Great, here to kick off the Agilent session. I'm Dan Brennan, cover tools diagnostics here. Really pleased to be hosting Bob McMahon, Chief Financial Officer of Agilent, here at the 44th annual TD Cowen Healthcare Conference. First off, Bob and Padraig, welcome.
Thanks, Dan. Really appreciate the opportunity to talk to you and the investors, and also appreciate having reasonable weather-
Yeah.
First week of March here in Boston. I know how it always comes. So for us, California folks, I appreciate you taking it easy on us.
For sure, for sure. Maybe just kicking it off with, you know, the news about Mike. So, you know, you just announced here Mike McMullen is retiring after a long tenure at Agilent, you know, effective May first. He'll be a consultant with-
Mm-hmm
... which is great till the fall, but you have Padraig McDonnell, who's head of the ACG group, taking over. Listen, there's always opportunities and risks. I mean, you have someone like Mike, who's been running the, you know, the, the role for, you know, close to 10 years. I'm sure, you know, that carries some uncertainty for people, but, you know, Padraig can instill some new thinking as well. So maybe just kicking off, Bob, from a high level, maybe speak to Mike's leadership style and strategic focus and maybe, you know, how, how you might compare or contrast that to Padraig.
Yeah, that's a great question, and obviously, a lot of news there. And you know, we certainly are gonna miss Mike. He's certainly been a stalwart here at Agilent, been here with us for 40 years, and CEO, almost 9, 10 years, hired me. And one of the things, if you've ever talked to Mike, you know he bleeds Agilent blue and is a real advocate for the culture, the people and the culture and the tremendous execution that we've been having, able to have. And I would say that, you know, as part of the process, there was a very thorough process that vetted both internal and external candidates. And Padraig came out at the end, not surprising for us internally, to see what he's been able to do.
And I think this cultural aspect does really helps with the transition. So he's been with Agilent for 26 years, and so he knows how to get things done in the company, knows the value of the secret sauce here at Agilent. And I think one of the things that we've really talked about over the last several years is, you know, getting even more customer-centric. You know, so he's part of the One Agilent commercial organization, actually, as you said, ran ACG. May not be known as well as maybe some others, you know, to the investment community, but all ACG does is continue to deliver. You know, it went from, like, 25%-30% operating profit under his tenure.
And I would say, you know, what he plans to do is maintain that strong culture and execution focus, but I would say even double down on, what he would call customer centricity and, and growth mindset. And so I think that area around... He's famous for calling asymmetrical bets, so really focusing on areas. I think biopharma will be a continued area of focus and probably see even more focus from, from Agilent in the future. So as much as we're, sad to see Mike go, he leaves a great legacy, in development, in developing people, inclusive of, Padraig, and we're, we're really excited about Padraig to be, the, the new CEO come May first. And, you'll get a chance to hear more from, from Padraig over the, the upcoming, days and weeks ahead, so.
Terrific. Well, thanks for that. So, so 2023 certainly had its challenges. You know, you finished the fiscal year, I believe, at, like, a little over, you know, call it 1.4% core growth. Maybe just reflect a little bit upon, like, how 2023 played out versus your expectations, and as you look forward, what are the key drivers, opportunities, you know, that, I guess, give you guys more excitement for, for 2024?
Yeah, I would say, you know, I'm glad 2023 is in our rearview mirror. But the first half played out really well, you know, for us, and then what we saw was a number of kind of one-time impacts, you know, starting with about this time last year, the implosion of Silicon Valley Bank, the drying up of the biotech funding. Here we are, fast forward, now we're actually starting to see biotech funding come back, which I think is a good thing. But through that all, I mean, I think the team maintained focus, was able to really continue to drive areas of focus that may not be outside of or were outside of the traditional biotech.
