Welcome to the Jefferies 2023 New York Global Healthcare Conference. Very happy to have Agilent with us, at the conference today. Joining us, CEO, as most of you probably know, Mike McMullen, as well as CFO, Bob McMahon. Thanks, everybody, for being here. I think we agreed to share the mic, hey, Brandon? It's a pleasure to be here right on the heels of our recent, Q2 earnings announcement. Pleasure to be here, as always. Well- I think Bob's happy to be here as well. Maybe to jump right into things. Yeah ... on the topic, you know, du jour, that we've been having a lot of investor conversations about, and was certainly a theme coming out of earnings, is it's just, you know, kind of trying to understand what's going on with instrument demand broadly. Now with a little bit of hindsight, you know, how would you sort of characterize, I guess, the last two years in terms of whether that was some degree of pull forward? Just kind of recap us on, you know, what you're seeing in your instrument business, coming out of the second quarter. Yeah, as you know, I've been in the industry for a number of years, and I think the last few years have really been a different kind of a cycles than we've seen historically, obviously, you know, driven by the dynamics from the pandemic. We've been on record on this earlier, particularly in certain aspects of some of our larger markets, the pharmaceutical market, the small molecule side of the marketplace. We wouldn't say it was a pull forward, it's been more of a catch up. As you know, about 70% of that business, of our business is in the small molecule area. A lot of that's just replacement of instrumentation. Customers will, at some point in time, need to continue to make sure their fleet of instrumentation is up to date. We were seeing really strong demand, you know, 20-plus growth rates for a number of quarters in the liquid chromatography area. Then, probably, you know, 12 to 15 months ago, we said, "Listen, you know, things will start to move towards their long-term growth rate. Don't expect, you know, 20% growth rates to continue." When we set up the guide for this year, in fact, we had anticipated that you'd start to see some level of moderation, particularly in small molecule. But what we actually saw in Q2 was actually a more significant slowdown than we had anticipated. Those... Some of those trends, I think, will eventually, and we'll probably talk about cycles and other things, we play with cycles, but long-term growth prospects of the markets in pharma remain really strong. As you saw in a recent quarter, that's really where the slowness was centered in terms of the outlook. If we're just looking at the instrument, Dan, is it primarily biotech, mid pharma? Is it more industrial customers? Is there any trends... Yeah you'd speak to in terms of geographic? Sure. It's interesting. I've been in this role, I think, 30 some quarters, and we've had every quarter has either been single, double... I mean, high singles or double-digit growth in pharma, except one. We're starting to see some different dynamics right now. I think when you look at our outlook for the second half of this year, the slowing that we were projecting By the way, I keep wanting to remind you, we had some previous, strong numbers to compare over the prior years. That being the case, to answer your question, which is, it was really centered in the pharma market, primarily in the United States and China, and we can get into the geographic dimensions later on in our conversation. Let's kind of dissect a little bit between mid and large pharma and biotech, emerging biotech, because I think there's two really different stories here. Mid and large pharma, the funnels are active, the funnels are strong. The orders that we have in backlog remain high quality. There's no cancellations, but there really is a level of conservatism in terms of approving new capital. We haven't heard that their budgets have been reduced for the year, but they're also not releasing them. That's why we know at some point in time, we'll start to see an uptick in the in that end of the market. We're not calling for it right now, as you may know. We're saying we expect this kind of environment to continue at least through our fiscal year, which, as you know, ends October 31. Biotech, emerging biotech is a completely different story. Surprisingly, we for the first half of the year, Bob, I think we were actually pretty strong in this area. You know, customers are still finding ways to get access to cash, to be able to buy new instrumentation, also support their ongoing application work in the lab. That's now all shut down. I mean, there's really they're really trying to conserve cash, there's not a lot of new deal activity happening right now in emerging biotech. Yeah. Now, for us, it's what? About 3% of our revenue. Yeah, I was going to say, maybe to frame the... Our pharma market- Yeah ...is the largest. Yeah, yeah. It's a little over 35% of the total company. Within that market, 90% is mid to large-sized pharma, and 10% is kind of that emerging market. Mm-hmm. That's about 3%. Yeah ... for the total company. If we look at the instrument business kind of broadly. Mm-hmm ... this has been kind of a new exercise in terms of assessing everyone's kind of instrument business profile. You know, you do a lot of different things. It's not just LC, right? Yeah. You're also big in mass spec. Yeah GC, spectroscopy. Can we break down that 40% of your business that is instrumentation in any kind of granular way? Can you speak to some of the, I guess, differences in demand trends? Yeah. Is there any nuances between the different classes? Yeah, sure. Maybe I kind of start. Our fundamental strategy for a number of years, really, has been to broaden our, be a broad line supplier into the lab. We've continued to broaden out our technology platforms, and we've built up a nice spectroscopy business. We continue to expand mass spectrometry, and always had a real strong core