the process. The first revenue from that would be coming online in 2026, and remember, both trains are dedicated to siRNA and antisense capabilities while expanding our ability to serve customers with single-guide RNA or CRISPR. So we're excited about the progress in the NASD team under Brian Crude's leadership.

Mike McMullen, CEO

Sam, unless you're going to commit to me for an earlier go live, I think you meant to say '26, right?

Sam Raha, President, Agilent Diagnostics and Genomics Group

Did I say '25? Thank you, Mike, for catching that. You’re usually the one that accelerates me instead of the other way around. Indeed, it’s '26. Thanks for catching that.

Robert McMahon, CFO

Yes, and Brandon, to your point around purchase orders and so forth, we have good visibility into the pipeline, but we haven't started taking orders given the time frame there. We have high confidence that we wouldn't be putting in $725 million into the expansion.

Vijay Kumar, Analyst

Congrats on a good print here, Mike. My first question is about the second quarter guidance. 6% to 7.5% organic— that's a sequential step down of 250 basis points at the high end. I guess the comps get easier. Is there anything in the second quarter? Was there any timing of revenues that got to fall to Q1? Or any impact from China, anything that can explain this sequential guide for Q2?

Mike McMullen, CEO

Yes. I'll pass this over to Bob for additional detail, but I think the answer is no. There isn't anything unusual about movements between the quarters. Bob, I think what we're going to do is set up another guide in Q2 that was above our full-year guide. So that was the process there.

Robert McMahon, CFO

That's exactly right. I mean, we just came off a 10%, and still 6% to 7.5% is still significantly above where we're forecasting the full year. I think we feel good, and I think it’s consistent with how we have guided in the past.

Vijay Kumar, Analyst

So have to say the second quarter is a prudent guide. Is that a fair comment?

Mike McMullen, CEO

That is correct.

Vijay Kumar, Analyst

Fantastic. And I did have one on the NASD and Novartis. I think they're pulling their API manufacturing in-house. How big is Novartis as a customer? What's the pipeline looking like in ASD and uses at risk?

Mike McMullen, CEO

Yes. I'll tag team on this. I'll lead, and Sam, you can add some additional color. First of all, the announcement from Novartis is no new news. That has always been part of the plan, and we actually have contractual agreements relative to how much of the on-market demand we get, so that's all well known. Novartis is one of the many customers we have in this business, and we really have worked hard to build a diversified book of business. We talk a lot about Novartis, and I talk a lot about Alnylam because we're allowed to discuss those programs, but we have a much broader business base. That gives us a lot of confidence as we move forward because we have multiple programs that we’re supporting. We know not every one of them is going to hit, but we know that there are a lot of success rates as well.

Robert McMahon, CFO

Let me just add something. I would say this means nothing to our expansion. I mean, I want to be clear about that. I think we feel good about our capacity constraints. We’ve had more orders than we can satisfy, and I think that continues to be the case. We feel extremely good about our overall technology and our position in the marketplace.

Mike McMullen, CEO

Thanks, Bob. I appreciate that build.

Sam Raha, President, Agilent Diagnostics and Genomics Group

Mike, if I can just add a couple of quick things. We think the therapeutic oligo market for the suppliers that we are is $1 billion today, growing to $2.4 billion by 2027. What’s really encouraging about the market is the number of molecules that are advancing. Just to give you a little bit more color, we’re doing work with over 30 pharma partners today and on dozens of programs at various stages. The pipeline of programs we’re working on has the potential of being molecules for broad populations, and we are excited about that.

Puneet Souda, Analyst

So Bob, I don't know if I heard it on the call, the contribution from pricing in the quarter and for the full year. If I'm correct, you're still expecting 3% pricing contribution this year, and that would imply a 3% volume contribution, which it appears below historical levels for what Agilent has grown. So just maybe we're trying to understand, given the tailwinds you're seeing in China, NASD, and other areas, so is there anything you're seeing beyond tougher compares that are emerging in the second half?

Robert McMahon, CFO

No, it’s a great question. I did make a quick reference in the prepared remarks. Actually, Q1 was higher than the overall 3% as expected. We are still planning and forecasting that 3% price contribution for the full year of FY '23. That would speak to roughly a 3-point volume. What I would say is we're taking it one quarter at a time. As we've said, we're dealing with uncertainties around macro, so our forecast guidance is prudent. But I wouldn't say anything has materially changed since the beginning of the year from that standpoint. I've been very pleased with our ability to maintain pricing throughout the last several quarters, and I would expect that to continue going forward.

Puneet Souda, Analyst

Okay. That’s helpful. And then on the Lunar New Year, is that part of—is that baked into the guide as well? And I just wanted to clarify on China, I mean obviously, you’ve heard about the stimulus. Agilent is listed—one of the companies listed within the document that was put out for the loan stimulus for China. This is sizable. How are you thinking about it? You obviously have the longest and most legacy position in China. So just trying to understand what does that mean for China growth in 2023 and '24.

