Agilent Technologies, Inc. (A) September 23, 2026 Conference Transcript

Please welcome from Agilent Technologies, Porig McDonnell, Chief Executive Officer, and Adam Elenoff, Chief Financial Officer, interviewed by Casey Woodring at J.P. Morgan.

Casey Woodring, the Life Science Tools and Diagnostics Analyst here at J.P. Morgan. Pleased to be joined by Agilent's management team, CEO Porig McDonnell, Adam Elenoff, CFO. Thank you guys for joining us here. I know it's a long trip away from home. Maybe to kick it off, you know, Porg, we've seen strong results the last couple of quarters, leading to upwards guidance revisions on both the top and bottom line. Maybe could you just speak to the structural changes that you've instituted at Agilent since you announced the Ignite transformation in late 2024? And, you know, as you look at the momentum that you're seeing across the business here, how much of it is simply a function of better end market dynamics versus, you know, specific Agilent or, you know, dynamics specific to Agilent?

Yeah, thanks, Casey. Thanks for having us. So as you see markets steadily improving, what we've been doing over the last two years is really compounding our capability with Ignite, which has moved from a kind of transformation to an overall operating system change. And that's how we're allocating resources within the company, how we're at all facets around our operational business and also how we're looking at innovation. And that is really showing true in the numbers. But I think if you go back and you look at the two year stack, you know, if you look at our growth rates and two years ago, it was like literally flat. But now we're up to, you know, almost 10 percent growth, 11 percent growth. Our operating margin expansion is over 100 bps. And again, that's in the face of a lot of tariff headwinds. Again, that's driven by the capability we've driven. EPS, again, if you go back two years ago, it was a 3 percent decline. 25 was 6 percent growth. And now we're, you know, 10 percent on the EPS side. And again, we had a tax headwind on that side. So if you look at that, you see the progression over the two years, you see that we're compounding our capability in a very different way. And I would say that it's not only end market improving, but we're seeing it through our share gains, you're seeing it through the innovation we're getting. And of course, you're seeing replacement cycles, et cetera, driving this growth. and in the next phase you know as we built a company in the last two years with our capabilities the next phase is where we bring this right and that's largely around this idea of what we would think was going to be a defining the next decade in our tool space around autonomous lab and scientific intelligence and how we're putting our capabilities to bear on that and we have an extremely strong right to win and how we're putting our dollars on innovation on that side And then you look across our markets, you know, our markets have been really improving, continue to be very strong. We're in really good sections of our markets, whether it's Pharma, CAM, and our diagnostics is doing extremely well. So what I would say is we're extremely well set up for the next phase by the choices we met in the last two years. Now, that's helpful.

A lot there to get into later on. But maybe just starting with fiscal through third quarter results, you reported a strong quarter. One of the highlights for us was the performance in China, right? Double-digit growth in pharma and food, high-teens growth in advanced materials all in the region there. Can you just expand on the strength you saw in China? Similar question to the opening, you know, how much of that strength was really market-driven versus Agilent-specific dynamics, share gains? And then, you know, you notably raised the guide for China in 4Q. So, you know, how much of this is really sustainable?

Yeah, and just having come back from China a few months ago, it's great to talk about it, perfect timing. You know, we've had a decades-long history in China. We have a huge install base in China. We've had manufacturing in China for almost three decades. So we had a lot of capabilities. And I'm just back from China where I opened a new innovation center that's going to be really at the heart of where you see physical automation that's going to really help. And China for us, you know, it was broad-based strength. You know, you saw it across all our markets, you know, small molecule, biopharma, and also, you know, testing laboratories in food and environmental, which is core for us. And the things that, again, when you look back and why we're doing well in China, with improving conditions, but we're not calling an inflection point yet, why we're doing so well in China, it's because of the capabilities we've put in place. We haven't gone indirect. We've kept our technical teams there really close to our customers. So as budgets are released and so on, outside stimulus, we can take share. And that played out very well in the quarter. We're extremely excited about the future of China. I mean, China long-term is going to be a mid-high single-digit grower for us, just the pace of innovation. And I'm sure you saw the announcement on the 15-5-year plan as it relates to pharma. You know, just to put it into context, the pharma market in China or the pharma overall business in China for the macros is about 250 billion. And they expect to grow that by two over the next number of years. And how are they going to grow that? they're going to grow that through manufacturing innovation but also thinking about laboratories over those times so if you're a trusted partner in china with these type of macros going going forward it's a it's it's really positive and i think um we're going to continue to invest there and then you look at you know chemical and advanced materials where there's a lot of investment uh semiconductor um and and uh other other areas battery over time and then our testing areas. So we're a very broad race, but we're really excited about the future in China.