Things like PFAS testing and some of the applied markets really came through and, and shined through, and are continuing to do that today, and I think that's one of the benefits that Agilent has, is this broad portfolio of being able to apply, you know, apply our technologies to six end markets. And as I think about 2024, I'd think about it in two halves. So the first half of 2024 is probably gonna look very similar to the second half of 2023, in terms of year-over-year performance. And then, our expectation is that things are gonna get better, somewhat a function of comparisons, but then also a recovery, particularly in the pharma area, in, in the second half of the year. And, you know, so far, we just reported last, last, last month or, excuse me, last week, around our Q1 results.
We have a little different calendar, and it actually performed better than what we expected. The standouts were certainly places like China, but also the applied markets and positively enough, you know, pharma played out the way we expected it to.
So when you think about that second half skew, you know, our numbers kind of, you know, our full year numbers match yours, and, you know, we've got first half, I don't know, you know, we're down 8% in Q2, and then we're up, call it 6%, you know, 7% on average in the back half, but exiting at 10%. So just wondering, like, when you think about the, like, that improvement, and you're not alone, and most of the tools companies have a... Maybe it's not the same level, maybe it's steeper, maybe it's not, but, you know, how do you think about it in terms of, like, some competitors look at, like, 4-year stack trends, right?
Yeah.
You guys have a decent instrument business, so maybe that does play into it. Other folks, you know, maybe like yourself, you're also talking about an organic improvement. I guess, how do investors get comfortable with that trajectory in the back half, and can you just provide more color on it?
Yeah, I'd look at it in a couple of different ways. So we do look at it as... If you looked at two-year stack, it's a little much more reasonable first half, second half, so that takes into effect the comparisons or the comps. I also think if you look at our instrument side of the business, two things. One is we talk about pharma... and that's probably the biggest area that we are expecting kind of improve versus last year. And when we talk to our pharma customers today, outside of some, you know, outliers, budgets are still increasing, you know, year-over-year. They're increasing low single digit, low to mid single digits in both our research as well as capital.
That benefits our business over time, and then you see what's happening here in the biotech space, that will play into that thesis of a second half recovery. So we do look at that sequential and seasonality piece. I think if you look at instruments as well, we look at two things: We look at the last four-year kind of stacked growth rates or compounded annual growth rates for our LSAG business, which is our instrument business.
It's been in the mid single digits, 2020 through 2023, which says, "Hey, we're kind of at where we have, you know, up and down on the line, but still on that trend line." Q1 was a little lower than that, which say, "Hey, maybe we're towards the end," and then we're not calling it inflection yet, but it still builds, you know, it builds on that thesis that we're talking about. So those are the things that we're looking at. The funnel continues to be there. China's stable, which is a positive. And, so we'll see how things play out here in the second quarter, but we're cautiously optimistic about how things are playing out.
maybe before we jump into some of your end markets, you know, everyone likes LRPs and different tools companies-
Yeah.
-offer them. You know, I think the last time you guys offered them, correct me if I'm wrong, it was like 7%... I think it was 5%-7% organic growth-
Yeah.
and 50-100 basis points of margin expansion. That was a few years ago.
Yeah.
Just what's the right way to think about your normalized, that LRP, organic, and margin? Is that consistent? I'm assuming it's consistent, but have things changed at all in the last couple of years?
Yeah, no, bottom line, we're still, we still believe in those numbers. You know, 5%-7% on the top line, and 50-100 basis points of improvement in margin. I think what we've demonstrated actually, in a very challenging year last year, was actually we were able to continue to improve our margins despite a lower than expected top-line growth. And so when the growth does return, we're expecting to see that continue. So we're not out of gas, so to speak, in terms of being able to grow margins. So I'd say that's in line. I would also say, as we think about where our business has evolved over the last couple of years, we have had more exposure to biotech.
We still think long term, that's, you know, the fastest growing end market, sub-market of pharma, and I think the science is proving that. And so we're very bullish about that opportunity. And then I think increasingly what we're seeing is more recurring revenue. So if we looked at Q1 as an example, our ACG business, which is our services business, grew 5% despite the headwinds of the instrument business. If you take that piece out of, you know, the installation side of our ACG business, our contract business grew double digits, and our on-demand or our break fix grew mid-single. So that speaks to activity in the lab.
