AGILENT TECHNOLOGIES, INC. Q4 2025 earnings call

Thank you and welcome, everyone, to Agilent's conference call for the fourth quarter of fiscal year 2025. As many of you know, I recently joined Agilent after a fun 15-year stint on Wall Street, and I'd just like to say how excited I am to be joining the team at such a pivotal time in our journey. With me on the line are President and CEO, Padraig McDonnell, CFO, Adam Elinoff, and Rodney Gonsalves, Vice President, Controller, and Principal Accounting Officer, who served as interim CFO until Adam's arrival. Joining the Q&A will be Simon May, President of the Life Sciences and Diagnostics Markets Group; Angelica Riemann, President of Agilent CrossLab Group; and Mike Zhang, President of the Applied Markets Group. This presentation is being webcast live.

The press release for our fourth quarter financial results, investor presentation, and information to supplement today's discussion, along with a recording of this webcast, are available on our website at 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 is adjusted for the impact of currency exchange rates and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates. During this call, we will make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. Agilent assumes no obligation to update them.

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

Thanks, Tejas, and hello, everyone. Thank you for joining today's call. Before I talk about our results, I want to start by introducing Adam Elinoff, our new CFO, who officially joined Agilent last week. Adam joins us after a distinguished tenure at Amgen. He advanced through a series of finance, strategy, and transformation leadership roles over a total of 19 years, most recently serving as Vice President of Investor Relations and Treasurer. I'm looking forward to leveraging Adam's expertise in strategic planning and M&A, and his commitment to cross-function collaboration will be invaluable to Agilent in the years ahead. Adam, would you like to say a few words?

Thanks, Padraig. I'm thrilled to join Agilent at such an exciting time. My interactions with the leadership team over the past few weeks, both within the finance function as we contemplated the guide and with the broader team, have only reinforced my optimism for what lies ahead. I'm looking forward to working with the team to drive growth and innovation, advance operational excellence, and preserve Agilent's history of financial discipline.

Great to have you on board, Adam. I also want to take a moment to express my sincere appreciation for Rodney stepping in as interim CFO over the past four months. His long, distinguished career at Agilent demonstrated he was more than capable of helping us bridge this important transition. Now, let me talk about the Q4 results. It was another strong quarter. The Agilent team executed exceptionally well, delivering the solutions our customers need in a market that is showing continuing signs of normalization. In the fourth quarter, Agilent reported $1.86 billion in revenue, growing 7.2% on a core basis, our sixth consecutive quarter of core growth acceleration. This performance came in above the high end of our guidance. Our customer-first approach is paying dividends, with excellent top-line results that compare very favorably with our peers.

Momentum remains broad-based across the portfolio, supported by strong LC and LCMS demand and share gains, CDMO upside, solid double-digit contributions in key regions, and a replacement cycle that continues to accelerate. These trends reflect our structurally resilient portfolio and performance that tracks above the broader market. At the same time, our Ignite Operating System continues to improve the effectiveness and efficiency of our organization. Ignite helped deliver more than 200 basis points of sequential margin improvement compared with last quarter, while funding incremental performance-driven variable pay. The bottom-line result was four-quarter earnings per share of $1.59, above the midpoint of our guidance. Simply stated, in a dynamic environment that continues to evolve, the Agilent team delivered for our customers and our shareholders.

As we close the 2025 fiscal year, I want to highlight four key dimensions where we made exciting progress this year and that will drive our growth for the future. First, the innovative products and services that we develop with a customer lens to create differentiated value. Second, the extraordinary customer intimacy and trust our unified sales and service organization creates that unlocks high-quality lead generation and fund conversion. Third, the increased capabilities and level of talent throughout Agilent. Fourth, the Ignite Operating System that enables us to effectively combine these elements to drive long-term growth and maximize value for customers, shareholders, and employees. Let's start with innovative products and services. The success of our customer-focused innovation was on display throughout the year with products and services that differentiate us from the competition and drive our growth by solving real customer problems.

