Agilent Technologies - Q1 2024

Transcript

Operator (participant)

Ladies and gentlemen, welcome to the Agilent Technologies Q1 2024 earnings call. My name is Regina, and I will be coordinating your call today. If you would like to ask a question following the presentation, you may do so by pressing star 1 on your telephone. I will now hand you over to your host, Parmeet Ahuja, to begin. Please go ahead.

Parmeet Ahuja (VP, Investor Relations)

Thank you, Regina, and welcome everyone to Agilent's conference call for the Q1 of fiscal year 2024. With me are Mike McMullen, Agilent President and CEO, Padraig McDonnell, Agilent Chief Operating Officer and CEO-elect, and Bob McMahon, Agilent Senior Vice President and CFO and Acting President of the Diagnostics and Genomics Group. Joining in the Q&A will be Philip Binns, President of the Agilent Life Sciences and Applied Markets Group, and Angelica Riemann, our newly named President of the Agilent CrossLab Group. This presentation is being webcast live. The news release for our Q1 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 will refer to non-GAAP financial measures. You'll find the most directly comparable GAAP financial metrics and reconciliations on our website.

Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year, and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates. As previously announced, beginning in the Q1 of fiscal 2024, we implemented certain changes to our segment reporting structure related to the move of our cell analysis business from LSAG into DGG. We have recast our historical segment information to reflect these changes. These changes have no impact on our company's consolidated financial statements. During this call, we will also make forward-looking statements about the financial performance of the company. These statements are subject to risk and uncertainties and are only valid as of today. The company assumes no obligation to update them.

Please look at the company's recent SEC filings for a more complete picture of our risk and other factors. Now I'd like to turn the call over to Mike.

Mike McMullen (President and CEO)

Thanks, Parmeet, and thanks everyone for joining our call. Before I review our Q1 results, I want to first acknowledge our news last week that I'll be retiring at the end of the fiscal year and that Padraig McDonnell is Agilent's new Chief Operating Officer and will become CEO on May 1st. It was a difficult decision to retire. After almost 40 great years with this special company and in a role that I love, I will miss working with the One Agilent team. However, I must say it's a great feeling and quite gratifying to be handing over the CEO reins to a tremendously capable successor in Padraig, with Agilent operating from a position of strength and with a very promising long-term outlook. I've known Padraig for more than 20 years and have worked closely with him during that time.

He has always been completely committed to our customers and Agilent success. He is a product of our culture, knows our company, team, and markets, and knows how to develop compelling business strategies, build winning teams, and deliver exceptional results. Padraig has a strong track record of results at every position he has held during his 26-year career at Agilent. I know he has the knowledge, leadership skills, and customer focus that will be key to Agilent success moving forward. I look forward to all of you seeing firsthand what a capable, result-driven leader we have in Padraig. Padraig, would you like to say a few words?

Padraig McDonnell (COO and CEO-Elect)

Thank you, Mike. I'm honored to be able to follow you as Agilent's next CEO, and I'm grateful for your support throughout my career and during this transition. You have made a significant impact on Agilent, our customers, and our team. I'd also like to welcome Angelica Riemann to this call. After leading our services division for the last two and a half years, I can tell you she has the experience and the skill set to continue evolving ACG to align with the growing opportunities that the business has demonstrated in supporting the broad install base and our enterprise customers. Expect to see continued great things ahead from Angelica and ACG. I've had the pleasure of meeting some of you on this call, and I look forward to meeting and working with you all in the future.

Agilent has a compelling story to tell, and I'm excited by the possibilities that lie in front of us as we help our customers bring great science to life.

Mike McMullen (President and CEO)

Thanks, Padraig. For today's call, I will take the lead covering the overview of our financial results, while next quarter, Padraig will take on these duties as the new CEO. Now, onto the Q1 results. We are pleased with the start of the year. The Agilent team continues its strong execution in a challenging market environment. The Q1 provided further evidence of our team's capabilities, with revenue coming in better than expected at $1.66 billion. This represents a decline of 6.4% against a tough compare of 10% growth in Q1 of last year. The better-than-expected top-line results and disciplined cost management drove higher-than-expected earnings per share of $1.29, down 6% from Q1 last year. Given the solid Q1 results and our continued view of a slow but steady recovery throughout the year, we are maintaining our full-year outlook that we shared with you in November.

Key to our Q1 performance was the ongoing sequential stabilization we experienced in China and secular growth drivers in Applied markets globally. From an end-market perspective, our total Pharma business is down 12%, which was in line with our expectations. This follows an 11% increase in the Q1 last year. While declining overall against a very strong Q1 of last year, our applied end markets were more resilient than expected and showed sequential growth from the fourth quarter. In these markets, PFAS solutions and advanced materials, including batteries and semiconductors, were highlights for us. Geographically, both China and Europe finished Q1 better than expected, while revenue for the Americas was in line with expectations. Looking at our performance by business unit, the Life Sciences and Applied Markets Group delivered revenues of $846 million and down 11%. This is against a difficult compare of 10% growth last year.

While still too early to call an overall market recovery, results were better than expected. Our diversified portfolio and broad end-market coverage helped drive the performance. We continue to experience a conservative environment for capital spending, but our better-than-expected Q1 results were driven by Consumables, which grew mid-single digits, China, and a better-than-expected performance in Applied markets. During the quarter, we also completed the expansion of our Shanghai manufacturing facility as we continue to take steps to ensure our long-term leadership in China. We also made our first customer shipments for Agilent's newly released LCMS offerings. Our latest high-sensitivity triple quad, the 6495D, enables expanded and enhanced workflows, including for PFAS. This is, in addition to Revident, the first of a new generation of LC/Q-TOF systems that combine a new architecture with enhanced instrument intelligence for maximized operation time and productivity. The Agilent CrossLab Group posted revenue of $405 million.

This is up 5% with growth across all regions except China. Our contracts business led the way with double-digit growth overall, led by strength in enterprise service contracts. This performance highlights the continued strength and resiliency of our business. Connect rates for both services and Consumables continue to improve. This is a result of our focused strategy to deliver end-to-end customer value while also building a larger recurring revenue business. The Diagnostics and Genomics Group delivered revenue of $407 million, down 6% core. Our pathology-related businesses in our NGS QC portfolio grew mid-single digits, which was more than offset by declines in NGS Chemistries and NASD. NASD declined low double digits as expected. This is against a very tough compare of 22% growth driven by significant volume last year from a single commercial program.