Robert McMahon, CFO

The impact of Lunar New Year was noted both in Q1 and reflected in Q2. It was roughly a 0.5 point headwind in Q1, and that has come back to us in Q2. It was planned. Regarding the stimulus, we've been waiting to see how it plays out. At this point, we really haven’t assumed anything in our guide or China growth relative to the stimulus. If it does get deployed and comes our way, then that will be an upside to our current forecast.

Mike McMullen, CEO

I think Puneet, you said it well. Our business in China continues to be very strong, and I couldn't be prouder of how the team delivered in Q1. That strength in performance is continuing through the second half of last year, and we expect that to carry on here in Q2 as well.

Rachel Vatnsdal, Analyst

Congrats on the quarter. On semiconductors, one of your peers flagged that they were expecting the semiconductor market to be soft throughout 2023, just as semiconductor customers faced a reset given the macro environment. You mentioned strength in the semiconductor segment. Can you walk us through which part of the market you play in semis? And are you seeing any of the softness that one of your peers has flagged?

Mike McMullen, CEO

Yes, I'll start and then we'll turn it over to Jacob to give some additional color about where we play and so forth. But I would say the short answer is no. Our spectroscopy business grew over 20% in the quarter, and we're still seeing strong demand. Jacob, would you like to provide some more color?

Jacob Thaysen, President, Agilent Life Science and Applied Markets Group

Yes, absolutely. I would say we have the strongest portfolio in atomic spectroscopy for this market in semis, along with material science. We continue to see demand from the semiconductor industry, both in the fabs and upstream for all the fine chemicals that go into the fabs. They require the same level of QC testing like they do in the labs. Thus, they are using the same instruments. We expect this to continue for a while. We're also seeing a lot of interest in the lithium batteries, where we have strong demand, not only for our spectroscopy business but across our portfolio that includes LCs, GCs, and CMS. So we are excited about that space and see continued growth there.

Mike McMullen, CEO

And Jacob, I think the point you made earlier about the funding environment— we’re seeing government funding coming into various parts of the semiconductor industry, which has benefited us.

Rachel Vatnsdal, Analyst

Shifting over to the pharma biotech side, the small molecule grew faster than large molecules this quarter. You've talked previously about the growth in small molecules being driven from instrument purchases delayed back in 2018, 2019. Can you walk us through what inning we’re in with that catch-up spend? And how long can you sustain outpaced growth in small molecules before it normalizes?

Mike McMullen, CEO

Sure, Rachel. Do I dare pass this question to Jacob for a baseball analogy here? But I think Jacob has a great print on LC and LC/MS which was up 17%, clearly outpacing the market as we saw strong strength in small molecules this quarter.

Jacob Thaysen, President, Agilent Life Science and Applied Markets Group

I think this isn't a baseball game; it's a continuous opportunity that we have. We see a lot of opportunities and continue to believe there is a sizable market for small molecules. Current performance reflects the investments we have made in our portfolio, particularly on LC and CMS, so it's a strategic focus we have on robust, reliable instruments. We focus on our customers’ pain points regarding performance, user-friendliness, uptime, etc. Our commercial team connects our consumables and service contracts to the instruments really well, continuing to make this a great business for Agilent.

Robert McMahon, CFO

Rachel, maybe—this is Bob, I can add a few points because we talked at the beginning of the year about this strong performance normalizing this year. We also said if it continues, we will take it, but we still think this will normalize over time. The portfolio Jacob and the team have speaks well to us growing faster than the market.

Unidentified Analyst, Analyst

Could you just dive a bit more into the latest on what you're seeing in Europe? You've expressed some caution, particularly in chemicals on the last call. Can you touch on that as well?

Mike McMullen, CEO

I hope it came through during the call remarks. We were delighted with the print in Europe in the first quarter, exceeding our expectations. The strength across the marketplace was good. Five of our six end markets were growing high single digits or better. The standouts were actually the chemical markets along with diagnostics. We continue to watch investment plans, particularly for our large accounts in the chemical and pharma spaces. We're off to a really good start, but that remains a watch area for us. But overall, we're delighted with the broad-based growth we had.

Padraig McDonnell, President, Agilent CrossLab Group

I think you said it all, Mike. Five out of six markets, growing high single digits. The team has really worked together to take share across many areas. Our focus on attach rates in both services and consumables has really benefited us as well.

Mike McMullen, CEO

I think we don’t talk about weather, but the more favorable weather environment in Europe has eased pressure on customers relating to energy costs and demand, which has been positive, but we're still keeping an eye on things.