This includes our next-generation Infinity III that is delivering as much as 30% improvement in productivity for our customers. Infinity III drove double-digit LC growth in the second half of the year. That is underpinned by customers returning to buy large volumes of additional units because of their great experiences. Our Pro iQ LCMS also has seen an amazing ramp. Its unique value proposition for pharma and biotech is driving strong customer interest, as well as sales that are well ahead of our already robust expectations. The summer launch of our Pro iQ drove overall single-quarter LCMS growth of more than 50% in the first full quarter. Last month, we introduced our Altura BioInert column. Customers are rapidly adopting the Altura column, and the column's ramp is an order of magnitude greater than past column launches.

This is a clear indication of just how important increased sensitivity and resolution are in key applications that support oligos and GLP-1s. These results also highlight new product launch excellence across the organization. When it comes to artificial intelligence, we are actively using AI to accelerate our innovation engine and drive operational excellence. For example, AI generates 80% of our engineering drawings based on product specifications and customer needs, thereby increasing design productivity and reducing custom design cycle times by 75% for our GC products. In our operations, our order fulfillment team is leveraging agentic AI for testing, inspection, and control to eliminate redundant shifts, reduce downtime, and improve quality. Our second key dimension, extraordinary customer intimacy, centers on a cornerstone of continued success, leveraging our unified sales and service model to maintain lasting customer relationships. Our commercial team members are uniquely positioned as trusted customer partners.

Agilent's commercial model is a unified end-to-end organization that provides pre-sales consultation, a modern and easy-to-use e-commerce platform, and a highly experienced, deep technical post-sales service and support that ensures customer success. Our field service engineers build long-term relationships with our customers by partnering with them to solve their most critical problems. Those relationships provide highly valuable insights that fuel a vital and growing portion of our demand generation programs. Insights from our service team now account for 30% of all sales leads, and these leads come with an order conversion rate that is more than double that associated with the rest of the sales funnel. Because of our uniquely deep connection with our customers, it will come as no surprise that they consistently rate Agilent's services as best in class. We don't take this privileged position for granted. That's why we continuously implement new ways to enhance customer intimacy.

In terms of AI and customer intimacy, we are working to deploy AI within our CRM to support our sales team with predictive insights, automating tasks, and proposing personalized content in service of our customers. We're also using virtual agents to complement on-site support in select markets to resolve customer issues more quickly. The third dimension is our increased capabilities and level of talent throughout Agilent. We've leveraged our deep bench of in-house talent and complemented it with external hires that bring fresh perspective and domain expertise. At an executive level, in addition to Adam, we brought on Meghan Henson to lead our HR team to help us build on our strong culture. August Specht, who joined us from Thermo Fisher as our Chief Technology Officer, brings deep scientific knowledge in analytical technologies and a proven ability to lead innovative R&D teams.

Most recently, Joydeep Ganguly joined from Gilead to drive world-class manufacturing while leveraging our global scale to realize increased efficiencies. While these individuals are important and visible additions to our leadership team, all Agilent employees are focused on accelerating the pace of innovation, driving superior execution, and most importantly, delighting our customers. Finally, we are bringing together these foundational strengths through our Ignite Operating System, our fourth key dimension. We launched Ignite at the start of the year to improve the pace and quality of our execution and to usher in a new mindset that leverages the power of the enterprise to maximize both growth and stakeholder value.

Some examples of Ignite's early success include enhanced top-line growth through the creation and implementation of an enterprise pricing program that drove performance across the year, more than doubling our price growth compared to what FY24, faster decision-making and improved efficiency by reducing layers of bureaucracy, meaningful procurement cost savings through globalization of vendor contracts that leveraged increased scale for additional negotiating power. We saw the power of Ignite in real time this year as it enabled the immediate creation of our tariff task force to drive a rapid and coordinated response to global tariff changes. The cross-functional task force rapidly developed a unified strategy and executed a suite of interconnected projects that greatly accelerated our tariff mitigation efforts. As a result, we are highly confident that we will fully mitigate current tariffs in FY26. All told, Ignite has already delivered well over $150 million in annualized savings.