It talks about our strategy of actually getting more on contract, and as we get more of our installed base on contract, each one points $30 million of annual incremental grow, revenue. That actually, you know, increases our weighted average-
Mm-hmm.
-because we think that ACG over time is a high single-digit grower. So we're, we still believe in those numbers, and actually, our business has evolved to actually growing into that higher area, you know, higher range of that long-range plan.
Okay. Maybe, maybe jump over to China for a moment.
Yeah.
I'll come back to some of the segments. You know, the business, I think, was down, correct me if I'm wrong, 9%.
Yeah
in the fiscal first quarter. You expressed confidence in seeing signs of improvement. You know, I think biotech was still weak, but-
Yeah
You talked about a lot of other pockets. Maybe just unpack a little, like, what was it that was better?
Yeah.
Kind of, you know, do you expect that business to continue to improve, implicit in your guidance?
Yeah, it's a great question, and we were very pleased of our China team being able to really deliver in a challenging market condition. For those who listened to, you know, our guidance at the beginning of our fiscal year for Q1, we were expecting actually China to be down about 20% or mid-20s%, I would say. And so coming in at a -9% was much better. Now, we talked about $15 million of pull forward because of the timing of Lunar New Year, which was primarily in our instrument business, but even if you take that out, it was still significantly better. And where the areas of improvement were really the applied markets. And so we saw actually our chemical and advanced materials market, which is our second largest market globally, actually grew in China.
Was nice growth sequentially, but also grew year-over-year. And so I think this speaks to some of the secular end growth drivers. That's places like semicon and lithium-ion batteries. And as we think about... And then our diagnostics and clinical and academia and government also outperformed. Pharma was about where we expected it to be, which was down about 22%. So that gives us confidence that, hey, we've had probably three quarters in a row of being able to call the number. I know that there were a lot of people thinking that China was gonna, you know, disappear off the face of the map-
Mm-hmm
for tools companies, and I think what we've seen is a stable, stabilization. We're also seeing that, you know, in the second quarter as well, really driven by some of those areas. And then in the second half, we'll start lapping some of those comparisons. And we're still expecting China to be down about mid-single digits for this year, but exiting at a rate to go, you know, to return to growth in 2025, and I think it's behind our instrumentation platforms that go across multiple end markets. So we're cautiously optimistic about China. Again, we're still expecting to decline this year, mid-single digits, but we're certainly starting off better than what we had planned.
Mm-hmm. Right. And then we hosted, you know, one of your competitors up here today on pharma, and they... I believe you talked about biotech in China was down 50 in the first quarter.
That's right.
Correct me if I'm wrong.
That's right.
So, are you seeing, just given where the numbers are, are you beginning to see a bottoming out in pharma? Just like, how do you, like-
Yeah, we have.
What do you-
And it's. We have seen a bottoming out, and I think that speaks to that down 20%. And so maybe to frame for biopharma in China, we're more skewed actually to small molecule than we are to biopharma. It's about 80/20, small molecule to large molecule. Our small molecule business in China actually performed better than the rest of the world. Still down, but it speaks to kind of some of the resilience in that market. And if you think about the broad nature, then we've also got, you know, the chemical and advanced materials business, and then, you know, our smallest business is the diagnostics and clinical there, but it also performed relatively speaking, better.
And so I think our breadth of portfolio actually helps us manage, and specifically in pharma, I would say the U.S. biopharma business is probably leading. U.S. and Europe is probably leading the pack in terms of potential recovery. But I would say the small molecule continues to be relatively resilient across all geographies.
Mm-hmm.
And we're expecting... That typically goes through cycles. We've been very public about, you know, the replacement cycles in small molecule, and I would say we're probably at the bottom of the low end of the replacement cycle. Not ready to call that we're moving up. We are expecting some of that in the second half, a slight move up and, you know, we still think that that's a mid-single digit grower long term.