And then another highlight in the quarter was the continuation of the instrument replacement cycle, low double digit growth in LC. I think it was the 10th consecutive quarter in a row of booked a bill above one. So can you just elaborate on what customer segments are driving strength in LC, which customer segments have seen replacements accelerate, which have yet to see the replacement cycle kind of really start to kick in?

And then maybe just talk a little bit about how the order book has been shaping up there yeah so it's another uh opportune time we just arrived from germany last night we were we're in our r&d center for lc we're everywhere we're everywhere yeah um we were in our r&d center where the infinity tree was developed and where it was developed over a number of years and of course we have our uh some seller cell analysis products there and what really struck me was you know how how our innovations are resonating and i'm talking to the teams about how the infinity tree was really around customer productivity and if you if you see in the in the world of productivity and ai you need the tools that are highly productive around this so the replacement cycle i would say if you can think we're we're less than halfway through that you can see our quarters over the last number of number of quarters doing extremely well you know double digit growth in the last quarter on lc over a tough compare so we're we're less than halfway through that and what i want people to really understand is the the our install base is very is is very large but also we have a competitive install base to go after you know for many different vendors uh and and and we're seeing that we're able to be very successful in in in those in in areas where particularly people are looking at productivity so as the as the replacement cycle it's going to be 200 to 300 basis points uh it's going to add to the overall business so we're going to see that continue on but we're less than halfway through on it and then what we're really looking at is as these new systems come in and as they're put into laboratories it all doesn't happen at once right so they can be sequential over a number of quarters in one area and you're seeing that we're looking at our consumers and our service connect rate over time about how that improves on those new systems so it's an accelerant on connect rate which is very important then what is not often talked about with us because our portfolio is much broader than just lc the gc replacement cycle is really humming along uh we're we're in the we're probably one quarter the way through that we have a lot of room to grow in that around you know chemical and energy lots of freets of systems out there so and again that's about 100 basis points improvement on on the overall uh overall business so so that's going to continue on on it and and again what underpins a replacement cycle is actually our service capability and our enterprise service capability. So one of the reasons customers switch is actually about your service provision. It's very simple when you think about it, but if you're not able to run sites very clearly on your service side, the replacement cycle can be very different, but it's one of our key strengths.

Gotcha. You mentioned AI in that answer there. It's been the topic du jour of all tools investors the last few months. Maybe just walk us through kind of where Agilent plays in the whole lab automation and wet lab validation exposure? Are you expected to see some of these volumes flow through into Agilent? Is this a near-term benefit, maybe longer term? Maybe just walk us through how you view AI build-outs.

Yeah, so we're spending a huge amount of time in the company thinking about how do we consolidate our resources around autonomous lab and scientific intelligence. And of course, AI is a key enabler on that. one thing that will always be needed is trusted answers from a tool so people can think of the analogy where the tool is like the eyes in the laboratory the automation or the physical ai are like the hands and then the agentic layer is like the brain doing experiments on on the systems so the the need for tools will only need to expand as ai comes in from our customer point of view there's more need for testing there's more need for release of drugs and you know you We hear from large pharma companies how they're reducing clinical trial times, but also setting out very broad goals about transformative molecules that will be brought out in every And I think the interplay between development, discovery, and QAQC is going to shift a little You're going to see development being more important, actually, and then you're going to see QAQC being more important even than that. So talking with our pharma partners, AI is certainly speeding up what they're doing. Now, from our side, the first manifestation of that is the autonomous lab. And, you know, it is in the broader scientific area. And that's where customers are wanting to do more autonomously in their laboratories over time. And there's really a future and past with this. So we talk to our top customers. They have lighthouse autonomous labs organizations looking at how they're going to kit out labs in the future. And it's very much co-creation. It's not about like getting the specifications on an LC and I'm going to bring out a more sensitive LC. It's about how that productivity and workflow is going to increase. So we're working with these companies and we've created a group in the company under our CTO office, August office, where we have an autonomous lab group that is heavily linked with our AI group that we've built out. And these capabilities will be gradually brought into customers as we co-create them. Now, you see it currently in the QAQC labs where, you know, the agentic layer will be used more and more, but you're going to see you're going to see that actually speed up as you see physical AI being used on the systems. And it actually changes how you look at the future. In some ways, you think about automation ready instruments, not just just instruments as they are, but also we're very, very focused on how we can grab value streams around the tool. So that scientific intelligence layer is really important. That physical automation layer is really important. And that would be done through partnerships, some M&A with capabilities we need to bring into the company. But it's something that we're very deliberately working on. That's really interesting.