We continue to be encouraged by our long-term prospects due to the increasing number of programs across a range of indications, many of them targeting large patient populations. The DGG team continues to innovate and deliver differentiated solutions for our customers. In the quarter, we introduced a new ProteoAnalyzer system. The new platform simplifies and improves the efficiency of analyzing complex protein mixtures, a process central to analytic workflows across the Pharma, biotech, food analysis, and academia sectors. From an overall Agilent perspective, we recently achieved World Economic Forum recognition for operations in Waldbronn, Germany. This site was named a Global Lighthouse for implementing innovations that boost productivity, output, and quality. This marks the second Global Lighthouse award for us after receiving the recognition for our Singapore facility two years ago. Agilent is the only life science tools company to be recognized as a Global Lighthouse.

Agilent recently achieved a top five ranking in the Barron's list of 100 most sustainable companies. In addition, we are included in the Dow Jones Sustainability Index globally and in North America for the 9th year in a row. Looking ahead, we expect the current market environment to persist through the H1, with an expected slow and steady improvement in the H2 of the year. We will continue taking actions that will make us stronger and position us well for the future. We will maintain our approach to prioritize investing for growth with a focus on execution and driving productivity.

Our better-than-expected Q1 results and my confidence in the Agilent team reinforce our view for the full year. Bob will now provide the details on our results as well as our outlook for Q2. After Bob's comments, I will rejoin for some closing remarks. Now, Bob, over to you.

Bob McMahon (SVP and CFO)

Thanks, Mike, and good afternoon, everyone. In my remarks today, I will provide some additional details on revenue in the quarter, as well as take you through the income statement and other key financial metrics. I'll then finish up with our Q2 guidance. Q1 revenue was $1.66 billion, a decline of 6.4% core. On a reported basis, currency added 0.9 percentage points, while M&A had a negative impact of 0.1%, resulting in a reported decline of 5.6%. Overall, orders were greater than revenue in Q1 as expected. As Mike mentioned, Pharma, our largest end market, declined 12%. Within Pharma, Biopharma declined low single digits but grew low single digits outside China, bolstered by strength in services and Consumables. Small Molecule was down high teens in the quarter with softness globally.

The chemical and advanced materials market was down 4% off a very tough comparison of 14% growth last year. We saw broad resilience in advanced materials with a low single digit increase year-on-year, as well as growth sequentially. Given the extremely tough compare of high 20s growth last year, these are impressive results. As expected, the chemical side saw a decline. The Academia and Government market was up 2%. The growth in this market reflects the stability of academic funding and lab activity. Our business in the Diagnostics and Clinical market declined 5%. Mid-single digit growth in pathology was more than offset by continued headwinds in Genomics, cell analysis, and LC and LCMS. The Environmental and Forensics market declined 1% after growing 12% in Q1 of last year. We continue to see new regulations around the world driving PFAS testing.

Europe grew mid-single digits, while China and the Americas were down low single digits. America faced a difficult compare of low 30s growth last year. The food market declined 3% but was up low single digits, excluding China. On a geographic basis, as Mike mentioned, both China and Europe exceeded our expectations, while the Americas were in line with our expectations. China was down 9% and showed a sequential increase over last quarter, which was much better than expectations. China benefited from continued stabilization and a bigger-than-expected Lunar New Year impact as some customers pulled forward incremental demand from Q2. We estimate the pull forward impact to be roughly $15 million, or 5% of China's revenue in the quarter. Even adjusting for this impact, China outperformed. Europe was down 4% year-on-year after growing 10% last year and was up mid-single digits sequentially.

This was driven by continued strong demand for our ACG services, offset by muted demand in Pharma and expected softness in chemicals. In the Americas, revenue was down 8% due to declines in Pharma and the softness in NASD and NGS Chemistries. Moving down the P&L, Q1 gross margin was 56.0%, down 50 basis points from a year ago as productivity and cost savings were offset by lower demand and mix. Our operating margin of 25.8% was down year-over-year as expected. Our ongoing cost savings initiatives are delivering as planned. Below the line, we benefited from greater-than-expected interest income in the quarter driven by nice work from our treasury team coupled with very strong cash flow. Our tax rate was 13.5%, and we had 294 million diluted shares outstanding.

Putting it all together, Q1 earnings per share were $1.29, down 6% from a year ago and ahead of our expectations. Now, let me turn to cash flow in the balance sheet. I continue to be very pleased with our cash flow generation. Operating cash flow was $485 million in the quarter, significantly above last year. In Q1, we invested $90 million in capital expenditures as we continue our planned NASD expansion. During the quarter, we returned $69 million to shareholders through dividends. Although no shares were repurchased during the quarter, we expect to catch up on our anti-dilutive share repurchasing for the remainder of the year. In Q2, we expect a minimum of $180 million to be repurchased. All in all, we had a good start to the year, and as Mike mentioned, it reinforces our confidence in the full-year guide we provided in November.

Now to our guidance for the Q2. We expect Q2 revenue will be in the range of $1.56-$1.59 billion. This represents a decline of 9.1%-7.4% on a reported basis and a decline of 8.4%-6.7% on a core basis against 9% growth last year. Currency and M&A combined are a headwind of 70 basis points. Our Q2 guidance also reflects the $15 million impact of the Q1 pull forward in China I mentioned earlier. Q2 non-GAAP earnings per share are expected to be between $1.17 and $1.20. Before turning back over to Mike, I just want to express my thanks to Mike and to congratulate Padraig. Mike, it's been a real pleasure to work with you.

While there have been many ups and downs in the markets these past few years, one thing I knew I could always count on is your steady leadership and strong partnership. And Padraig, congratulations again. I'm really looking forward to working with you. And now I'll turn things back over to Mike. Mike?

Mike McMullen (President and CEO)

Thanks, Bob. Today marks my 37th and final earnings call with all of you. Time does truly fly by. I want to first thank you for your support and engagement over the years. I have to say, it has been a tremendous honor serving as Agilent CEO and representing the achievements of the One Agilent team to all of you and the broader investor community. In 2015, we launched the then-new Agilent with the goal to transform Agilent into a leading life science and diagnostics company. We had an ambitious goal to drive long-term shareholder value creation with significantly stepped-up financial results delivered by an unmatched One Agilent team working together in a truly differentiated and compelling company culture. I couldn't be prouder of the Agilent team and what we've accomplished together over the last nine years.

While current market conditions remain challenging, the long-term promise of growth remains with end markets powered by investments to improve the human condition. On the Agilent front, we've never been in a stronger position to continue to capitalize on opportunities to serve our customers, win in the market, and deliver differentiated financial results. It's been a pleasure working with all of you over the years. I will miss it. While at the same time, I know that you'll enjoy working with Padraig in the years ahead. Like me, I know you'll be impressed with Padraig's knowledge of our industry and our business. As I noted earlier, he knows how to develop compelling business strategies, build winning teams, and deliver exceptional results. His track record of success during his Agilent leadership journey speaks for itself, and I have no doubt, he will continue in his new role.