Mm-hmm. Okay. And then, you know, in terms of the whole BioSecure Act in the U.S., just kind of how do you think about relations there from a business standpoint? You know, I, you know, the first wave, the government's focused on, you know, WuXi and BGI and preventing U.S., you know, kind of entities that are taking government funds. But our D.C. people think this could get a lot- this could certainly get worse.
Yeah.
You know, you could see, you know, maybe some trade barriers put in place, restrict some exporting of, you know, technologies maybe that you make or peers make to China. I don't know, just like, how do you think about China over the next 3-5 years? Should we be expecting a lot of volatility? Do you think this BioSecure thing can really have some legs?
Yeah, I think, you are seeing rising geopolitical tensions. It's kind of back and forth, quite honestly, more generated by the U.S. than-
Mm-hmm
... than China. I actually think that, in the short term, is actually helping us on the applied markets-
Mm-hmm
-the semiconductor space, as some of these activities are being restricted. I think, specifically to the BioSecure Act, we haven't seen that impact our business, that much. It's probably more on the next-generation sequencing side.
Mm-hmm.
It's something that we're watching. You know, we've got our trade team works very closely to ensure that, you know, we understand what the requirements are there. And so far, you know, we haven't seen an impact. You talked about three to five years. We do think that China will get back to growth, you know, coming into 2025. Our view is that it's probably a mid-single-digit growth company or market, as opposed to kind of the high single digit, double-digit growth that it had been before. Still a very important second largest market for tools in the market. And when you think about the strategic priorities that the Chinese government has laid out in their five-year plan, you know, life science tools are essential for them to achieving those goals.
Quite honestly, the local competition, while getting better, is not where they need to be, particularly at the high end. And so I think there's still an opportunity for multinational companies like Agilent to play. And I think what we're doing in China is continuing to invest in China for China. We talked about opening up our new facility there, where we can actually provide where needed. It's not a binary thing, it's not 100%, but where it's required, you know, country of origin for China, I think we're ahead of our competition in that space. And when we think about our scale of our services organization, which is really important, and that creates some stickiness, you know, local competition can't match that. We've got 2,000+ employees that are servicing customers each and every day that are local Chinese.
Mm-hmm. Okay. Maybe just kind of switching gears for one sec on a big picture question, kind of getting back to the early discussion on comps. So if we look ahead to 2025, which obviously you're not gonna guide for 2025, but most of our models for tools, we have exit rates going up in the back half, and we've got 2025 numbers, certainly above the LRP, whether it be, you know, we probably have 8% or 9% growth for you, I would assume, in most of the companies we have it. Like, is it? I'm not saying that will transpire, but is it unrealistic if you exit 2024 at the rate that's implied in your guidance, that 2025 can be just normally given comps and above average growth, or how do we think about it?
Yeah, I think, as you said, I'm not ready to kind of sign up for 2025 above the long-range plan yet. But certainly, if the recovery continues into it, you have the benefit of the, you know, easier compares in the first half of the year in 2025 as well. And I think, you know, fundamentally, we believe in these markets, and so there's a possibility there, but stay tuned.
Yeah. So maybe zeroing back then. Oh, maybe just one more question on-
Sure
Kind of China. So you were thinking down to low 20s, it came in down 9. You said, "Here are the business that got better." Was it just a standpoint, you really just baked in a pretty conservative number, and they got a little better, or did you actually see something change, you know, with activity? Maybe I'm, I'm not... You know, PMI is still like they're under pressure there.
Yeah.
Maybe there's a little more dollars. I don't know, just-
Yeah, it's a good question. You know, we've been pretty transparent about how we were thinking about the cadence for China. You know, when we were sitting here in July and everyone was saying, "Hey, the world was gonna end in China," we said, "Hey, we believe, you know, it's gonna stabilize here at roughly $315 million a quarter. There's some seasonality here and there," and then we've done that in Q3. Q4 was $317, and then we just did $333 in our Q1. Take out the $15, you get back to roughly that same number. So, you know, it's been pretty consistent. You know, so we got it a little lower than that, but it's been pretty consistent.
