The operator introduces the Agilent Technologies Q2 2024 Earnings Call and hands it over to host Parmeet Ahuja. Ahuja welcomes everyone and introduces the other speakers, including Agilent's President and CEO, Senior Vice President and CFO, and other group presidents. The presentation is being webcast live and all necessary information can be found on the company's website. Non-GAAP financial measures will be used and guidance is based on forecasted exchange rates. Changes to the segment reporting structure have been implemented and there will be forward-looking statements made about the company's financial performance.

The statements made by the company are subject to risks and uncertainties and are only valid as of today. The company is not obligated to update them and encourages investors to refer to their SEC filings for a complete understanding of their risks. The CEO, Padraig McDonnell, is honored to lead the company and is looking forward to the future possibilities. He has been meeting with employees, customers, and shareholders to listen to their perspectives and has identified the need for the company to become more customer-focused and nimble. The company will evolve its strategy and prioritize customer satisfaction and innovation to drive long-term growth.

In the second quarter, Agilent reported a decline in revenue but exceeded expectations for earnings per share. The market environment remains challenging, but there are signs of recovery. As a result, Agilent has revised its full-year revenue and growth expectations and is taking actions to streamline costs and focus on key growth opportunities. They also plan to repurchase $750 million of their stock. In Q2, all end markets experienced a decline in revenue.

Despite challenging market conditions, Agilent's team maintained strong relationships with customers and executed well while controlling costs. The Life Sciences and Applied Markets Group saw a decline in revenue, but consumables and pre-owned instrument sales showed growth. The group introduced two new instruments this quarter that extend their leadership in applied markets. The Agilent CrossLab Group saw a 5% increase in revenue, with double-digit growth in services contracts. However, there were declines in new instrument installation revenues.

The company's contracted business remains strong due to their strategy of increasing connect rates and providing value to customers. The Diagnostics and Genomics Group saw a decline in revenue, with growth in Pathology offset by declines in cell analysis. Despite the subdued market environment, the company continues to innovate in their cell analysis business. They recently introduced a new product, the Agilent Spectrum Flow Cytometer, which allows customers to perform more sophisticated experiments. The company's revenue for the quarter was $1.573 billion, with a decline of 7.4% core and a reported decline of 8.4% due to currency and M&A impacts. Pharma, the largest end market, saw an 11% decline, while services delivered mid-single-digit growth.

The company has seen improvement in sentiment, but instrument purchases are still limited and are expected to continue for the rest of the year. Expectations for the Pharma end market have been reduced due to delayed clinical programs and slower-than-expected commercial product growth. The Chemical and Advanced Materials market performed better than expected, while the academia and government market declined. The Diagnostics and Clinical market also declined, driven by weakness in the NGS chemistries business. The Environmental and Forensics market declined, but showed strength in serving the PFAS opportunity. The Food market declined significantly, particularly in China. All regions, including the Americas, Europe, and Asia Pacific, experienced declines. The company has revised its expectations for China to a double-digit decline due to weakness in demand across multiple markets.

In the second quarter, the company's funnel activity increased due to the stimulus program, but they do not expect any revenue impact for the fiscal year. Gross margin and operating margin were affected by lower demand and mix, but they benefited from interest income and a lower tax rate. Earnings per share were down 4%, but still ahead of expectations. They invested in expansion and returned money to shareholders. The company's markets are recovering at a slower pace than expected, and they are focusing on high-growth opportunities. Their revised outlook for the year predicts a decline in revenue, primarily due to changes in China and the Pharma end market.

The article discusses a reduction in guidance for the Pharma end market outside of China, with $70 million being attributed to this change. The reduction is due to continued caution and extended approval times for instrumentation purchases, as well as issues with NASD. Despite the decrease, the company expects to see growth in the second half of the year and plans to exit the year with flat year-on-year results. Non-GAAP earnings per share are expected to decline by 5.3% to 3.5%, but the company plans to mitigate the impact through expense reductions and share repurchases. The Board has also authorized a new $2 billion share repurchase program. For Q3, the company expects a decline in revenue of 8.2% to 5.8%, with currency and M&A being a headwind of 130 basis points.

