Joshua Waldman

Joshua Waldman of Cleveland Research asked what variables led to the reduction in the gross tariff impact estimate and which levers—price or cost—have been most significant in mitigation efforts. He also inquired if demand visibility for the second half has improved.

Answer

CFO Shawn Vadala explained the gross tariff estimate decreased primarily due to a lower Chinese tariff rate, which was partially offset by the new, higher Swiss rate. He stated that mitigation has been a combination of supply chain actions and pricing, noting the full-year price realization guide increased from ~2% to ~3%. CEO Patrick Kaltenbach commented that while visibility is good and supports the Q3 forecast, there has not been a dramatic change in underlying business momentum.

Joshua Waldman of Cleveland Research followed up on Core Industrial, asking if U.S. softness was the primary driver of the lowered outlook. He also requested the sales mix from bioproduction OEMs and commentary on onshoring trends within that specific business.

Answer

CEO Patrick Kaltenbach clarified that the most significant factor in the lowered Core Industrial outlook was 'definitely China,' not the U.S., where softness was related to specific large project timing. CFO Shawn Vadala did not break out the bioproduction OEM mix but reiterated that the broader pharma/biopharma, food, and chemical markets constitute about 60% of Core Industrial sales.

Joshua Waldman of Cleveland Research asked if the recent strength in Europe and the U.S. was confined to biopharma or was broader, and what the Q4 results imply about customer confidence and replacement cycle spending in 2025. He also inquired about plans to offset potential tariff impacts.

Answer

CEO Patrick Kaltenbach clarified that Q4 growth was broad-based across end-markets, including food, though pharma/biopharma demand remains the strongest. He maintained a cautious outlook for 2025, viewing it as a transitory year. CFO Shawn Vadala added that offsetting tariff impacts would involve a combination of pricing actions and supply chain adjustments, a strategy used successfully in the past.

Joshua Waldman inquired about the drivers behind the company's increased commentary on market share gains and the specific trends being observed within the pharma end market.

Answer

CEO Patrick Kaltenbach attributed market share momentum to both a strong, recently refreshed product portfolio and the effectiveness of their 'Spinnaker' sales programs in targeting new opportunities. Regarding pharma, he noted that Process Analytics has returned to good growth. While analytical instrument sales cycles remain prolonged, he is optimistic about a future catch-up in replacement demand as budgets are released.

Joshua Waldman of Cleveland Research Company asked about the evolution of visibility into bookings and cancellations and whether it was improving. He also sought details on the drivers for increased cancellations in longer-term post-IND studies and the assumption for cancellations in the forward guidance.

Answer

CEO James Foster stated that visibility is improving as clients emerge from a cautious period. He reiterated that the cancellations were due to client-specific portfolio decisions, not a broader trend, and highlighted that stronger general toxicology work was a positive counterbalance. CFO Flavia Pease added that the Q2 cancellation rate was consistent with the 18-month trend, with Q1 having been unusually favorable.

Rob Catrol, on for Josh Waldman, asked if the reported growth in small and mid-sized biotech sales was consistent across all three business segments and if there were notable differences between small versus mid-sized biotech performance.

Answer

CFO Flavia Pease confirmed the encouraging growth from the overall biotech segment for the second consecutive quarter but stated that the company does not provide a more granular breakdown of performance between its small and mid-sized biotech clients.

Joshua Waldman inquired about academic order trends, asking specifically about Europe and whether other geographies saw unexpected weakness. He also asked about the timing required for a recovery in US academic orders to translate into revenue growth for 2026.

Answer

Chairman, CEO & President Frank Laukien identified the US and China as the primary regions for academic order weakness, stating that Europe and the rest of APAC were fluctuating without a clear negative trend. He explained that any significant new orders from the US academic market would now primarily impact 2026 revenue, not 2025.

Joshua Waldman asked for the underlying business growth in the quarter excluding the two gigahertz-class NMR system placements and questioned if the low single-digit growth implied for the second half of 2024 is the new medium-term expectation.

Answer

CEO Frank Laukien and CFO Gerald Herman explained that the main areas of weakness were biopharma and China. Laukien clarified the gigahertz system comparison, noting Q3 2023 had one system. He strongly refuted the idea that H2 2024's growth rate should be extrapolated, emphasizing the extremely difficult year-over-year comparisons of 11% and 16% organic growth in Q3 and Q4 of 2023, respectively, which will ease significantly in 2025.