And then I think what also helps us, and, you know, by having some confidence is we talked about our book-to-bill in China was over one. So it's been over one for several quarters now, which speaks to some predictability and stability in the business. Again, we're not ready to call an inflection when you look at it sequentially. The performance year-over-year will get better just because of the comps. But I do think we're seeing, you know, a stability on a monthly basis in China, which gives us confidence that maybe we've hit this bottom and then getting ready to reflect out or inflect, you know, sometime in the future.
Mm-hmm. And maybe last one there, sorry.
No, that's okay.
Have you seen any contribution, increased step up from the government? Like, have they done anything to support the pharma, the academic labs, any of the broader industrial? Like, is it anything on that front?
Yeah, I wouldn't say anything material.
Mm-hmm.
I think our team has done a good job. I do think that there has continued to be investments in places like semiconductor, where the government has probably put in more money than they expected to there.
Mm-hmm.
That's certainly. I wouldn't say that's stimulus necessarily versus kind of investment in capacity. I do expect some you know, continued investment. You know, one of the things that we're seeing is, while you're talking about WuXi and so forth, they're investing outside of China, but there's also investment going into China by multinationals, and sometimes to capture that in China for China opportunity, as well as the local companies. And so I would expect that to continue. And you know, I think given our presence in China and the fact that we have the ability to not only provide a product that can be sourced from outside China, but also locally sourced, we have the broadest portfolio, and I think that serves us well.
Mm-hmm. On your LC business, you talked about being at the bottom of the replacement cycle.
Yeah.
Is that globally or is that just in China?
That's globally.
That's globally. Does that also resonate in China similarly?
It does. Yeah, I mean, we talked about China, actually, on a year-over-year basis, actually performed better than the rest of the world.
Mm-hmm.
That, I would say they're over-indexed to small, small molecule.
Mm-hmm.
And I don't wanna call it being kind of the canary in the coal mine-
Mm-hmm
... so to speak, but certainly, we're very pleased with the performance that we had in small molecule. And I do think that small molecule, there's probably still... In China, you know, biotech is probably still gonna be challenged.
Mm-hmm.
I think you'll see biotech or large pharma or large molecule recover faster in the U.S. and Europe-
Mm-hmm
... than in China, just given some of the investments that they've been making over there and catching up with capacity. Whereas, I think it's more broad-based on the small molecule side. You know, we saw customers almost uniformly kinda hold back or defer investment after a period of accelerated investment-
Mm-hmm
... in 2021 and 2022. But if we look at the age of our installed base, it's kind of in the median of what it's been historically. So it's not the oldest it's ever been-
Mm-hmm
... but it's also not the youngest. And so you actually, every quarter goes by, it gets-
Mm-hmm
... you know, it starts ticking up, and you can only hold on for so long before you need to replace that instruments. And I think there's a push for productivity in, in pharma that continues, particularly in, you know, some of these, you know, markets. I think that actually speaks well to potentially you actually, if you can show value, whether that be through our services organization or actually through a new instrumentation, what we've seen is customers will pay for that value.
Mm-hmm. So maybe just on the global biopharma, you know, you kinda lowered your growth rate a little bit for the year.
Mm-hmm.
I think you were seeing an up, up low single, now it's flat. And I wanna hit on NASD-
Yeah
... which you definitely called out. Was there anything else? Was that the driver of that delta or any other parts of the business that were a little bit weaker, that you kinda took down numbers on?
No, that was really it-
Mm-hmm
... is the NASD business, and we see this as a transitory thing. But, I would look across the business, in our biopharma, say, and said, "Hey, first quarter came in with, the way we expected.
Mm-hmm. So, maybe just on NASD, you know, you talked about, was it one... You know, you talked about some clinical trial pushouts.
Mm-hmm.