While this is my last earnings call with you, I'm certain that the best is yet to come for Agilent. Thank you, and now over to you, Parmeet, for the Q&A.

Parmeet Ahuja (VP, Investor Relations)

Thanks, Mike. Regina, if you could please provide instructions for Q&A now.

Operator (participant)

Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone now. If you change your mind, please press star one again to withdraw your question. When preparing to ask your question, please ensure that your phone is unmuted locally. Our first question comes from the line of Derik De Bruin with Bank of America. Please go ahead.

Derik De Bruin (Managing Director)

Hi, good afternoon.

Mike McMullen (President and CEO)

Good afternoon, Derik.

Derik De Bruin (Managing Director)

Congratulations, Mike. It's been fun and good luck.

Mike McMullen (President and CEO)

Thank you very much.

Derik De Bruin (Managing Director)

First question, we've been getting a lot of incomings on the NASD business. Just because the growth trajectory is not doing what I think what people had thought it was going to do this year, I asked a couple of questions. It's like, look, there's been some pushouts in some clinical readouts from Alnylam with their HelioS trial. There's been some other sort of developments in the market. I guess the question is, are you still confident that that segment can grow this year, NASD can grow this year? And is there any risk at all that there's an overcapacity situation because it's just taking longer for things to catch up? Just really your thoughts on that, please.

Mike McMullen (President and CEO)

Yeah, thanks for that, Derik. It has been fun. Thank you again. I'll tag team with Bob on this. So as you saw in our prepared remarks, Q1 came in as expected for the NASD business. We are in a situation where we've had, I think, the broadest number of clinical programs and such. So we're very active. The volume is less commercial this year, as we pointed out in the script as well, versus clinical. Bob, I know we've been talking a lot with the team about the outlook for the year, particularly with some of our customers who are resequencing some of the clinical programs into 2025, so.

Bob McMahon (SVP and CFO)

Yeah, good afternoon, Derik. And as you're talking about, we remain very optimistic about the future of NASD. Our forecast for Train C&D remains intact in terms of building out the expansion. I would say that as we're talking about things, you mentioned one of the clinical trials that's an important element of one of our customers. We are seeing some potential pushouts into FY 2025. And as they are looking at revisiting their clinical trial programs and timelines, and it's probably closer to flat this year based on that, although we're not giving up hope, but that's built into kind of keeping our guide the way it is. But I think if you look at the number of commercial programs or, excuse me, clinical programs that we have, we're very excited about the future.

Hey, and Bob, I think it's also fair to say that this is not a byproduct of overcapacity in the industry or significant change in insourcing. It's really how some of our customers are reacting to really the IRA Act.

Derik De Bruin (Managing Director)

That's right. Well, that takes me, that's a great segue into my next question, which is, what's sort of the latest on Pharma? It doesn't sound like you're ready to call an inflection point, but it does sound like things sounded a little bit better. Can you just sort of give your thoughts on what budget releases are, sort of timing around that, any sort of notable developments? I mean, are you seeing any sort of signs of life that you thought the signs of budgets could start to be released in the Q2?

Mike McMullen (President and CEO)

Yeah, great question, Derik. Obviously, top of mind within Agilent, as we mentioned, Q1 came in where we thought it would. But what's the outlook? And Padraig, I know you've been spending a lot of time with your team and customers talking about this exact question.

Padraig McDonnell (COO and CEO-Elect)

Yeah, thanks, Mike. And I think customers continue to be cautious globally. I think we're stable. What we're seeing is stability, but no material improvement versus what we saw in the last half of last year. And in terms of the capital budget cycle in 2024, this is the time we see it. It's pretty early in that cycle. But we've heard movement in both directions, positive and negative, but fewer customers expecting negative budgets. So we're watching and seeing how that goes.

Mike McMullen (President and CEO)

Yeah, I think what you were sharing with me earlier, Padraig, was the tone was more negative at this time last year. It's still not super positive yet and still a lot of caution. But we're not seeing anything to cause us to change our outlook for the year.

Derik De Bruin (Managing Director)

Great. Thank you. Happy trails.

Mike McMullen (President and CEO)

I think, Bob, thanks. Thank you very much. I think, Bob, you had one question.

Bob McMahon (SVP and CFO)

Yeah, I was just going to say, one of the things that we see is very strong performance in our services and Consumables business in the Pharma sector, which actually speaks to lab activity. While we've seen a depressed capital cycle here, we're optimistic about that turning around in the H2 of the year.

Operator (participant)

Our next question will come from the line of Matt Sykes with Goldman Sachs. Please go ahead.

Matt Sykes (Research Analyst, Managing Director)

Hi, good afternoon. Thanks for taking my questions. Congratulations, Mike, on the retirement, and good luck. And Padraig, congratulations on the new role. Look forward to working with you more closely.

Mike McMullen (President and CEO)

Thanks, Matt.

Matt Sykes (Research Analyst, Managing Director)

Maybe just to start out, maybe bigger picture in China. It sounded like you made some comments about sequential improvement. It sounds like it's informing some of your confidence for back half. What are the risks that China just simply doesn't get worse and just kind of bounces along the bottom? And what kind of catalysts are you looking for in China for the back half for some level of improvement? I know it's not necessarily baked into your guide, but you did make some comments about some sort of nascent optimism there, potentially.

Mike McMullen (President and CEO)

Yeah, sure. Thanks for the question, Matt. And as we had a really, I think, nice print to start off the year, a big part of that was the performance in China. Yes, we had a bit of a pull in from Q2 from Lunar New Year, but the business overall was better than we had expected. And to answer your question, we now have several quarters of real orders, real revenue, and sequential growth. The numbers are real. So we're not seeing anything on the macro world that would also dramatically change what has continued to be a very challenging economic market in China. So what gives us confidence is the fact we've had a number of quarters now of predictability in the business. The numbers are coming in slightly better than we had anticipated.

But again, I think it's more just the fact we've had this ongoing run rate of business that gives us confidence on the outlook. And Bob, I know that you are going to jump in on this from Padraig? Yeah?

Bob McMahon (SVP and CFO)

Yeah. And I think if, Matt, as you just mentioned, we aren't assuming any inflection in our guide. That's been consistent. Actually, Q1 ended up being a little better than we anticipated. We kind of put money in the bank, so to speak. And if you look at it, we'll have now four quarters of numbers that are relatively stable, which is a very positive sign. And I think when we look at our funnel, it's also stable, as well as the order forecast is what Mike just talked about as well, so.