in chromatography, and we'll probably talk a little bit later about the cell analysis business as well. And our strategy has always been, and I think this really gets to some of the nuances of your question. Our fundamental strategy is that if we can take these core technologies and applicate them into multiple end markets, it's a great growth model and also a great margin model. Why I'm bringing this up is the, some of our platforms have different end markets characteristics, and we call these the applied markets, which is a really area of strength for us. When pharma is slowing, you know, we do think that the growth for pharma will return, the question is when? These other areas, such as environmental testing, food testing, these other areas of the platforms are where they applicate it, you know, are continuing to be quite strong in terms of funding in those end markets. If you look at the profile of our business, chromatography, mass spec, you know, they are the biggest parts of our portfolio in terms of contribution to revenue. We sell more mass specs than anybody in the world. If you go GC-MS, LC-MS, IC-MS, this is where we get a lot of leverage in terms of our platform development, a lot of common components, a lot of common software. Then the primary markets for those products remain the pharmaceutical market, albeit the outlier would be gas chromatography, which is sort of the heritage product line of Agilent, really strong in the CAM markets. Why is that? I use the word CAM, this is our chemicals and advanced materials market. We actually think that there's some new secular drivers that we've been talking about for a while in the CAM market, particularly as it relates around the advanced materials piece. There's pockets of even though there's some overall, the overall investment profile of new capital investment has slowed, right now, there are pockets of continued strength. I think this diversification of Agilent's end markets really is part of our story as well. Anything else to add to that, Bob? Okay. I do want to dig into that part of. Sure. CAM business in a moment. Just to, I guess, round this off, you were one of the only companies that kind of articulated in a view that this might be a, I think you said, 12-18 month sort of correction process, based on, I think, historical sort of trends. Yeah. Given we are coming off of, you know, very tough comps. Mm-hmm. will this be a normal correction cycle? you know, how would you describe, I guess, your visibility- Yeah today compared to, you know. Yeah, it's a great question. I remember I got this question, I think, in an earnings call, against other people who are calling for much shorter cycles. I think what's also important for us to kind of characterize, what are we talking about? We're talking about a replacement market. We're primarily talking about replacement market for LCs and GCs, but primarily the chromatographs. There is always a replacement market going on. Customers have fleets of instrumentation in their lab, and over time, they want to make sure they keep that fleet up to date. They may choose to slow the replenishment process because of what may be happening in their particular business or in the marketplace. What we're really talking about is rates of replacements. What we saw, you know, back in 2018, 2019, they actually had slowed the rate of replacement, and that was probably, you know, a 12-21, 24-month cycle. What you saw happening was when you had COVID coming and pharma had more cash available, they did an accelerated catch-up. What we've been calling for for some time is ultimately, the market will move back to what we think is a mid-single digit kind of growth profile for replacement market for LCs. We have been growing 20% plus for a number of quarters. We actually posted -1 Q2, which we don't think also is long-term growth rate. It's hard to know exactly when these, when these cycles will change because it's. If anything, over the last several years, I think we've learned that history is not always a good guide when you're dealing with the, hopefully, what will be a once-in-a-lifetime global pandemic. We do know there will be a turn. Right now, what I can say for sure, Brandon, is we're not assuming anything's going to happen in the next six months. I would be surprised we don't see something happen over the next two years. I mean, I think we still feel that's a reasonable way to looking at it, but once I see it start turning, I will be sure to let you know. Yeah, shifting gears back- Yeah ... to the CAM business. You know, this is, you know, a segment of Agilent that, you know, for healthcare investors is, you know, uncomfortable in terms of the inherent sort of cyclicality of some parts of that segment. You've been on a tear for the last 10 or so quarters. Mm-hmm. I mean, kind of consistent high single, double-digit growth. How sustainable is that? Then, you know, how would you sort of, I guess, describe the sort of go-forward, growth profile of CAM, given some of these- Mm-hmm ... newer secular markets? Hey, Bob, I think I may actually pass this over to you because I was thinking about when you first joined the company, you did a, you did a road tour, and there was this perception of Agilent being highly cyclical... Yeah ... really driven by the chemical and energy business, and then we ultimately have changed the name of that business to CAM to better reflect really the different growth drivers within the segment. Yeah. Yeah, maybe it's helped to kind of frame that. That's our second largest end market, a little over 20% of our total company's revenues. If you kind of peel the onion back. ... there's really three segments of that, sub-segments of that market. About 50%-55% of that is kind of chemicals. You've got, 5%-10% is kind of energy, and then the remaining, which is a little over a third, is advanced materials, and that's the area that's really been driving the growth here. What's in that is these, newer technologies driven by