I want to dig into advanced therapeutics, the specialty CDMO, strong growth in fiscal third quarter, 30%. I guess, how did that compare to expectations? Were there any sort of one-timers or pull forward in the quarter, given you do assume a step down in growth in fiscal fourth quarter here in the CDMO?

And then just maybe along those lines in the fluctuations there in growth, can you just talk about the visibility over the kind of medium to longer term there understand that it could be yeah so you're on a quarter to quarter basis yeah so i'll i'll start off and hand over to you but so you know we grew 30 percent in the quarter that was in line with expectations uh you're in q4 we're flat we're flat but that's kind of in line what we see with some regulatory filings etc but it was over 40 percent compare in the previous year and we feel really good about mid-teens over the long term with this with this business and we can see that through our pipeline with customers and how we see it if you think about train c that's coming online next year as a kind of an example we have 75 percent of train c booked out for next year and train c lends itself to more commercial batches from clinical and over the last number of years you know we've moved from you know lower commercial batches but 60 40 and commercial clinical batches and we see that continuing to grow on it and we're not beholden to a number of a few a few customers we have a broad range of customers that would be filling this capacity over it. So we feel really good about it in the short term and in the long term.

Yeah, I mean, I think Porg covered it nicely. I think the only pieces I would add is we do have good visibility into our medium term forecast. We have customers take time to develop their processes, et cetera, and then they put in their forecast. So it's not based on any one or two changes in a near term period that impacts us. The second thing I would highlight, which I think is underappreciated is actually the cross-selling that happens between our CDMO business, so ATD, and then our instrument business. And so it's similar customers in the same customers. And so we're often able to cross-sell, which is a nice feature of the business.

Okay. Yeah. Maybe just sticking along those lines, you mentioned Train C coming online the second half of next year. I think you guys have sized the peak revenue generating potential there of around 300 million.

Maybe just walk us through, I think you said 75% is booked already yeah but how should we think about the contribution from train c in the back half of next year understanding that um there's some variability in the types of programs that that come online and you know the timing of that do you want to take that sure i'll take that so i guess a couple pieces the first is uh train c will come online in the spring of 27 and the way we've articulated the full growth of train c and d train c will take about six to eight quarters Train D will come online a couple of quarters after. So and then take another six to eight quarters to continue to reach full capacity. When both are running full capacity, we would roughly double. So about 300 million ish what we're getting out of the site today. A couple other pieces I would just add is that, you know, Corey talked about the 75 percent line of sight. And then the thing you have to think about is the existing capacity will start to fill up in the beginning half of the year, and then the second half of the year, the incremental revenue will become growth. So it was planned very nicely to come online almost at the perfect time, so I'm excited about that. And then the last piece is, you know, as Pork talked about, is the mid-teens growth that we expect over the near term for the business. So we feel very good about it.

Yeah. Maybe one last one just on the confidence in that assumption. You know, we've seen a couple of prominent negative late stage clinical trials in the space over the last few weeks even. So I guess how do you kind of risk adjust for those different programs that might be in your backlog or what have you? And, you know, just what underpins that confidence in the CDMO long term growth rate? Because that's been coming up more.

Yeah. So the way I think about it is this, and I think this is a helpful number. So in 2019, we had three customers that made up 80% of our demand, and now we have three customers make up less than 50%. So we're gaining diversification as we go. The second piece is we have a healthy mix of commercial and then clinical. In 25, we were 60-40 commercial, clinical, and that's starting to ramp the commercial side. You'll always want to maintain a certain amount of clinical because that's your pipeline into the future. A couple other pieces is the recent news doesn't impact our forecast for 2027. We continue to love the SIRNA space. I mean, you look at the pipelines out there, they continue to grow. And there's a number of molecules ranging from that rare where they've been mostly today moving into larger indications across different therapeutic areas. So we're excited about the investment and the process and the progress of the site continues to go very well right on plan and excited about going online next year.

Full steam ahead. Yeah, full steam ahead. Last one on train seed, but just we haven't touched on the margin implications, right, of the build out. I think you've previously talked about additional hiring in the first half of 27 to accommodate train seed coming online in the back half. How should we think about the CDMO margin profile in 2027 and in the context of that kind of 50 to 100 basis points, long term guide of the total company?