Matt Sykes (Research Analyst, Managing Director)

Great. And then maybe just on ACG, which had a good quarter, you talked about the contract revenue and specifically enterprise services with that growth. Maybe could you just help kind of size that contract business within ACG and then maybe talk about what is driving that growth and what kind of contribution can that make to the ACG segment over the course of this year?

Mike McMullen (President and CEO)

Hey, Matt, again, thanks for your support of the ACG business over the years. I want to use this opportunity to introduce our new ACG group president. But first, I'd like to maybe have a two-part response. Parmeet and Bob, I think it's roughly about 65% just to make sure. So roughly about 65% of our total services business is in this contracts arena. And Angelica, maybe you could share your thoughts on really what's been driving the growth we're seeing in that contracts business.

Angelica Riemann (President of Agilent CrossLab Group)

Yeah, thanks, Mike. As you mentioned, it's about 65% of the total business. A part of that demand has really been driven by the lab-wide enterprise services offerings where we're able to help customers as they're navigating their own economic situation, really helping them optimize their entire lab operation. Our portfolio offerings in this space have allowed us to really facilitate that improvement in lab operations, lab efficiencies. That's particularly important to those enterprise customers.

Mike McMullen (President and CEO)

Yeah, thanks, Angelica. In times of tough economic times and market times, the productivity help and driving productivity in the labs is a well-received offering we have.

Bob McMahon (SVP and CFO)

Hey, Matt, just one other quick thing on that. One of the great things that Angelica and team have been doing, and you heard us talk about this a lot, is about the increasing of the attach rate. That continues to grow at roughly a point again year-on-year this year. That kind of locks in that resiliency and that stability in that business. When we see the inevitable turnaround of the instrument business, that'll be a nice tailwind as well, so.

Matt Sykes (Research Analyst, Managing Director)

Absolutely, Bob. Got it. Thanks, guys. Appreciate it.

Operator (participant)

Your next question comes from the line of Brandon Couillard with Jefferies. Please go ahead.

Brandon Couillard (SVP)

Hey, thanks. Good afternoon, Mike. It's been a great run and a pleasure working with you.

Mike McMullen (President and CEO)

Thanks, Brandon.

Brandon Couillard (SVP)

The chemical and advanced materials business actually performed a little better than we were expecting. Obviously, you're still seeing some headwinds in the chemical side. Just give us your state of the union there, what you're seeing from a macro perspective, and kind of outlook for that business moving into the H2, Mike.

Mike McMullen (President and CEO)

Yeah, so I'll do a tag team on this with Padraig. So as you may recall, we've talked earlier this year about these secular growth drivers in the Applied markets. We saw that pretty much across the globe. I think what we're seeing again is the investments being made in advanced materials relative to the semiconductor supply chain and also the fabs driving productivity. We're seeing continued investment relative to battery development, QA/QC. I think we continue to see some real nice growth in the PFAS side of our environmental business, started in the U.S. I think all those Applied market secular drivers that we've been pointing to for some time delivered in Q1.

I think our outlook remains the same, that we're expecting there'll be a source of positivity for us in the overall CAM market space, albeit the chemical market is expected to remain subdued.

Padraig McDonnell (COO and CEO-Elect)

Yeah, that's right, Mike. I think it's really a tale of two submarkets. We saw broad resilience in the advanced materials with sequential growth. And given the extremely tough compare in high 20s we had last year, it was truly a very impressive result from the teams. The chemical energy side was we saw decline, but on a very tough compare of 10%. But we did see sequential improvement versus Q4 2023. Overall, I think our portfolio is extremely strong in this area. We have ability to cross and upsell across that. And of course, our strong services offerings help that value proposition.

Brandon Couillard (SVP)

Okay. Then, Bob, in terms of the guide for the year, I mean, you're sticking with the organic growth range for the year. You beat the Q1. The China fallout didn't explain all of the upside in the Q1. Kind of like the NASD outlook's lower. What other moving parts by end market or geography kind of get you to the same midpoint?

Bob McMahon (SVP and CFO)

Yeah, it's a great question, Brandon. And you talked about a couple of them. We feel really good about where we started the year. It's still at the beginning of the year, though, so we're kind of banking some of that. What I would say is if you looked across the moving pieces, with the NASD being slightly lower, that'd be offset by a little better results in the LSAG side of the business. And really, that chemical and advanced materials and academia are two areas that are probably slightly better than what we had forecasted. But overall, we're maintaining the guide. And as we are looking here, felt good about really at the start to the year.

Brandon Couillard (SVP)

Great. Thank you.

Operator (participant)

Your next question comes from the line of Puneet Souda with Leerink Partners. Please go ahead.

Puneet Souda (Senior Managing Director)

Yeah, hi. Thanks, Mike. Really great working with you. Padraig, welcome to the seat.

Padraig McDonnell (COO and CEO-Elect)

Thanks, Puneet.

Puneet Souda (Senior Managing Director)

So my first question. Thank you. So first question is really around maybe I think, Bob, you talked a little bit about the Book to Bill, orders growing faster than revenue. But maybe could you elaborate a bit more on the instrumentation side, what you're seeing, and what you're seeing with respect to Book to Bill in China? And a quick clarifying question on the 2Q guide. It does look a slight step down versus Q1. And I just wanted to make sure, beyond the Lunar New Year, what else are you baking in there?

Bob McMahon (SVP and CFO)

Yeah, I'll take that. There were a lot of questions in that one question. But so true to form, Puneet. And one of the things I'll start with the last one. I mean, we typically do have seasonality. There is that $15 million that gets pushed from one quarter to another. That's strictly timing in China because of the Lunar New Year.

But Q2 is typically a lower revenue number, so we're building in that normal seasonality. In terms of Book to Bill in China, actually, Book to Bill was greater than 1 in China, so continued stabilization. And in terms of Book to Bill for our instruments, it was below one, kind of expected. Now, some of that was a result of the China pull forward where the orders came in, and we were expecting that revenue to be shipped in Q2. So there's some element of timing there. But all in all, a positive start to the year.

Mike McMullen (President and CEO)

Hey, Bob, I want to cover the headline on that too. I'd just say that Q2 seasonality is as normal. The Q1 Book to Bill results are as our normal pattern. So again, we've been talking a lot about normalization of business flow. I think we're seeing it in terms of the seasonality of patterns and Book to Revenue situations.