Joshua Waldman from Cleveland Research Company followed up on the guidance reduction, asking for color on the portion not related to the COVID programs and the variables considered.

Answer

CFO Nigel Clerkin recapped that the $400 million midpoint reduction was offset by a ~$350 million impact from the two studies. However, he noted a ~1% FX tailwind means the net adjustment for all other factors is slightly more negative, reflecting a cautious view on book-to-bill and burn rate for the year.

Joshua Waldman asked if the stronger RFP activity at the end of the year was above normal seasonality and whether the current environment might create a greater disconnect between RFP flow and actual revenue conversion compared to historical patterns.

Answer

CEO Dr. Steve Cutler described RFP flow as a 'somewhat reasonable' but imperfect indicator of future revenue. He noted that while Q4 was positive, the trailing 12-month RFP growth was flat in large pharma and up only low single digits in biotech. Therefore, he does not expect the recent uptick to translate into a significant, abnormal increase in revenue in the very near term, suggesting conversion will follow more typical, albeit slower, patterns.

Joshua Waldman of Cleveland Research Company questioned if the assumption of no pharma budget flush was due to fiscal quarter timing or other factors, and asked for high-level thoughts on fiscal 2025 based on customer conversations. He also requested more context on the dynamics within the Agilent CrossLab Group (ACG), particularly regarding contracts and mix.

Answer

CEO Padraig McDonnell explained the no-flush assumption is based on close customer visibility, with any year-end spending likely to appear in Q1 2025. CFO Bob McMahon suggested the 2025 recovery would be gradual. Regarding ACG, Angelica Riemann, President of ACG, highlighted that service contracts now represent nearly 70% of the business and are growing double-digits, driven by strong demand for enterprise services that help customers improve productivity.

Joshua Waldman questioned the assumption of no pharma budget flush, asking if it was due to fiscal timing or other factors, and sought high-level thoughts on 2025 pharma budgets. He also asked for more context on the dynamics within the Agilent CrossLab Group (ACG), particularly regarding contract win rates and mix benefits.

Answer

CEO Padraig McDonnell, CFO Bob McMahon, and ACG President Angelica Riemann responded. Mr. McDonnell attributed the 'no budget flush' assumption to close customer visibility, not just timing. Mr. McMahon added that the 2025 recovery is expected to be gradual. For ACG, Ms. Riemann highlighted strong double-digit growth in contracts, driven by enterprise services, as customers focus on lab optimization. Mr. McMahon clarified that the positive 'mix' refers to the favorable margin profile of this recurring contract revenue.

Joshua Waldman of Cleveland Research asked how instrument orders progressed sequentially and for trends in key LSAG categories like LC/MS. He also asked for more detail on where China demand is soft and what provides confidence that the stimulus-related funnel will eventually convert to sales.

Answer

CFO Bob McMahon stated that instrument orders did not deteriorate but lacked the expected acceleration. He noted that pharma-focused platforms like LC and LC/MS are weakest, but their order performance was significantly better than revenue performance in Q2. CEO Padraig McDonnell explained the China stimulus is a large, multi-year program providing confidence for 2025, and the current softness is a normal reaction as customers postpone purchases to assess the new funding.

Joshua Waldman asked how the Q2 guidance compared to the initial internal framework and if the full-year guide reflects changes beyond H1. He also inquired if business visibility and the predictability of the sales funnel have improved over the last three months.

Answer

CFO Robert McMahon explained that the Q2 guide is largely intact, aside from a minor timing shift in China, and that the Q1 outperformance is being used to de-risk the second half. CEO Michael McMullen and COO Padraig McDonnell stated that business visibility has not changed. They noted that while deal closure times remain elevated, they are stable and not elongating further.

Joshua Waldman of Cleveland Research asked for more context on the forecasting process, including whether any business segments were still decelerating. He also inquired about the state of the sales funnel entering fiscal 2024 compared to a typical year and its reliability as a near-term predictor.

Answer

CFO Robert McMahon described a multi-angled forecasting process that has shown signs of stabilization over the past two quarters. He noted that while the elongation of sales cycles has slowed, conversion rates have not yet returned to historical levels, and this has been factored into the forecast. He stated the funnel shows modest growth and the slowing elongation is an encouraging sign.