Yeah, so a couple of pieces. So, you know, as it's coming online now, no impact to 26. 26, 27, it will be dilutive, of course, but we've committed to our 50 to 100 basis points that you have in the LRP, continuing to deliver that. And it goes back to COREG's first comments about the Ignite operating system. And what we've done is we've seen this coming. We've seen the dilution coming. So you have to hire, you have to start to depreciate the asset before you're getting full capacity. But we've been planning for that. That's something we can see. And through Ignite, we will offset that.

Yeah, we're very competent on our 50 to 100 basis points plus.

Got it. Okay. Maybe circling back to the LC replacement cycle that we talked about a little bit earlier, you know, I think this has been a multi-year cycle. You've talked about like a three-year timeframe. I guess, you know, are there any broader geographies or customer segments that have really yet to engage at this point?

Yeah, I wouldn't say, you know, I mean, all geographies, I think China probably, you know, is an area where the fleets are older and, you know, haven't been replaced post-COVID. So that's an area where we expect to see continuation accelerate. But I think it's very broad based. But I think it's important for people to kind of understand that, you know, we have such a very different age of systems in our install base and competitors of a different varied age of systems. so it's it's more about that than the actual geography that makes makes any difference in it and and of course you know when you have an opportunity in a replacement cycle it is a competitive moment you know you have a situation where some people think sites are one company and another site is a separate company but actually it can be 50 50 the left-hand corridor can be one company the right-hand corridor can be another company and as that replacement cycle happens then it's a highly competitive space where, you know, you have an advantage to take some share. So I would say it's really broad-based and we're continuing to see it expand. The LC replacement cycle is roughly seven to eight years. We're less than halfway through it at the moment. Okay.

And then within the context of instrument growth, just putting the replacement cycle aside, you know, you've talked about share gains over a number of different quarters here. You know, maybe just dig into that a little bit. You know, where are these share gains coming from? Is it a technical aspect of Infinity 3? Is it, you know, commercial execution via Ignite?

Is it something that we're missing? kind of yeah look it was it was our strongest what we saw in the product was our strongest share gain that we've ever seen and again people think that's just against maybe one competitor or two competitors there's many competitors you can gain share of um out there in the market i would say what was really strong as the lcms spectroscopy was strong and we said we saw some amazing results in certain regions um but overall it was very broad-based and why why is that like why is that happening? It's happening for a number of reasons. It's that commercial engine that we've built up over a number of years and went from strength to strength on it, but also that service capability that underpins it. It's the number one switching reason, by the way, for any companies around your service capabilities. And then we underpin that with our enterprise service business where we're running laboratories. So we run our systems and other vendor systems in an asset management way. So we have a very high-level conversation in those laboratories. Now, think about that in a market share situation. You get area visibility into problem assets or assets that need to be replaced over time. So you're right at the heart of that decision-making, and that really helps with share gains too.

In the LC business, but I guess just more broadly speaking, I would be curious to hear if there's any read-through from the Merck and Moderna data to your business with that data seemingly lifting sentiment on that entire drug class's potential?

Yeah, it's very compelling for analytical tools. You know, in Germany, again, I was looking at some of our cell analysis equipment and it's really right in that space. So it's very, very positive. We do think it's going to be positive in our CDMO business. We have capability around that area on it. So I would say we have a dual tailwind around that. And some of our innovation programs, interestingly, when I was looking at them on our instruments during the week in Germany, A lot of these instruments, a lot of the innovations was around mRNA in some of those areas and some of those technical abilities. So I think we're going to continue to launch products that are going to help to fill that space.

OK, maybe shifting to GC, you talked a little bit about that replacement cycle as well. I'm curious, you know, is this replacement cycle different in GC, given all that we've seen around semi demand, you know, with these fab build outs and so forth, reshoring? Is there anything different about this replacement cycle in GC related to that?

Yeah. So it's, again, we have probably the largest install base of GC and GC-MS globally. And, you know, it's broad based around our chemical and energy customers. You can see it in our food environmental. But we have an extremely strong presence in semiconductor fabs. And people think of a semiconductor fab as, you know, it's GC, GC-MS, spectroscopy. but around those fabs you have high purity chemical companies that are actually need our tools and then actually they they buy more tools in that case so that replacement cycle is kind of dual in terms of new technologies on the spectroscopy side that is replacing um uh our 9500 is replacing on the on the fab side but on the gc and gcms side there's a there's always a replacement cycle there that's slower generally um we see the opportunity 18 to 24 months before it so it's a longer run in but when it happens it happens across the board we've talked a little bit about replacement dynamics fueling growth in lsd and amg here but you mentioned it

uh you service earlier you know i think it does create a little bit of pressure the replacement cycle does on the service component given the one year service warranty that all these instruments are replaced with so i guess how should we think about the push-pull here um you You know, if we're assuming that replacements will be, you know, a growth vector in LSD and AMG, you know, is it going to be a growth detractor in ACG? Kind of, how should you think about that?