The CEO of Agilent, Padraig McDonnell, is optimistic about the company's long-term future despite a decline in third quarter non-GAAP earnings per share. He believes that the company's strengths and opportunities in key growth markets will enable them to recover quickly. McDonnell, who has been with Agilent for 26 years, is confident in the company's ability to provide excellent customer experiences and create value for shareholders. He thanks the listeners for joining the call and looks forward to continued dialogue. The operator then opens the call for questions, with the first one being about the timing of Agilent's operations in China.

The speaker, Padraig McDonnell, addresses the recent quarterly results and the stabilization theme in China. He explains that while Q2 was relatively soft, the overall outlook for H2 has been adjusted and China has shown stability over a number of quarters. McDonnell attributes this stability to the large stimulus package in China, which has had both direct and indirect effects on the market. He also mentions that the government's investment in technology and sciences will create future momentum. In response to a follow-up question, McDonnell says that the 18- to 24-month down cycle in the LC replacement cycle may be impacted by the current situation in the biopharma industry, but the outlook for recovery remains unclear.

The company expects improvement in the back half of the year, but not at the pace they had originally expected. They do not see any significant changes in the replacement cycle for their products and are still expecting a recovery in 2025. The NASD business has shifted to be more clinical-focused, with a decrease in orders due to the impact of the IRA on price provisioning. They anticipate this adjustment to continue through the second half of the year and beyond. The sales outlook for ASP is now around $300 million for the year, compared to the original expectation of $350 million.

The company is expecting to build back from their current position as their clinical programs move through the clinical pathway and are anticipating more volume in 2025. They are still excited about their long-term prospects and are continuing to expand their capacity in Colorado. They are not able to provide specific ranges for next year's growth yet, as they want to see how improvement plans play out in the second half. The company is also expecting to achieve $100 million in cost savings, which is incremental to the previously announced $175 million in savings. The savings will primarily come from headcount reductions. On the instrument side, the company is seeing a delay in the conversion of orders to revenue, which is impacting visibility into normalizing.

The company's book-to-bill ratio was positive and orders grew year-over-year, but the conversion of orders into revenue has been slow. The company expected budgets to be released by the second quarter, but the environment remains cautious. The company's April numbers were not as large as expected, which could impact third quarter performance. The company is also considering capital investment for NASD.

The company's CEO and CFO discussed the continued expansion of the business and the potential investment in the next few years. They remain optimistic about the growth of their clinical business and the potential for new drug approvals in 2023. There will be no change in capital investment despite some near-term headwinds. They also mentioned expanding their therapeutic options to support their clients. The majority of the changes in guidance are due to cautiousness in the pharma industry outside of China and NASD. This could be attributed to funding concerns or external factors such as elections. Second quarter revenues were in line with expectations.

In this paragraph, Padraig McDonnell and Bob McMahon discuss the exit rate trends for the Pharma instrumentation side. They mention that there has been an impact of $175 million due to Pharma's reluctance to spend on capital equipment. Customers are focused on lab efficiency and productivity. The company is lowering its expectations for the instrument piece and expects improvement next year. The guidance is based on current trends and does not assume any significant changes. They also mention that there is no funding issue, and biotech funding is increasing. The decrease in instrument sales is not due to share loss, but rather a pushout. The cost savings of 35 is expected in Q4, and the additional 65 is for fiscal year 2025.

The speaker discusses the impact of the stimulus in China on their business, stating that it may delay demand this year and potentially have a bigger impact in the future. They mention that the program is multiyear and that customers are still figuring out the funding mechanisms.

The speaker discusses the impact of the COVID-19 pandemic on their company's performance and future outlook. They mention that they have seen a boost in confidence and increased bid activity, but are taking a conservative approach to forecasting due to uncertainty about the timing of stimulus funds. They also mention a slowdown in instrument growth in the pharmaceutical sector, which may be due to customers working through previous purchases rather than a structural change.

The company does not anticipate any major changes in instrument replacement cycles, as lab activity remains high. They have seen growth in their consumables and contracted services business outside of China. There has been some weakness in China due to the BIOSECURE Act and competition for stimulus funds, but the company is working on proposals for various sectors and customers.

The company has seen a benefit in their service business as they relocate laboratories quickly with their services. Most of their business in China is local and not multinational, so it is not affected by the BIOSECURE Act. The company is facing competition in China, but their scale and service differentiate them. In the third quarter, LSAG is expected to be down double-digits, DGG down mid-single, and ACG growing at mid-single digits.