Puneet Souda (Senior Managing Director)

Got it. That's super helpful. And then just a high-level question, a simple question. Could you maybe elaborate a bit on the Pharma side, where you're seeing more traction, more growth? Is it the large Pharma, small biotechs, CROs, CDMOs? Maybe just talk a little bit about that. Thank you.

Bob McMahon (SVP and CFO)

Yeah, I'll take that, Puneet. If we look across our business, the relative strength was actually in our biopharma, so large molecule. And our business is skewed to the larger midsize and large-cap companies. The standout has been the ACG business and our Consumables on that. So it actually speaks to activity in the labs. We are starting to see I don't want to call it a trend, but certainly a stabilization on the emerging biotech side of it. The instruments were still down. But that is where we're starting to see the relative strength in the Pharma business.

That speaks to kind of the long-term growth drivers, I think, in that market. I would expect that to continue throughout the course of the year as our business gets stronger and the markets get stronger. Quite honestly, we have more favorable comps.

Mike McMullen (President and CEO)

Hey, Bob, and I think if I call correctly, outside of China, our biopharma business actually grew in the quarter.

Bob McMahon (SVP and CFO)

That's right.

Puneet Souda (Senior Managing Director)

Got it. Super. Thanks, guys.

Operator (participant)

Your next question comes from the line of Rachel Vatnsdal with JPMorgan. Please go ahead.

Rachel Vatnsdal (Executive Director, Equity Research)

Hi. Thanks for taking the question. Congratulations, Mike and Padraig, on your new role as well. So first up, I just want to follow up there on the comments around Book to Bill. So you mentioned that Book to Bill for instrumentation was below one for the quarter. And some of that was really timing-related. So I guess can you just break that down for us a little bit further? What trends were you seeing in liquid chromatography versus mass specs, for example? And then is there any dynamics or trends to call out from geography on that instrumentation business as well?

Mike McMullen (President and CEO)

I don't think there's any new trends here. I think without going into the details by our product line, the Small Molecule side has really been an area where we've talked about the year-to-year challenges there from the LC side. But Phil, I don't know if you want to jump in with any thoughts here, but I don't think there's any real outstanding new trends here, perhaps the better-than-expected trends we saw in Applied markets, particularly on advanced materials. But maybe have something else you want to add?

Philip Binns (President of Life Sciences and Applied Markets Group)

Yeah, sure, Mike. I think that's pretty much the case, similar to Q1, around how the markets are performing. We're seeing some bright spots around some of the secular areas in the Applied markets in the instrumentation, which is driving the business forward. But just support your comments there.

Bob McMahon (SVP and CFO)

Hey, Rachel, just one other thing to build on what Mike and Phil were just talking about. When we look at our LSAG business, it was down 11%, which was better than what we expected. The piece that's really been driving that down is the Pharma market, which is what we've been expecting. If we looked at the rest of the markets, they were much better than those down 11%, with the exception of the diagnostics and clinical, which is a small number.

Right. And to your question, Rachel, that dynamic in the Pharma really speaks to pressure on the LC business.

Rachel Vatnsdal (Executive Director, Equity Research)

Okay. And then I just want to ask about monthly trends. Some of your peers had talked about how spending had been a little bit slow out of the gate in January and then into early February. So I guess since you guys have a few more weeks of visibility here, can you walk us through, were you seeing similar trends on just slower spending to start the year? And has any of that started to come back? Any color there as we enter fiscal 2Q would be helpful. Thanks.

Mike McMullen (President and CEO)

Well, as you know, I've been in this business for a while. It's always slow in January. That's why we have the seasonality we talked about relative to Q2. I don't think we're seeing any significantly different trends that we've seen historically. Padraig, I know that you're closer than I am, but.

Padraig McDonnell (COO and CEO-Elect)

Yeah, no, I think that's right. That's right, Mike. I think on the ACG side, we see a number of services. Our service contract business comes in strong on the ACG side. But on the capital side, we're not seeing much.

Philip Binns (President of Life Sciences and Applied Markets Group)

Yeah. To just put a finer point on that, January came in as we expected.

Operator (participant)

Our next question will come from the line of Vijay Kumar with Evercore ISI. Please go ahead.

Speaker 21

Hey, this is Jordan on for Vijay. Hey, Mike. This is Jordan. Thanks for taking my questions.

Mike McMullen (President and CEO)

Sure.

Speaker 21

Maybe one follow-up on the China side. Have you seen any hints of stimulus to start the year? If we do see a stimulus, do you have any foresight to what implications that will have on Agilent?

Mike McMullen (President and CEO)

Both Padraig and I are in the conference room shaking our heads. No, we've not heard anything about any potential stimulus. What I can tell you is, if it does happen, it's upside to our outlook.

Speaker 21

Understood. And then maybe one more from me. Can you talk about how pricing has trended in the quarter and any updates to your expectations for the remainder of the year?

Mike McMullen (President and CEO)

Bob, do you want to take that one?

Bob McMahon (SVP and CFO)

Yeah. We were pleased with the results. It was between 1% and 2%, but in line with kind of the seasonality and the mix that we saw, we would expect to see in Q1. So right now, it's on track. As we've talked about, our Consumables business and ACG business have the greatest price realization, followed by, generally speaking, actually, we had a very good result in diagnostics and Genomics in the quarter. And then we did see some mix, but not anything out of the ordinary in the instrumentation side. So all in, we're on track for what we expected for the full year.

Speaker 21

Understood. Thank you.

Operator (participant)

Your next question comes from the line of Patrick Donnelly with Citi. Please go ahead.

Patrick Donnelly (Managing Director)

Hey, guys. Thanks for taking the questions. And yeah, Mike, I'll second the congratulations on the retirement. Bob, maybe one for you first. Just in terms of the EPS guide, it looks like you guys got an additional $20 million on the kind of net interest, other income. Can you just kind of flag, if that's rolling through, did that core earnings number move a little lower? Is there any moving pieces there? And then secondarily, just on the margin piece, you guys have that cost-savings plan. Can you just talk about how that paces as the year goes would be helpful?

Bob McMahon (SVP and CFO)

Yeah. Thanks, Patrick. Great question. And what I would say is a couple of things. Yeah, we are on track to have more interest income than what we anticipated at the beginning of the year, that $20 million. And saw some of that in the Q1 as well. And that's really a result of actually having better-than-expected cash flow in the Q1 and great work by that treasury team. I would say that on the savings, we're on track for the savings targets for the full year. And as I think about the year, it's still very early in the year. And this provides us, what I would say, is more confidence in the guide.