Yeah, so the replacement cycle actually bodes extremely well for ACG, right? As instruments are placed and they come off those one-year warranties, 70% of our business is on contractual services over three years. That's our monolith of a business. so as they come off then that fuels that acg business as we go forward and including the consumable spend around those instruments and i said that we expect improvement on that with new instrument placements so so i think uh we see that as a you know as a as a real tailwind over the over the next coming um coming years and you saw our instrument growth rate in the last few quarters and you can you can extrapolate out what that will mean for acg coming forward And again, the capabilities in ACG, you know, it's way beyond break-fix. So as the ACG business grows, we have a lot of emerging businesses within that. The enterprise service one growing really well. It's becoming a very material business. And it's actually, we're number one on that for a large suite of our customers. So you look at those businesses and even something as simple as relocation services, where we're relocating laboratories in regions, we're requalifying laboratories. In those laboratories where we do relocation services, we actually see more new instrument placements as people don't want to replace all of those areas. So relocation services and compliance services, really important. But as these systems come off, warranty, you're going to see those move on to contracts.

Maybe sticking on ACG, maybe just talk a little bit about the visibility into that business. You talked a little bit about it here, And then also just the margin profile between ACG and the kind of corporate average there.

I'll take the first bit, maybe the margin profile. So, yeah, so look, you can see that we high single digits in our consumables business, mid-single digits on services in the last quarter. You see our Altura columns, which is right in the space of GLP-1s. Those launches really, really driving a lot of growth on that side. So we expect consumers and services to continue to grow. And it's a really critical engine around our system, around our instrument install base. And you can think about it also in terms of the AI influence as more drugs come out, as more efficiencies come, more consumables are being used. Services is even more important. And I want to go back a little bit about bringing to the future. You think about an autonomous lab. Having an enterprise capability on services is right in the space how autonomous labs will run from a service point of view. And uptime is not just about when an analyst is in a lab now. Uptime is about 24-7 lights out services. So building this capability around enterprise services is really important for now, but also for the future.

Yeah, and I can just quickly jump in on the margin. As you know, ACG is our highest margin business. And then the nice piece about the service ramp is once that ramps up, you have a lot of fixed costs there. And so as the margin, as the business ramps up, the margin continues to improve. And so once again, over time, as the service business continues to ramp, we expect that margin to continue to improve. The other component is our consumer business has a nice margin as well. So overall, that's going to continue to be accretive to the overall corporate margin. Okay.

Maybe let's shift to reshoring, another popular topic. So during the most recent quarter, you reiterated prior reshoring expectations. I think the dynamic represents a billion-dollar revenue opportunity for which you expect to capture a third of that by 2030. You know, I guess you guys were the first ones to really put those estimates out there. And that was during a period of time where we weren't really seeing any orders come through. You know, now I think fiscal third quarter was the first time we did start to see orders come through related to reshoring. I guess, like, how much more confidence do you have in those estimates now?