In response to a question about long-term growth outlook, the company states that Pharma, Academia, and Diagnostics markets are expected to be down low double digits, while Chemical and Advanced Materials, Food, and Environmental and Forensics are expected to be similar to Q2 results. The company is managing the business with a focus on top-line growth, but there are concerns about the outlook for higher growth areas such as NASD in Biopharma and the impact of China's stimulus. Growth rates in CrossLabs and DGG have also moderated due to market conditions and concentration with one high-growth diagnostic company. Overall, there are questions about the company's inherent growth rate in the long term.

The speaker believes that the company is in a strong position due to its participation in excellent markets with multiple long-term growth drivers. They mention the potential for growth in biotherapeutics, food quality, and other adjacent markets. They also highlight the importance of increasing their attach rate in their service business, which could lead to significant incremental growth. The speaker also mentions the potential for growth in China due to government investment in science and technology, as well as the company's strong aftermarket presence in the country. The company's long-term algorithm of 5-7% growth is still believed to be achievable, and they continue to invest in the biopharma and applied sectors.

The speaker discusses how the markets have changed in the past five years due to developments in areas such as PFAS, electrification, and semiconductors. They acknowledge that the current market conditions are challenging, but they expect to see a recovery in the near future. The speaker also addresses concerns about the company's guidance for the fiscal year and attributes any discrepancies to a lack of visibility. They assure the audience that the company will emerge stronger from these challenges. The next question is from an analyst with UBS.

During a conference call, Michael Ryskin from Bank of America asks a question about the visibility of the company's future performance. Bob McMahon, a representative from the company, responds by saying that their current guidance does not assume any major improvements in the second half of the year, and that they are not expecting a significant increase in orders from the pharmaceutical industry. However, they do expect the situation to improve due to easier comparisons and having all current orders in-house.

The company has a production plan in place for Q3 and Q4 and is not relying on orders to guide them. The biggest change is the NASD business, which will see a low point in Q3 due to clinical programs being pushed into Q4. This results in a $30 million step-up from Q3 to Q4. The average time to close deals in the capital equipment portfolio is longer than historical averages in the back half of the year.

The company is facing challenges with prolonged deal times and extended sales funnels for instruments, which is impacting their outlook. They have strong win rates, but the deal time is prolonged. The company is staying close to customers and expects extended deal times to continue in the second half. They have better visibility for Q3, but will need continued performance. LSAG orders grew ex-China, which is a positive sign, and they expect improved performance in the second half compared to last year.

The speaker discusses the progress of instrument orders over the last 90 days, noting that they did not deteriorate further but also did not improve as expected. They also mention that there has been an impact on the NASD side due to the IRA, and that there has been an impact on programs based around pricing provisions. They also mention that LC/MS may be driving the majority of the softness in the LSAG categories.

Bob McMahon responds to a question about the performance of the company in the second quarter, stating that while there was not as much growth as expected, there was still a positive book-to-bill and orders grew outside of China. He explains that the platforms focused on Pharma were weaker, and this is reflected in the end markets. He also mentions that while revenue was lower than expected, order performance was better, indicating a positive outlook for the second half. He clarifies that the two main platforms that underperformed were LC and LC/MS.

The speaker is asked to comment on the demand softness they have seen from new bookings and to provide more detail on their expectations for the stimulus. They mention seeing improved bidding and funnel activity on the prospects of stimulus and have confidence in the multiyear program. They also saw customers postpone purchasing decisions in anticipation of the stimulus, which is expected. The stimulus is expected to have a long-term positive impact, but no immediate benefit in the second half of the year. This softness was seen across all markets, including Pharma and CDMO accounts.

In the conference call, the speaker discusses the broad impact of China's stimulus beyond just the Pharma industry. They mention that it is too early to quantify the increase in funnel activity due to the postponement of projects. The LSAG business declined globally, but excluding China, it was down 8%. Approximately 45% of the business in the Pharma industry is Biopharma or Large Molecule, which saw a decline of 12% in the quarter. The long-term prospects for this market are still strong.

The speaker discusses the company's M&A strategy for biologics, noting that they are remaining disciplined and focused on areas of growth. They also mention that pricing may have come down in some areas, but people have long memories and they will continue to be cautious in their approach. The call is then concluded.

This summary was generated with AI and may contain some inaccuracies.