Patrick Donnelly (Managing Director)

Okay. That's helpful. And then maybe just on kind of the Book to Bill, how are you guys thinking about I think last quarter, you said the Book to Bill for the year would be above one, but you'd have quarters kind of in and out on the instrument side, which obviously we're seeing this quarter. How are you thinking about just the order trends and the Book to Bill trends on the instrument side as we work our way through the year, given what you're seeing today?

Bob McMahon (SVP and CFO)

Yeah, no change to what we said back in November. Q1 is a proof point for what we said.

Patrick Donnelly (Managing Director)

All right. Fair enough. Thank you, guys.

Bob McMahon (SVP and CFO)

All right.

Operator (participant)

Your next question comes from the line of Dan Brennan with TD Cowen. Please go ahead.

Dan Brennan (Experience Senior Equity Research Analyst - Managing Director Senior Equity Research Analyst, Managing Director)

Thank you, Mike. It's been great working with you over the last nine years. Congrats. Padraig, look forward to working with you as well.

Mike McMullen (President and CEO)

Thanks, Dan.

Dan Brennan (Experience Senior Equity Research Analyst - Managing Director Senior Equity Research Analyst, Managing Director)

Maybe just don't want to beat a dead horse, but just for the instruments, did you guys say? I know in the Q, you usually put out what the instrument number actually was. So what did instruments actually do in the quarter? And then, given how much easier comps go as we get through the year, can you just kind of give us a sense of pacing? What should we expect on Q2 in instruments? And then we can kind of have it the back half of the year.

Mike McMullen (President and CEO)

Bob, I know the team did a calculation on that because the LSAG was down 11, but that includes our Consumables business, which was up.

Bob McMahon (SVP and CFO)

Yeah, I would say we typically don't give all that information, but it was down. We were down 11%. It was down 20% in the quarter, but that was better than expected, offset by 6% growth in our Consumables business. If we look at the LSAG thinking for Q2, it's down low teens. And a lot of that has to do with some of the timing associated with that $15 million shift. That's almost all capital equipment from Q1 or from Q2 back into Q1. So if you look at it, it is in line with where we expect it to be.

Mike McMullen (President and CEO)

Then we go into more favorable comparison Q3 and Q4.

Bob McMahon (SVP and CFO)

Correct. Correct.

Dan Brennan (Experience Senior Equity Research Analyst - Managing Director Senior Equity Research Analyst, Managing Director)

Got it. Okay. And then I know there's been a handful of questions already on China, but would you mind spending a bit more color on kind of what maybe by segment, Pharma, applied, any color you can give us kind of what you're seeing within the different businesses in China? And is down mid-single still the expectation for China for the full year? Or is there a chance you can kind of see some upside to that number? Thank you.

Mike McMullen (President and CEO)

I think we've raised it up a bit. It's still down, but.

Bob McMahon (SVP and CFO)

Yeah, yeah. I think we're cautiously optimistic there. I'd say it's still within a range that we had before. So I don't want to call an inflection. But if you looked at the markets, we were down that 9%. That was roughly down 20-ish% in Pharma. So that continues to be the area of really around the globe. But China is no different. The great thing is many of the other markets perform much better. So even when you think about academia and government, that grew. So did our Chem and Advanced Material business. Now it grew very low single digits. And then our Forensics and Environmental was down low single digits. So you're actually starting to see this continued stabilization.

Then you'll get into much easier compares in the back half of the year in China because that down 22% was down compared to up 12% last year. We had another strong compare in Q2. Then we actually started seeing the pretty significant declines year-on-year. So there's reasons to be optimistic about that continued stabilization that Mike talked about. We're not ready yet to call an inflection. When it happens, we'll take it.

Mike McMullen (President and CEO)

Hey, Padraig, I think you wanted to jump in on this.

Padraig McDonnell (COO and CEO-Elect)

Yeah. I think what we see is also Consumables and services continue to outperform expectations in China. That's going to affect that to continue.

Mike McMullen (President and CEO)

Yeah. I think the story that Greg built, Padraig. And I think the story really was in Pharma, Q1, the instrument, the CapEx side of things. But we're pleased with the start there.

Dan Brennan (Experience Senior Equity Research Analyst - Managing Director Senior Equity Research Analyst, Managing Director)

Great. Thank you.

Operator (participant)

Your next question comes from the line of Catherine Schulte with Baird. Please go ahead.

Catherine Schulte (Senior Research Analyst, Director)

Hey, guys. Thanks for the questions. Maybe first. Said Pharma was down 12% in the quarter. I think you said Biopharma was up 2% ex-China. What was Small Molecule performance ex-China and maybe the outlook for Biopharma versus Small Molecule for the rest of the year?

Bob McMahon (SVP and CFO)

So Small Molecule on a global basis was down roughly 18%. Ex-China, it was down 20% and down roughly 14% for China. So pretty consistent across the globe, I would say. In China, the big area in China that has been impacted is on the Small Molecule side where we'll start to see better comps going forward after Q2.

Catherine Schulte (Senior Research Analyst, Director)

Okay. And then maybe on Consumables, great to see a return to growth there this quarter. Can you talk through what you saw outside of China on the consumable side?

Bob McMahon (SVP and CFO)

Our Consumables business was pretty consistent across the globe in terms of growth.

Mike McMullen (President and CEO)

Todd, I don't know if you have anything you want to add to that on what we've seen on Consumables. I think we were really pleased to see that because that really speaks to lab activity being robust. So anything else you want to jump in on with?

Philip Binns (President of Life Sciences and Applied Markets Group)

Yeah. Probably just one item there, Mike. I think we are seeing really good traction around our workflow development, so end-to-end solutions, which obviously also drives our services business as well. But around the Consumables, in most of our end markets, we've been pretty heavily focused on developing workflows and making our customers' lives easier and more integrated in their labs. And that's showing some really good traction. And that's reflected in solid connect and attach rates in the consumable space.

Mike McMullen (President and CEO)

Yeah. Thanks, Phil. I'm really glad you closed with the comments about connect rates. We've talked about that relative to our services business. We're also seeing a very strong positive trend on Consumables as well, which bodes well to our future in terms of recurring revenue business growth.

Catherine Schulte (Senior Research Analyst, Director)

All right. Great. Thanks and congrats on the retirement, Mike.

Mike McMullen (President and CEO)

Thank you very much. Most appreciate it.

Operator (participant)

Your next question comes from the line of Jack Meehan with Nephron Research. Please go ahead.

Jack Meehan (Equity Research Analyst)

Thank you. Good afternoon. Mike, again, it's been a pleasure working with you. Just had a couple of follow-ups. The first one was, can you just talk about what you're seeing in the Genomics business within DGG? I know it's still been a bit of a drag. Just when do you think that's going to start to turn?