And is there any sort of upside bias to those numbers now? kind of maybe walk us through your latest assumptions there yeah so when we put out those numbers in the autumn fall it was like 11 mfn deals now we're seeing 17 and so implying that we're de-risking our initial estimate so we feel really good about that and you know we've laid out the 300 million that we see as an opportunity on it so we booked our first on on shoring orders reshoring orders five out of the top 10 pharma companies have booked with us and i've actually visited multiple of those sites on around the east coast and we're moving those systems into forward stocking locations where they're getting ready to be deployed in in in in those areas as we go forward so i would say um a few things that makes us a little bit different in this regard is that about a decade ago we invested in a strategic account program where we were working with pharma companies at the highest levels globally and we thought that was really important for two reasons first of all to get really good voc in and where dynamics were changing and that's really important for autonomous lab but secondly when these type of things happen globally you don't want it to be relationship-based well i know my person in the u.s can talk to the person in europe or the person of how this is happening you really want to have a higher level conversation with these companies and that's why we were very explicit with that number because we were coming from the tops down and the bottoms up on that aggregate. So I think that is providing a big advantage. And I will say, you know, when you look at the install base, and not only LCs are being reshored, GCs are being reshored, spectroscopy is being reshored, and that's an opportunity for us that's broader, and of course that services and consumables business around that reshoring, so we feel really good about it. I mean, I lived through some pharma reshoring in Ireland a few decades ago when it became the place, and it's actually a very similar motion. But you make yourself very different by understanding what the customers want. But you're also involved with laboratory design and setup. And you think about what that means for the future with autonomous labs. Some of these labs are not autonomous labs, but they're thinking about what will it mean for them over the next decade in that regard. So we feel really, really good about it. We've been, I would say, prudent around that number. But you can see from the number of signatories and where it's going, we feel really good about it. So maybe just to double click on the orders that came through the door last quarter, maybe just talk a little bit about, you know, Brownfield versus Greenfield, the lead times on those orders when we could start to see those flow through into revenue and then, you know, ultimately kind of like where the funnel. yeah and i would say first of all um it's not linear so orders come in in not a linear way but what i will say it is that we've um we've seen the vast majority of our orders coming from greenfield sites from new bills and then i would say procurement can really depend on like six to 18 months pre-launch of the site for our systems i think you see by our process a little bit earlier on that but that's what we've seen actually very consistent across all those all those sites and And, you know, 75% of the MFN signatories have announced that CapEx. So we're kind of tracking that as it goes through. So I think you're going to see the benefit of that in Q1 and beyond. Okay.

You know, we touched a little bit on China growth earlier in the conversation, but Asia growth ex-China was also strong in the most recent quarter.

And you're expecting double-digit growth in 2026 for the ex-China, you know, um asia exposure that you have so maybe just walk us through what's contributing to that your exposure in india for example i'm sure is playing a role um you know maybe walk through your expectations uh in that region yeah so we grew nine percent in apac asia what we call our asia area and that was like against the low to mid single digit expectation on it and again when you think about asia uh people's kind of gravitate towards india but it's much bigger than that you see semiconductor chemical and advanced materials really important to those geographies actually india has invested quite quite a lot in fab manufacturing sort of setting up the supply chains around that where we're we're going to benefit on it and we've done extremely well i think in the generics in india but it's really broad based what we saw testing labs has have a very high momentum in apac at the moment so think about big testing labs around pfas environmental and food testing and this this phenotype of the the many different countries we have in Asia, the speed of regulation around PFAS we're seeing is changing very, very quickly because of food exports, which is a really big benefit to us. And then, of course, you can think of Korea with semiconductor fab. We saw really, really strong growth in Japan. And that is an area where we have a long heritage, a long history there. And that was really broad-based as well. So it's a very dynamic, I would say, but very important area for us going forward.

And then in Europe, you did lower the guide for the year on Europe during the last quarter. Maybe unpack that a little bit for us. What drove the change there? How much of it is just conservatism around the Middle Eastern conflict? Or is there anything else that we should be paying attention to?

Yeah, I think, I mean, actually, you said it in your answer. Number one, we're happy with the performance we've seen in the region. And then when you look at our Q3 number, it's coming off of a pretty challenging compare, right? So we We delivered low single-digit growth on a high single-digit compare. And then when you look at Q4, we have a low double-digit compare. So once again, it's just the challenging compares that we have. And then there is prudence in the guide based on what's going on in the Middle East.

Okay. And then the academic market, I know it's a smaller exposure for you guys, but a big focus for tools investors. Maybe just walk us through the latest and greatest on academic trends across the different geographies here. It appears that the U.S. is stabilizing, but that's probably off of a low base as well. So maybe just walk us through kind of what you're seeing across the market.

So ex-China A&G grown low single digits from our perspective. The U.S. is a very low exposure for us by 3% to 4% overall in what we're seeing. And our direct NIH exposure is less than 1%. It's always important to put it into the context of where we are in the business on it. But I would say in America, the spending remains stable, but muted is what I would say. And customers are really still cautious on spending in that area, waiting to see what happens. So the bright spot, I would say, is, you know, on the government side, we see good improvements on the government side. And that's one of the areas that is a little bit underappreciated is the government business that we see. So we've seen that kind of improve. Europe A&G has grown in the mid-single-digit range year to date, but we're seeing some crowding with research budgets, of course, with defence budgets and all those areas. And China A&G, to round it out, is a small business for us and it declined in Q3, but again, that was on a compare of 20% growth year over year, and we expect mid-single-digit growth over time there. So that's our A&G exposure. Okay, got it.