kind of lithium batteries, the electrification of the automobile industry, and so forth. We think that those are secular drivers that are going to continue to grow. We've been very pleased with that performance. We've really been driven there. All three of those areas have been driving growth, but it's really been that 35% of the business that has been driving this. Within Semiconductor, you know, I think people think about that cyclicality. We're actually seeing, you know, additional capacity being brought online. We're not seeing any. With the additional funding that the governments are having, not only here in the U.S., but in Europe, I think there's a real desire to diversify and build resilience into the supply chain, so which is helping our business there. On these newer technologies like lithium batteries, you know, that's just early days. We're thinking that those are opportunities that will continue to drive growth. I don't know if it's going to be at the same level that it is now. You know, we've actually been ahead of the curve, so to speak, in the first two quarters of the year. We're still projecting, you know, within the revised guide, mid to high single digit growth for our CAM business. For the year? Yeah. For the year. The year. For the year. Yeah. We're going up some very tough comps, in China. Okay as the recovery last year, and that's a big part of our business there. We're expecting that business to continue to grow. Yeah, if you look at our long-term growth rates, Bob and I updated the long-term growth rates at our last, I think it was back in 2020, when we did our last Analyst Day. You know, 5%-7% was our long-term growth rates. There's no reason why this can't be a mid-singles. Yeah ... at least, growth rate marketplace. I think it's also important to kind of, if you will, kind of peel back the onion, so to speak. You know, let's just call CAM roughly 20%-21% of Agilent's revenues. What are we talking about? We're talking about the cyclicality piece really is tied to the chemical side, which is about 60% of that. You know, roughly half of that is CapEx. What our customers always are doing are buying consumables and services, and that's why our services business is so important to the vitality of the company. You're really talking about, you know, maybe 7%-8% kind of- Yeah ... of the total revenue. Because the reason why I'm really, I'm passionate about this is, you know, in 2015, we really went about trying to change the profile of the end markets we serve and also the mix of CapEx versus, recurring revenue. We're not claiming we're completely immune to economic cycles, but it's a lot different story than it was a number of years ago, and I think- Yeah In fact, I would say the healthcare investors should be attracted to the idea of being able to participate in some of these secular growth drivers, like the revolution that's happening right now in the automobile industry. Yeah ... for example. We are, by far and away, the undisputed leader in that market. Yeah. When it comes to EV batteries and those- Yeah, in. In CAM, I mean, we're like Total ... we're like 2x, the number 2. This is our market. It's a market that we know quite well. Again, as I mentioned earlier, I serve this with the same technology platforms that I used and developed to go after the pharma and biopharma market as well. There's not a day that goes by that I don't see a PFAS headline in the news. Mm. It just continues to sort of mushroom, and you seem particularly well-suited to lead that market as well. It's booked in your environmental segment. Yeah ... actually. Can you just talk about, you know, what you view as your market share there? You had a tailored PFAS system launched at ASMS this week. Yeah. Yeah, how big is this opportunity? I'm glad you caught that. just speak to, I guess, that opportunity. Yeah ... and, you know, how big I guess it is today and could be, you know, over time. Yeah, sure. Happy to do so, Brandon. If you're probably already quite familiar with Agilent's history in the environmental market, but this is a market where we built our mass spec business in the 70s and 80s, and in the 90s. Our customers know us well. We're viewed as the leader in this space. It was a market that initially was served via GC-MS. Now, LC-MS has really become an even more important tool in there, and this is where a lot of the PFAS work is done. Long story short, again, we have a heritage of strong customer relationships in the environmental market, not only in the U.S., but globally. We know this space. We know the application. The customers trust us. We have the ability to support their application. We have the ability to actually train them on how to do these new applications. Long story short, we believe that we're the leader in this space, with at least half of the market. We conservatively estimate the market to be about $200 million right now. We think it's probably growing, you know, 15-ish or so% per year. It's primarily right now being driven by the U.S. As you know, there's some new EPA regs coming out. I think it's Method 1633 is the reg that our application services. We think this is going to be a great growth opportunity for us to have sustainable growth because this is one of those situations where a lot of the funding for this comes from the governments. There's a lot of interest around the world in terms of improving the quality of life. We think these kind of investments will give us some level of offset to any kind of economic cyclicality that could be out there. Again, primarily a U.S. market, we think there's no reason why you won't start to see it go into Europe, China, Japan, where they're also going to be working on their own set of tailored recommendations. This is, I think, the first reg only covers, what, six of the chemicals? Yeah -out there? There's thousands of these. By the way, what we're talking about right here, Brandon, is the regulation side, where you need to do wastewater and soil analysis