Was it one customer? Was it multiple customers? I know you're very positive on the long term, but just maybe speak to a little bit of actually what happened.
Yeah, it's not one customer. You know, what we're seeing is, you know, a number of customers kind of evaluating their clinical trial pipeline and when they are, you know, what, what indication are they planning to go to market with first?
Mm-hmm.
Some of our customers, you know, the plan was breakthrough designation, get on the market quickly with an orphan indication and then build indications. And what we've seen now is some—you know, some customers, not all, but not one, saying, "Hey, let's take a step back. Maybe we wanna go after the larger indication first." That creates a temporary kinda pushout, and then go after some of the additional indications. And so that's why we're still positive about the long-term aspect here. And if you look at our clinical business in NASD, it's growing very nicely year-over-year. Both the number of programs, number of molecules, as well as revenue dollars, and I think that bodes well for future demand.
You just get to a point throughout the course of the year, where they say, "Hey, I still want it by the end of the year." That's the end of the calendar year. It may push out a month or two, and that shows up from one quarter to another for us.
Got it. Right. So you took that from mid-single to flat.
Yes.
So I guess the expectation is what you just said. It sounds like it's months, but for 2024, again, we're not talking about 2025, but, you know, to say flat in 2025, we should probably expect some recovery to take-
Yeah, it's, you know, obviously, with clinical trial demand, there's higher risk.
Mm-hmm.
There's different risk, I should say.
Mm-hmm.
You know, but the more we fill the funnel, the more opportunities there are. And what I would say is, when you look at our NASD business, I think there's a, you know, potential view that, hey, this is all emerging biotech or early-stage biotech that's filling up the pipeline. I would, you know, it's actually not that. It's actually large pharma that's going into siRNA, and you can look at many of their R&D days, and several of these large companies are looking at siRNA as a new therapeutic, you know, mechanism to go after a number of different therapeutic areas. And so that's pretty exciting for us, and, you know, we are still we view ourselves as the gold standard of GMP-grade siRNA.
And the more clinical trials we have, the more opportunity for getting that downstream commercial, 'cause you are spec-ed into the clinical trial, you're in the dossier, and then, when that gets approved, then you typically will get the commercial volume.
Right. You talked about, at one point, $900 million of revenue potential once Trains C and D are open, which I think you said revenue would start in 2025. Like, was there any timetable attached at what point that could be realized? I mean, we have $350 million in fiscal 2024 NASD revenue.
Yeah. So, Trains C and D, which are the two trains that are being currently constructed today, are coming in on schedule, which was 2026 and 2027.
Twenty-six, twenty-seven.
And so that would be a, you know, kind of full running in the 27-
Yeah
-timeframe, not 25.
Right. Right. But that's the potential or, I mean, it could actually be $900 million in revenue capture?
That, that is kind of how we modeled the revenue for the facility. So certainly, it's potential. It, it requires some of these products to come through. But the way we did this is we looked at our current installed, you know-
Mm-hmm
... our current customer base, the number of programs they have, and then made a very modest assumption about new programs and discounted that, looking at the success rates that we've seen to date. And it's, I would say, a balanced forecast, not an optimistic forecast.
$350 million in NASD revenue this year realistic? I mean, are we in the zip code there?
Yes.
The zip code.
Based on what we know today.
Some of the competitors have been very aggressive in acquisitions, but Illumina hasn't done that in acquisition.
Yeah.
Do you feel like that's strange to you?
I would say, based on where they, those acquisitions have happened, we haven't been a whole lot of assets that we say, "Boy, we wish we had." Now, that being said, I do think that M&A is a, an element of our playbook, that last couple of years we have been, you know, because of valuation, and then last year, given the market challenges, you know, we were, we were probably slower than we've had historically been. I would expect us to get back to kind of our historical run rate of adding some, you know, value accretive or growth accretive assets, over time. And I think Mike actually made a comment on the Q1 earnings about the funnel being, you know, active. I wouldn't take that as being imminent.