The Ignite Operating System is able to quickly assemble knowledge from across the organization, develop a thorough and actionable enterprise plan, and actively drive implementation and quantify outcomes. This is critical as Agilent continues to evolve. Finally, and this is important, Ignite has strengthened our organization readiness to identify, acquire, and integrate attractive assets. Our integration of BIOVECTRA is one example. It's been a highly productive year for Agilent. We've laid a robust foundation upon which we can drive long-term differentiated growth and value. Now, let me share some additional details of our Q4 results, starting with our end markets. We continue to see signs of improvement in the pharma market. The Agilent team was able to leverage those conditions and our customer-centric solutions into an excellent 12% growth during the quarter. We also saw a nice pickup in spending among our biotech customers.

That spending grew in the low 20s during the quarter and low double digits ex-CDMO, which was led by our large accounts. Our customer-focused solutions for oligotherapeutic developments, peptide-like GLP-1s, and Infinity III drove our performance in pharma, contributing to low double-digit growth in LC and mid-teens growth in LCMS platforms. That performance is above that of our peers and points to share gains across the replacement and greenfield opportunities. Our specialty CDMO business continues to be a differentiated growth driver. It represents nearly 20% of LDG revenue and grew more than 40% on a core basis during Q4. During the quarter, commercial programs drove 60% of our NASD revenue. The capacity increases we implemented at BIOVECTRA in the third quarter enabled a record fourth quarter that was in line with our elevated expectations, even as the intra-quarter cadence shifted revenue to October.

Chemical and advanced materials grew 7% as we continue to see strong demand in the Americas and Europe. Chemicals customers continue to invest in capital equipment to meet the demand driven by reshoring of downstream customers in the semiconductor market, increasing global competition for critical resources, and an enhanced focus on regional supply chain security. Diagnostics and clinical continues to be a durable mid-to-high single-digit performer with 7% growth in the quarter. We're excited about the upside potential here as our new Dako Omnis family penetrates medium and low throughput labs. Environmental and forensics grew 9% as the approaching implementation of a revised EU drinking water directive drives investment in new capabilities. Also, commercial labs and forensic customers in the Americas are moving quickly to spend the capital budgets before year-end, even as U.S. government spending in this end market remains muted.

Thanks, Padraig. And good afternoon, everyone. In my comments today, I'll provide additional detail on revenue in the quarter, as well as walk through the income statement and cover other key financial metrics. I'll then cover our new full-year and first-quarter guidance. Q4 revenue was $1.86 billion above the high end of our guidance. On a core basis, we posted growth of 7.2%, while reported growth was 9.4%. Currency had a favorable impact of 0.9%, while M&A contributed 1.3%. The BIOVECTRA acquisition is reflected in core growth starting in October.

At a business segment level, LDG grew 11%, well ahead of guidance, bolstered by the strong performance in our LC and LCMS instruments and robust CDMO results. AMG grew 3% as expected, led by high single-digit growth in GC and GCMS, as we see increasing benefit from the instrument replacement cycle in those platforms as well. ACG grew 6% in line with our guidance, with high single-digit growth in the rest of the world offset by mid-single-digit declines in China. On a geographical basis, both the Americas and Europe saw healthy 11% growth with broad end market strength outside of academia and government. China declined 4%, and the rest of Asia ex-China grew 4%. Results in China were below our low single-digit growth expectations, though revenue contributions remained stable around $300 million per quarter.

India grew in the high teens in Q4, with double-digit growth in pharma and greater than 20% growth in each of our applied markets. This balanced strength across our geographies, which saw us deliver double-digit growth ex-China, remains a key differentiator of our performance profile. Gross margins in Q4 improved sequentially by 100 basis points and came in at 54.1%. On a year-over-year basis, they were down 100 basis points due to tariff headwinds. Operating margins were 27.2%, up more than 200 basis points sequentially, driven by leverage on volume, strong pricing, and tariff mitigation. We delivered this result despite absorbing an incremental 60 basis point sequential headwinds from performance-driven variable pay. Absent the variable pay dynamics that reflect better business conditions and our strong execution, operating margins would have expanded by 270 basis points over the prior quarter, well above our guide of 230 basis points of sequential expansion.