Unidentified Analyst, Analyst

Could you discuss your margin outlook and pacing across 2023? What's the level of expansion potential going forward?

Mike McMullen, CEO

You want to take that, Bob?

Robert McMahon, CFO

Yes. I still have gas in the tank. Despite the inflationary environment, we're still managing to grow our margins. You saw the nice balance here this quarter with about half coming through gross margin and half coming through OpEx. As we think about it going forward, I think 50 to 100 basis points over the next several years is a reasonable estimate for margin expansion.

Dan Brennan, Analyst

On the Chemical and Advanced Materials segment, great growth in the quarter. Just wondering, with your new higher guide for the year, are you assuming something above mid-single-digit outlook that you previously guided? How did the growth break out this quarter between advanced material and then chemical and energy?

Robert McMahon, CFO

It's a great question, Dan. With our revised guide, we've ticked it up a bit, given the strong performance in Q1. We'll take this as we've had good growth across all submarkets in our chemistry market. Chemical and energy markets were up high single digits and advanced materials grew in the high 20s. This is continued strength, driven by investment and the power of our portfolio to supply critical tools and instrumentation into markets that can continue to expand. So we expect to continue high single digits and the high 20s growth throughout the remainder of the quarter.

Dan Brennan, Analyst

Great. And maybe just one on the balance sheet. It’s in great shape, leverage is very low. What are you seeing in the M&A environment? Just wondering if you've identified any interesting opportunities and your appetite to do something bigger.

Mike McMullen, CEO

Yes. I'm glad you asked because we've been looking for the right fit. We believe the M&A environment is much more favorable than it was a year ago. It’s now more of a buyer's market; people are willing to come off their last round. We have nothing to announce but we are interested in finding opportunities to augment our core organic business. Seeking the right fit is critical for us; our buy side is optionality. We'll prosper with all the bets we have, but if the right thing appears, we will act. We also want to avoid buyer's remorse. We've been pleased with the deals we've done to date, and will uphold that framework going forward.

Patrick Donnelly, Analyst

Could you provide some color on the order growth? What did the order growth look like in the quarter? Any color about order growth versus revenue growth would be helpful.

Mike McMullen, CEO

Let me summarize and then Bob, feel free to jump in. We don’t specifically provide book-to-bill ratios, but orders for the quarter were greater than revenue. We continue to grow orders with particular strength in ASD and services. On the instrument side, we’ve reduced our record backlog as we focused on meeting customer shipment requirements. Thanks to the hard work of our order fulfillment team, we’ve returned to a normal flow of shipment times and delivery timings. All this gives Bob and me a solid sense of predictability around revenue from that backlog.

Robert McMahon, CFO

As Mike mentioned, the backlog remains healthy, and we haven’t seen anyone back out. That’s just normal activity.

Mike McMullen, CEO

But I would emphasize, deal cycles are reverting toward the historic norms, which is a normalization, particularly in the analytical instrumentation marketplace. You’ve been calling out the environmental spend, PFAS testing. I know we’re all excited to see some infrastructure dollars coming through in the U.S. Can you talk about what you’re seeing?

Jacob Thaysen, President, Agilent Life Science and Applied Markets Group

Yes, absolutely. We see a lot of opportunities in PFAS. Initially focused on finding PFAS in the water supply, now it is expanding to food and other areas. We are still in the early phases of growth, and with the U.S. infrastructure build putting $4 billion aside for PFAS testing, we have leading solutions in that area. PFAS is hard to measure, requiring high-end instrumentation, and we continue to put out high-quality solutions. With anticipated investment in environmental sectors over the next decade, we are very excited about this area.

Jack Meehan, Analyst

Wanted to spend time on DGG. Starting with pathology, so double-digit growth was stronger than we've seen in the last few quarters. Was there anything you noticed in terms of the uptick in the quarter?

Mike McMullen, CEO

Jack, I’m going to pass this over to Sam since he’s with the pathology team right now. You can get the latest and greatest on the ground from Glostrup.

Sam Raha, President, Agilent Diagnostics and Genomics Group

Yes, happy to provide that. We continue to see hospitals and healthcare systems working through COVID and prioritizing cancer diagnostics. IHC solutions remain well-received, including companion diagnostics in the market. We see good traction for our advanced staining systems. Geographically, our successes span Europe and the Americas.

Jack Meehan, Analyst

Great. And just on the genomics side, I was backing into sort of like a high-teens decline in the quarter. Can you talk about what you’re seeing in that market?

Mike McMullen, CEO

Bob, I don’t remember the exact number but it was down, but not to that extent.

Robert McMahon, CFO

Yes, it was down close to double digits, but not high teens.

Mike McMullen, CEO

I'm going to have Sam talk about this. We're seeing some transitory disruptions in the diagnostics side of genomics. There are a lot of diagnostic firms where we provide solutions into their assays that are undergoing changes.