Mike McMullen (President and CEO)

Yeah. Thanks for your kind comments, Jack. And I think I'll invite Bob in on this one. But I think it's been sort of a tale of two cities. When we talk about our Genomics business, there's really two pieces to it. Half of it's in QA/QC activities for NGS workflows. And we're seeing really solid growth on the Consumables on that side of things, as well as starting to see signs of life on the CapEx, not ready to call a turn there yet. But that's in reasonably good shape. I think we've seen really in our U.S.-based Genomics business, some early market challenges have been hitting us. And Bob, maybe you can elaborate on that.

Bob McMahon (SVP and CFO)

Yeah. That's right. Thanks, Mike. And as you said, our NGS QC portfolio from an instrument and consumable side actually grew mid-single digits in the quarter, which was very nice. The Genomics chemistry side that we referenced in the prepared remarks was down. We faced some very difficult comps. We had a couple of companies that reorganized and exited some businesses. They had some lifetime buys at the end of Q1. I would expect the performance of that to improve starting in the H2 of the year.

Jack Meehan (Equity Research Analyst)

Great. And also wanted to ask about the academic end market. I know that's been very stable for you guys. But just what you're seeing in the U.S. here with the continuing resolution for the NIH, just thoughts on the durability moving forward. Thank you.

Mike McMullen (President and CEO)

Yeah, Jack, thanks for noticing that. That was a real bright spot for us. We actually grew, I think, 2% in the quarter. And we've been working on this thing for some time to really build out our portfolio and really change our market position in academia research. And I think it's starting to show up in the numbers. I think stabilization really is what we're seeing, which is the funding is there. And NIH is a relatively really small part of Agilent's business, so really is immaterial. But we're seeing universities have increasingly been funded through private sector. So the money is there. And even so we saw money in China as well. So it was really a nice global story for us. And we're fairly optimistic that that kind of stabilization can be there for us for the rest of the year.

Operator (participant)

Your next question will come from the line of Doug Schenkel with Wolfe Research. Please go ahead.

Doug Schenkel (Managing Director)

Well, Mike and Padraig, congrats to both of you. Mike, as everyone said, you'll be missed. I hope this means more time on the beach, but we'll miss you.

Mike McMullen (President and CEO)

Absolutely. I'll be listening.

Doug Schenkel (Managing Director)

Yeah. Yeah. I hope not too much. But anyway, I want to ask a question on guidance and then a question on capital deployment. And.

Mike McMullen (President and CEO)

Sure. Absolutely. Go ahead, Doug.

Doug Schenkel (Managing Director)

So for the year, on one hand, around 48% of sales is in the H1. At least that's how you've guided, I believe. Yeah, that's lower than last year, but it's not outside the norm for the last several years. On the other hand, just doing some math, your guidance for the H1 embeds the assumption that revenue declines around 7% organically and then improves 7%-9% organic in the H2. Can you do that just as a function of the comps, or do you actually really need to see improvement in certain geographies or certain end markets or categories? And then again, just a math question. Does guidance assume Q4 revenue kind of exiting around $1.8 billion?

Bob McMahon (SVP and CFO)

Well, hey, Doug, this is Bob. I'll take that last one. We'll tell you when we get to Q4 and what I would say. But your math is, in all seriousness, your math is spot on as usual. I think one of the things that we look at is we look at it a couple of different ways. I think the way to look at it is that H1, H2, kind of looking at seasonality. That's probably more instructive given kind of the changes in the growth rates. And when you look at it, as you notice, as you mentioned, it is in line with our historical seasonality. And when you look at the growth rates, you're right. We are expecting growth in the back half of the year. A lot of that is, in fact, the easier the compares.

When we actually look at what I would ask you to take a look at also is a two-year stack basis relative to implied Q1 and H1 and H2. What you would see there is a much more smooth number that we also looked at as well. As usual, you're spot on there.

Mike McMullen (President and CEO)

Bob, I think that's why we really emphasize in this script the word stabilization because as things have continuous stabilization, we're going to get a lift in the growth rate just by the comps as we go.

Doug Schenkel (Managing Director)

That's super helpful. Yeah. I know there's a lot of focus on how much improvement is necessary to get there. So if a lot of this is stability and just math, that I think obviously makes people more comfortable. I know I've taken up a lot of airtime already. Real quick, capital deployment. The cash flow remained robust. The balance sheet is super clean. Can you just talk about your thinking right now on capital deployment and what the environment looks like right now?

Mike McMullen (President and CEO)

Yeah. I think we remain very interested in deploying capital in a balanced way, which is inclusive of investing in the business. And that speaks directly to our interest in M&A. It's our build-and-buy growth strategy. I'd just have to say that the funnel pipeline is more robust than I've seen in a number of years. And nothing to obviously announce, but we're very much engaged.

Doug Schenkel (Managing Director)

Great. Thanks again.

Operator (participant)

Your next question comes from the line of Josh Waldman with Cleveland Research. Please go ahead.

Josh Waldman (Senior Equity Research Analyst)

Hey, thanks for taking my questions. Congratulations, Mike and Padraig.

Padraig McDonnell (COO and CEO-Elect)

Thank you.

Mike McMullen (President and CEO)

Yeah. Thank you.

Josh Waldman (Senior Equity Research Analyst)

Yeah. Yeah. Just a couple on my end, and maybe Bob, starting with you. First, a follow-up on the guide. Can you comment a bit more on how Q2 guide moved versus the framework in the initial outlook? I assume core outlook came down a bit, but just wanted to confirm the moving pieces there. And then does the core guide reflect any changes in Q3 or four, or is it really just reflecting an update on H1?

Bob McMahon (SVP and CFO)

Yeah. That's a good question. It's a little of both. Josh, so Q2 is relatively intact for what we had originally thought, with the exception of that small movement of the China business. That's roughly a point of core growth from Q1 and Q2 switching. What I would say is Q1 also had a beat into it. What we're taking is some of that out of the H2 of the year. And so the takeaway is Q2 is spot on from where we expected it to be, absent that kind of shifting the timing shift of China. And then the Q2 or the rest of Q1, kind of the beat, really helps us in the H2 of the year.

Doug Schenkel (Managing Director)

Okay. Okay. And then, Mike, can you talk about how visibility in the business has evolved over the last three months? Has there been any improvement in the ability of the funnel to predict near-term sales or still seeing an elongation of kind of opportunity and quoting, flipping to orders? You have clarity as total company and then also what you're seeing in Pharma specifically.