against, for looking for certain contaminants. There's also money going into this space relative to research, because really trying to understand the human health consequences of these forever chemicals that are out there everywhere. The other is also, you'll start to see more and more testing done for litigation reasons as well. Yeah, I was just going to say, I mean, it's really emerging, that's one of the things. You know, there was an article a couple of weeks ago about class action lawsuits down in Florida, about PFAS testing and it being in water. We're also starting to see early stages of potentially it being tested for food as well. Mm-hmm in terms of the packaging, to ensure that, the various, regulations. That's potentially an emerging area, but it's primarily in that environmental area. Mm-hmm so forth. It's something that bears watching, and it's certainly something that we're excited- Yeah about being able to participate and helping identify those chemicals. Yeah, I'm really glad you brought this up, Brandon, because while pharma is our largest market, what Bob and I have been trying to do over the last several years with our team has been to build multiple growth drivers for the company. You know, this environmental segment is going to be a nice adder to our growth, you know, down the road. I think one other sort of unique growth stool for Agilent is your NASD business. Mm-hmm. You're opening the new Train B line, I think, right now. Mm-hmm ...here We're getting close. This quarter. This quarter. Yeah, we're getting close. How should we think about, you know, this market, the growth opportunity, as many of these programs start to go commercial? There's one from Iveric Bio that I know you're expecting, too. Mm-hmm. Yeah. Is there any way investors can sort of conceptualize, you know, what that opportunity can be as we go from one or two drugs on the market to several more? Probably, first of all, we're very excited about this business. It's a business that was when I first came in the role, was $60 million-ish. Then we decided to we saw the promise of the therapeutic development, and we made some additional investments, which led to the construction of our current Frederick site. As you know, we're in the midst of expanding that even further. That business is now north of $300 million for us for the year. The best way, I think, to go is go back and look at some of our external presentations and also some announcements we made around the additional capital we're going to invest in terms of further going beyond this current expansion. Bob, I think we were calling for a $1 billion business for us. Yeah in a multi-billion dollar therapeutic market. Now, keep in mind, we are providing the API for the therapeutic. We're not claiming we're gonna own all the therapeutic market. We're a key supplier, and this is really where you start to The reason why we have stepped up our level of investment is there's increasing signals that many of these therapeutics will get through their clinical trial programs and get onto market. When we built our first train, our first production line in Frederick, you know, the science still wasn't as proven. We built that based on clinical trial demand only. We were about halfway through finishing that, we started realizing, "Hey, you know, we're getting indications from our clients, and from knowledge experts in the industry, that these therapeutics are really going to start to take off. Yeah. Um, and I think- maybe just to add a couple of other pieces. You know, today we're about 50/50. Yeah. Yeah. ...clinical volume versus production volume. You know, it obviously depends on the indication that the drug is going after, but production volumes could be anywhere from five to 10 times. Mm. It's obviously predicated on the success of the molecule. The thing that's exciting for us is many and more of these molecules are actually being targeted at a larger patient populations. You're actually seeing, that would be five to 10 times kind of at launch, and then depending on- Mm-hmm kind of the success of those molecules, there would be a nice revenue annuity stream on associated with that. That's why we made the incremental investment earlier this year to build out Train C and D. Mm. C and D also are expanding our technology's. Yes ...footprint. Not just siRNA molecules, but we're also doing GMP grade CRISPR. Yeah. We already have a business in NASD there, that's in the tens of millions of dollars. Mm-hmm. We see this as an opportunity to really expand that going forward. We're not only increasing our capacity with the existing technology, we're also broadening our Mm-hmm kind of therapeutic footprint or modality. Bob, in the minute we have left, I just want to touch on the guide. Yeah. If we take your three-Q guide and back into the fourth quarter, it implies, you know, kind of like a $190 million revenue step-up in the fourth quarter. Mm-hmm. It's well above kind of historical seasonality. Can you just unpack, what supports that step up into the fourth quarter? Yeah, a couple quick things. It's a little higher than what we've seen historically, but I think one of the things that we're thinking about is when we looked at last year, particularly, we're assuming this year a faster conversion cycle. Last year, we actually, and in fact, we mentioned this in the call in Q4 of last year, we actually got orders earlier in the quarter for end of year delivery. Not end of fiscal year, but end of calendar year, because of extended delivery times. Now we're back to kind of normal pre-COVID delivery times for our products. So what we're expecting to see is the order performance will actually drive faster order conversion. Mm-hmm in Q4, which will help year-on-year improve the sequential increase from Q3 to Q4. Okay. That goes fast. Unfortunately, we're out of time. Wow! We'll have to leave it there. Great. Thanks, Bob. Thank you. It's our pleasure. for being here. Yep. Great to see you. Appreciate the invitation.