On a year-over-year basis, operating margins were down only slightly due to tariffs. Now, moving below the line, we had $10 million in other income, while our tax rate of 12% was as expected. Finally, we had 284 million diluted shares outstanding in the quarter. Putting it all together, Q4 earnings per share was $1.59. That was above the midpoint of our guidance and grew 9% from a year ago. Now, let me turn to cash flow and the balance sheet. Operating cash flow was $545 million in the quarter, and we invested $93 million in capital expenditures. We purchased $85 million in shares and paid $70 million in dividends during the quarter. More recently, we increased our industry leading dividend by 3%. We ended the quarter with a net leverage ratio of 0.8, pointing to our robust balance sheet that leaves ample room for capital deployment optionality.

Now, let me share some additional details on the outlook for next year and the guidance for our first quarter. We expect FY 2026 revenue to be in the range of $7.3 billion-$7.4 billion on a reported basis. This represents an increase of 4%-6% on a core basis, as currency is expected to be a 1% tailwind during the year. To help with your models, I want to provide you with additional details on expectations for growth in our end markets during the year. Starting with pharma, we anticipate high single-digit growth, improving market conditions, and the strength of our offerings in key high-demand applications create a favorable environment.

In the applied markets, we expect mid-single-digit growth in chemical and advanced materials, low single-digit growth in environmental and forensics, and flat growth from food, where we have a especially difficult year-on-year compare against a strong China stimulus tailwind in FY 2025. In diagnostics and clinical, we anticipate mid-single-digit growth. In academia and government, we are guiding to a low single-digit decline as we do not foresee meaningful recovery in the U.S. By business segment, we are guiding both the Life Sciences and Diagnostics Markets Group and the Agilent CrossLab Group to grow mid-single digit, and the Applied Markets Group to grow low single digit in FY 2026. Finally, by geography, we expect the Americas to lead the way with mid to high single-digit growth, while Europe and Asia ex-China grow mid-single digits, building on the momentum we saw in the back half of the year.

In China, we are incorporating a flat assumption for FY26, consistent with what we saw in China this year. Based on our latest expectations around stimulus timing, we are taking a prudent approach and substantially moving stimulus benefits from our FY26 revenue guidance. Moving down the P&L, we expect to deliver 75 basis points of operating margin expansion in FY26 at the midpoint. We anticipate a more gradual start given typical seasonality and the lack of tariff headwinds in the first half of FY25, with momentum building through the year. Reflecting the latest global tax regulations, we see our tax rate increasing to 14.5%, a 2.5% increase compared with last year. We also expect $30 million in other income, and we are planning any diluted repurchases to maintain 284 million diluted shares outstanding for the year.

Putting this all together, FY26 non-GAAP earnings per share are expected to be between $5.86 and $6, representing earnings growth of 5%-7%. For your P&L modeling, let me share some additional expectations we have incorporated into our guidance for the year. Because of Ignite, we expect pricing to continue to improve, with an opportunity to grow well above 100 basis points. This guidance also incorporates achieving full mitigation of existing tariffs over the course of the year, using cost savings and pricing actions. As is typical, we expect to see substantial sequential improvement in operating margins over the course of the year. Finally, we anticipate operating cash flow will be in the range of $1.6 billion-$1.7 billion and expect to invest $500 million in capital expenditures. To help with phasing, we are expecting revenue seasonality similar to FY25.

Meanwhile, earnings will be slightly more biased towards the second half, given the tariff impact on the P&L in the first half. Now, moving to the first quarter, we expect our reported revenue to be in the range of $1.79-$1.82 billion. This represents an increase of 4%-6% on a core basis, while currency is expected to be a 2.5% tailwind. First quarter EPS guidance is $1.35-$1.38, with 285 million diluted shares outstanding. Now, I'd like to turn the call back to Padraig for closing comments. Padraig?

Thanks, Rodney. As you've heard, we've built excellent momentum across FY2025 in a dynamic environment. Our distinct growth drivers and our Ignite Operating System are fuel for success. We are poised to benefit from a broadening end market recovery, win share, and deliver resilient above-peer growth and margin performance over the long term.

With our innovation engine accelerating, our focus on customers intensifying, and our best-in-class commercial team executing, we are entering FY26 from a position of strength. Thank you all for your attention. I'll turn it back over to Tejas for Q&A. Tejas?

Thanks, Padraig. Operator, can you please share the instructions for the Q&A?