Mike McMullen (President and CEO)

Yeah. No. And I'll have Parmeet jump in as well. I think the visibility remains the same. I don't think it's any better, any worse. And so I think it's the normal kind of cadence of business. And that's why, as Bob just mentioned, when we're talking about the H2, we bank some of the beat to put against the H2 because we've yet to see the H2 materialize in terms of the order book, which is typical at this time of year.

Padraig McDonnell (COO and CEO-Elect)

Yeah. No. I think that's right, Mike. And I think as far as the quality of orders remains, that remain in our backlog. Nothing has changed. We've not seen any increase in cancellations. And ex-China funnel continues to grow. And that's led by the aftermarket business. I will say, as a continuing team, the deal closure times remain at elevated levels. But it's definitely stable. And deal win rates have been consistent.

Mike McMullen (President and CEO)

Yeah. I think it's an important point made here. Elevated, but we're not seeing elongation. So they're stable, but they're longer than they have in the past.

Doug Schenkel (Managing Director)

Okay. Thanks, guys.

Bob McMahon (SVP and CFO)

Sure.

Operator (participant)

Your next question comes from the line of Dan Leonard with UBS. Please go ahead.

Dan Leonard (Managing Director, Research Analyst)

Thank you. My first question, just a bit more on China. Are you expecting sequential growth in Q2 in China similar to Q1?

Bob McMahon (SVP and CFO)

No. If you looked at the sequential number, it's going to be roughly the same as what we had in Q1. If I was to ask you this.

Dan Leonard (Managing Director, Research Analyst)

Yeah. I think.

Bob McMahon (SVP and CFO)

Yep.

Dan Leonard (Managing Director, Research Analyst)

All right. Thank you for that. And Mike, congrats on your retirement. I was wondering if you could elaborate on timing. I was surprised. Others were surprised. I've gotten the question a number of times. And we'd just love to hear your thoughts.

Mike McMullen (President and CEO)

Yeah. Thanks for that. So while it's maybe a surprise to many on the call, and it was a surprise when I shared the news across the company because the Agilent team just knows how much I love working for this company and work with them. And it really was a really difficult decision for me. But I've been contemplating this for a while. And I pulled the board into the discussion, started communicating with them because I really wanted to make sure that they had enough time to really run a thorough and thoughtful selection process in which they're able to do. And in my mind, they came out with the best possible choice in selecting Padraig. But yeah, but this is something that I've been contemplating for a while and started engaging the board about my timing.

And then really want to make sure they had enough time to really pick the right successor. That's what they did.

Dan Leonard (Managing Director, Research Analyst)

Well, you always seem to be having a lot of fun. So congrats again. And it's been good.

Mike McMullen (President and CEO)

Thank you. It's going to be hard to step away. But I have to say, the pull of family was just too strong. We have a 6-month-old, 18-month-old grandson. And he will soon have a brother and sister. So there's a lot going on on the family side. And there's only one way I can make more time. So again, it's been a real pleasure working with all of you on the call.

Dan Leonard (Managing Director, Research Analyst)

All right. Thank you.

Operator (participant)

Your next question comes from the line of Luke Sergott with Barclays. Please go ahead.

Luke Sergott (Director)

Great. Thanks, guys, for squeezing me in. I just want to talk about the margins on the quarter and kind of the stepdown and DGG and LSAG. I assume, obviously, it's probably driven by the volume declines there on the instrument side. But how do you guys view the recovery in the margins between DGG and LSAG throughout the year to hit your guide?

Bob McMahon (SVP and CFO)

Yeah. Hey, Luke, this is Bob just real quick. You're right. If I look at DGG, it actually was improvement year-over-year. But it was down. And it was really a result of that margin or the volume. I would say also there was an element of mix in LSAG. And I would expect that to continue to improve. The cost actions that we took weren't fully actualized all as expected in Q1. So we'll have the full impact of those as well in Q2 throughout. So I would expect an improvement over the course of the year as volumes grow up in both LSAG and DGG.

Luke Sergott (Director)

That's what I thought. I just want to clear up. And then just for follow-up here from the 2Q guide, can you just help frame what you guys are embedded there by the different segments?

Bob McMahon (SVP and CFO)

Yeah. If I look at the Q2 guide, we're still expecting if I looked at the end market, Pharma down double digits, academia and government down low single digits really as a result of some of that timing shift. Diagnostics and clinical down mid-singles. Chemical and advanced materials down high single digits. Food about the same. Both of those are as a result of some of the shift also in the China business from Q2 back into Q1. Then environmental and forensics kind of mid-single digit decline.

Luke Sergott (Director)

Great. Thanks.

Bob McMahon (SVP and CFO)

Yep.

Operator (participant)

Our final question will come from the line of Paul Knight with KeyBanc. Please go ahead.

Paul Knight (Managing Director)

Hey, Mike. Really super to see you doing what you're doing. I knew you, I don't know, 15 years before you became CEO. So I guess the concluding question I would have, at least professionally, would be, what do you see in terms of two things? Number one, what do you think the kind of market growth rate is for the markets that Agilent participates in? And then geographically, where do you see the surprise over the next 5 years? Will Japan reinvigorate its growth? Will Europe see more insourcing? Would love to have your perspective on those things.

Mike McMullen (President and CEO)

Yeah. Hey, thanks, Paul. Yeah. We do go way back, don't we? And it's been great to work with you over those years going way back to the CAG days in our prior role. I think we think this is a 4%-6% kind of growth market, mid-singles. So we think that the kind of market growth that we're not experiencing as the industry right now is an anomaly. And this will be back to that 4%-6% kind of long-term growth rate. Obviously, certain segments within that overall macro number, that big TAM will be growing faster than that. And that's always a challenge to make sure that you pick those segments so you can actually beat that number. I think there's going to be some geographic mix.

I mean, we've evolved our view of long-term growth into China because we actually expect with some of the supply chain moves and other things that have been going on that you'll see more growth in Europe, which has been more of a slower grower for us geographically. But we've been continued to be surprised how well we do, our team does in Europe. I think you're going to expect to see Japan rejuvenate it particularly. I think you can make the case of the semi-industry, which is going to return with some strength in Japan. But that's the beauty of this business is just the diversified nature of both the end markets and geographies. So that would be my last, I guess, my final prediction of long-term growth for the market in this role. But thanks, Paul. Appreciate the comments. And looking forward to staying in touch.

Operator (participant)

I'll now turn the call back over to Parmeet Ahuja for closing remarks.

Parmeet Ahuja (VP, Investor Relations)

Thank you, Regina. Thanks, everyone, for being on the call today. With that, we'd like to close the call. Have a good day, everyone.

Operator (participant)

Ladies and gentlemen, this concludes today's call. Thank you all for joining.