I wanted to take a step back, and we talked a little bit about it during the Ignite answer, but looking at the portfolio now, your R&D investments, I guess, what areas of innovation have generated the highest return for Agilent over the last several years? Where are you putting new R&D dollars to work within the Ignite context?

And looking ahead, what can we expect from a pipeline perspective over the next, call it 12 to 18 months? yeah so maybe maybe i can start off about how ignite was at this at the start of this so we simplified the organization where we went from an aggregate of 19 product lines and we grouped them into nine product line groupings with clear line of sight and one of the issues in any company is how you allocate your innovation dollars that is not incremental across the board but where you can asymmetrically invest so we created a cto office and the portfolio office is really thinking about those areas of what areas of science that we need to continue to invest in but how the allocation happens in not an incremental way but an area where we need it most and you heard me talk about autonomous lab you heard me talk about ai these areas are really important but if you can look back over the last two years as we're building on this we've been extremely proud of our infinity tree lc innovation around productivity and how that's done you see the expansion of our omnis family and the pathology business doing extremely well the 9500 icpms we have over 60 million dollars in funnel and that it's highly resonating with the customers we have a very high market share in in in icpms which is a highly technical tool and of course innovation and cdmo you we're a special specialty cdmo company so where we're working with these customers we're working on a lot of innovations which is really important so looking ahead i think you're not going to see it just in hardware and consumables, but we're areas around physical AI and the autonomous lab of where we can bring it to bear. But innovation is really our top priority and you can see it through the numbers on it. And I think as the months and quarters go beyond, you're going to see a number of launches that are going to be very impactful and are going to be impactful in the right area to create that right customer outcome. That's helpful.

Wanted to touch on the model a little bit. Adam, this might be more your wheelhouse here, but just the question we'll get a lot is just exit rates, 4Q. You're guiding to 5.2 to 6.2% growth. How should we think about this exit rate in the context of 2027 top line to the extent that you want to take a stab at giving some color around that?

So I think I'd start with just the high level of, we're seeing really strong commercial and an operational momentum in the business. And that's broad-based. The second piece is our end markets, right? So you're looking at pharma, CAM, and our clinical and diagnostics business are all doing very, very well right now. So I feel very confident about that. And then even A&G we're starting to see stabilized. So that's another good performance that we're having in the business. And then on a geographic basis, and so remember we had started the year guide in China as flat. And now in the fourth quarter, you know, we're saying it's going to be in the high single digits once again. So seeing that market, you know, reigniting, so to speak. And then if you look at the five year plan, we believe that that helps the stability of that market and feel excited about that. So I'm not going to guide today. You know, we're in the middle of our planning process, but coming out of the year, you know, we feel very good about our performance. And then the other note that I would highlight is we're one of the few companies that's actually maintained our LRP and continue to deliver on that. And that's on the top line. That's at the operating margin level and at the EPS level. So feel very good about the performance of the company. Feel very good about our ability to deliver on our commitments and, you know, excited about 2027.

That's helpful to put some takes. Maybe, you know, you touched on margins there. So, you know, I think given, you know, the CDMO train C ramp impact we talked a little bit about earlier, you know, is the lower end of the LRP range kind of fair game for next year or at least like a starting point? And, you know, I would be curious to hear what offsetting levers you have to that train C ramp or at least the hiring that you're doing, you know, ahead of that are at your disposal really. And how much more can you really drive via Ignite on the margin line?

Yeah, I mean, I'd love to take this one. So I guess a number of pieces. So one, I'm not going to guide for this year, but we're confident in our LRP where from a margin perspective, we talked about 50 to 100 plus basis points in this year, we will be delivering 100 plus year over year expansion. So we feel good about that. And then as you think about the train C ramp, as I said earlier, you know, we've been anticipating this. And so as we've moved through the organization, we've really looked at where their opportunities to continue to improve our performance. And I have to talk about our operations organization where they've really taken a hard look and using technology for how do we improve our quality, how do we improve our manufacturing performance and delivery, but at the same time do it at a lower cost. And you can see that running through our margin profile. And then do we have more to go? Absolutely. So, you know, we're implementing a number of different programs. And I think each time we see success, we learn from it, and then we are able to take it to a different level in more complex areas of the business. The one piece I would just highlight is that as you think about the margin expansion for next year, we think about it, and as I talk about it, X tariff refunds. And that's why we've been so clear about the tariff refunds that we received.