Sam Raha, President, Agilent Diagnostics and Genomics Group

There's a lot of public information about restructuring or operational challenges that several customers from research into technology-driven genomic companies are experiencing. That's why we've seen conservatism in purchase levels, working down on excess safety stock. While we've seen a little hesitation in purchasing patterns, at AGBT in February, we found good interest in our SureSelect cancer CGP.

Josh Waldman, Analyst

Could you provide a bit more insight into the considerations that went into the core growth guide? I was surprised we didn't see more of the Q1 upside flow through to the full year. Just trying to understand if this is backlog work-down benefits or something else.

Mike McMullen, CEO

Yes. Bob, I think the headline is recognition of the continued uncertainty about the back half.

Robert McMahon, CFO

I think the way to think about this is that we raised the midpoint of guidance while delivering 10% in Q1. Q2 is higher than the full-year guide, so we’re taking it one quarter at a time, given some uncertainties we are seeing. But we'll manage cautiously.

Mike McMullen, CEO

This seems to correspond with pharma accounts getting clarity on full-year budgets. Can you update us on what you're hearing about instrument budgets and purchasing plans for '23?

Padraig McDonnell, President, Agilent CrossLab Group

Our funnels are very stable right now. Pharma budgets are typically set during this time of year. We'll be watching closely how this progresses into the second half, but for now, no change.

Mike McMullen, CEO

We probably haven't seen any surprises on those accounts, but they aren't aggressively releasing either, which is why you hear us talking about deal cycle time normalizations.

Lisa Garcia, Analyst

I wanted to talk about Cell Analysis, which is a $400 million business for you at this point. I would love to hear about performance within that segment. In a recent presentation, it indicated that pharma is the largest customer set, followed by research. What are you seeing there?

Mike McMullen, CEO

I'm excited to answer your question. We had a good start to the year in cell analysis, and we're really proud of what we've built over the past few years.

Jacob Thaysen, President, Agilent Life Science and Applied Markets Group

We continue to see opportunities in biopharma and academia, which has resulted from diversifying the business. We've penetrated the biopharma space over the past few years. There are abundant opportunities for the high-end business; this is specifically true in understanding the immune system, IL-6 and CAR-T. So, we remain optimistic about the future of this area.

Robert McMahon, CFO

Additionally, we saw rates of growth faster than the overall company and faster than LSAG.

Mike McMullen, CEO

Our services and consumables attach rate crossed over the 30% line. We have significant opportunity in that space, and one point of attach rate is worth about $30 million annually. We know our customers have adopted workflow solutions integrated with the instruments, allowing us, with our single commercial organization, to better demonstrate the value and attach more services and consumables. Our focus on solution selling has really paid off, resulting in an increase in both service and consumable attach rates.

Padraig McDonnell, President, Agilent CrossLab Group

Correct. The overall attach rate in services and consumables is now in the low 30s, representing a 2% increase. We expect that to grow further as we move forward.

Mike McMullen, CEO

And I’d be remiss if I didn’t have Jacob talk about what's going on in attachment rates to consumables given the workflow solutions we've implemented. We made some changes organizationally, but ACG’s strategy in connecting services and consumables remains intact.

Jacob Thaysen, President, Agilent Life Science and Applied Markets Group

Indeed. We’re seeing an uptick in our attach rates. In the last couple of years, we’ve seen a huge investment in increasing attach rates for our consumables, which is exciting.

Operator, Operator

We'll go next now to Paul Knight of KeyBanc.

Paul Knight, Analyst

On the RNA or the oligo production business, it looks like we’ve had 4 or 5 here in the last 4 years or so dominated by Alnylam and Novartis. I’m assuming that you're expanding beyond that core of these customers. So, what's your position in the market? Are you the dominant vendor in this space? And two, does your number of partners suggest you're going beyond Novartis and Alnylam?

Mike McMullen, CEO

I'm really glad you are still on just to get your question in before the close. We've built a broad base of business beyond those 2 customers, and we've been very proud of that.

Robert McMahon, CFO

We are indeed the market leader now.

Mike McMullen, CEO

In fact, we crossed over in siRNA and are aiming to expand aggressively into the CRISPR space where we do quite well.

Sam Raha, President, Agilent Diagnostics and Genomics Group

To build on that point, the number of programs in various stages has literally doubled over the last four years. We’re currently working with over 30 pharma partners and see the market maturing with approvals increasing. So there’s a lot of momentum here.

Parmeet Ahuja, Host

Thanks, Bill. With that, we would like to end the call for today. Have a great rest of the day, everyone.

Operator, Operator

Thank you, Parmeet. And ladies and gentlemen, this concludes today's call. Thank you again for joining, and you may now disconnect your lines.