I bring it back to the way I opened. You can see we did 100 basis points in margin expansion, and that was navigating tariffs. That was navigating a tax headwind. So this compounding capability that we have, an example on our pricing, 200 bips of pricing this year, that's something that compounds over time. So we feel really good that we can mitigate anything.

Okay, that's helpful. I wanted to spend the last few minutes we have here on capital allocation and M&A specifically, or I guess post-BioCare deal, how you're thinking about both M&A and you know other capital allocation priorities um you know i think in the past you've talked about using biocare as a footprint for a future deal a blueprint i should say for future deals in terms of like the size and scope is that still the way that you're thinking about it and then maybe weighing m&a versus other priorities i'll start and then that's okay yeah so what i what i will say um you know you can see the deals that we've done in the last two years um there's been a certain phenotype of a deal but they've been really linked with our strategy right so that's

the first thing you can see biocare creating over 300 antibodies creates a moat around our business high recurring revenue highly innovative and a plug and play with our commercial engine across the globe right so really effective and and what i will say is we have a very strong pipeline and and the way we're looking at that pipeline is where does it fill out gaps right where where can we continue to grow and particularly around recurring revenue and there's a lot of exciting spaces right where we can continue to put a motor around our business and continue to expand and the way I would look at M&A is not just from acquisitions you can think about partnerships and you know how do we build towards acquisitions in certain cases but also this idea in this new world that we're in we're clear that we will need to bring in some capabilities that the company doesn't have and sometimes that comes through acquisitions right some in key technology bolt-ons. So I would say it's very much strategy-based, very high degree of discipline and how we look at it. And our integration engine with Ignite is really, I would say, performing extremely well of what we've seen in biocare. So you put it all together. But in the broader capital allocation, maybe Adam, you can speak about it. Sure.

And consistent with what we've said in the past, we believe that we want to invest our capital in growth. And as Porik said, that can come through M&A and all its different forms. You know, we will be investing in our internal innovation, as we've talked about, and then through CapEx, where there's strategic capacity opportunities, we'll also consider that. But we're going to maintain discipline. And we've talked about discipline a lot with our four principles related to M&A. You know, so one, we want to make sure that it's on our strategy. Two, that we have the right to buy it and we have the right to win. Biocare is a great example of that, and PORG laid out nicely why. The third piece is that we're paying the right price. And then the fourth is, can we integrate and will it be a cultural match with us? Because we understand that from a strategic standpoint, things can look great, you can pay the right price, but if culturally it's not going to fit, it's not going to work. So we're going to continue to stay disciplined. I think biocare is a nice blueprint for what we're looking at. and we'll obviously continue to evaluate all the opportunities to deploy our capital in an efficient way. And we won't be doing a transformative deal, I had to say it, you know?

Had to get that on the transfer. I've said it every time, but I'll say it again. Just quickly, last minute here, Porg, you mentioned that there's a few kind of strategic areas where maybe an organic investment might be the right move. Can you be more specific?

What areas in the portfolio are you seeing? Yeah, for sure. Look, if you look at BioCare, how it put a moat around that pathology franchise, right which is highly durable business and it just it just increases our connection and our customers there if you look at our broad platforms in the analytical space and you look at our core technologies there's areas where we can enhance that with outside capability right so that can be recurring revenue around it it can be actually some software that can really enable things moving forward on it so that's the way we're looking at it and and then the one thing as our lens is very wide we've opened an innovation center in china which is very unique and we're going to continue with an innovation leader in china in shanghai and part of that is really to tap into that innovation ecosystem particularly around physical ai and companies and i will give an insight to that we we had a very large order which we thought from an autonomous lab company in china and and we we fitted out the whole lab from the tool side and what we wanted to make sure as we were doing that is how can we partner with this to actually move up the value stream as we go forward that's what we see as as innovation and partnering going forward will be very broad-based and technology is moving very fast but you look at some of the models that have come out from at Tropic on the connection there with instruments that removes a real barrier for us to even move faster in certain cases so again having these I would say integrator view of how we're doing it but also making sure that we're not just picking one bet going forward but hedging our bets in a few areas to see how this autonomous lab is going to play out and anybody that can say that the autonomous lab is defined and everybody knows what it's going to be i can tell you from talking to our customers it's not you we have to meet customers where they are and build from where they are and that's going to be a question around uh some some mna and technologies too great well looks like we have to leave it there thank you everybody for joining us and everybody on the webcast.

Thanks, Porig. Thanks. And enjoy the rest of the conference, everybody.

Thanks.