I would take that as, you know, hey, we've got a very strong balance sheet, strong cash flow, and we're in a better position than maybe some of our peers. Maybe not the giants, but many of our peers.
Thank you. Yeah, no, I had... That was, that was my second to last question, but, maybe, maybe since we're on the topic-
Sure
... just, you know, in the past, Mike's talked about maybe going up to $2 billion, I believe, right? Like, is that still the zip code of, like, what-
Yeah. What I would say is, we've talked about multiples of the biotech, which was $1 billion. We could do a $4 billion-$6 billion acquisition without impacting our investment grade. We'd have to look at the right asset. I would say our sweet spot's between $1 billion and $2 billion. You know, when you start getting into those larger numbers, it gets harder to compete with some people that may have deeper pockets. That being said, I think we can compete against anyone.
Mm-hmm. So, so, you know, chemical, you know, chemical and advanced materials, not C&E, that was a segment that when the economy has gotten weaker in the past, it's, you know, it's been like a, certainly a, a risk for you guys.
Yeah.
but you've had this, you know, benefit of these advanced materials businesses-
Yeah
doing really well right now, PFAS, electric batteries, right? But the business has slowed, right?
Yeah.
I mean, you're going from 18% growth in fiscal 2022, I think you were, like, 3% growth in 2023?
Yes, that's right.
So right now, you're talking about a little better growth in 2024. Just kind of walk through a little bit of the composition. How much is the more commodity or the more cyclical part of the business?
Yeah, yeah.
How is not commodity.
Yeah.
I mean, you have a leading share in GCs. I get it. Like, how is that business doing versus the faster business, like the faster-
Yeah, it is. So if we think about our chemical and advanced materials market, there's 3 subsegments of that market. There's chemicals, which is roughly 55% of that market. There's energy, which is roughly 10%. So that, those two combined is about, you know, two-thirds of the market, and then advanced materials is 35% or about a third. That chemicals and advanced material has been driving the growth. I would say in the... The difference between the 18 and the 3 was largely in the chemical side, which was in China last year, which had seen, you know, lower growth. I think we're expecting modest, you know, very modest growth there, or not much improvement, I should say, year-over-year on that.
The growth is really driven by the advanced materials being a bigger part of the business. Now, what I would say is, if the economy improves faster, looking at PMIs and so forth, it does correlate, not perfect, but there is a correlation there. That would benefit the chemical side. But even if we looked at, you know, Q1 as an example, advanced materials performed much better, I would say, than the chemical side. And I would say remain cautious about that side until we see actually a turnaround.
Mm-hmm.
But we're much more optimistic about the advanced materials, given the secular nature of some of the actions that we're seeing, not only our customers, but governments driving in terms of investment in those areas.
So that business, the applied business, is growing at what in you know? So it's a third of the business, and it's a growing-
Yeah, I would say mid to high single digits.
Mid to high single digits.
Yeah.
Got it. And, and just on the more chemical end side of the business, like, are we—like, is it, is it a point we're at kind of a bottom, or is it?
I think so.
Or things still worsening?
No, I don't think they're worsening, per se. I mean, it kind of gets into kind of the really the GDP, and GDPs actually perfor... And PMIs, and you know, I think we're, we've been kinda bouncing around at the bottom-
Mm.
Here, and I think what we're assuming is that's gonna stay kinda similar on a sequential basis.
Mm-hmm. Mm-hmm. So if you looked at, say, the next X number of years, not 10 or 5, but let's say 3 years, like, Agilent has been very block and tackle, right? You're just consistent.
Yeah.
You perform. Like, you've got some volatility, but you guys just deliver. The next 3-5 years, maybe back to the M&A question, or just, like, how do we think about the, like, the, the business? Is it just stick to the knitting, exactly what you've been doing? Are there areas you want to invest more in?
Yeah.
M&A, I think we've already answered. You wanna be opportunistic, but sounds like you wanna be a little more aggressive. Just how do we think the portfolio or the business as we look out the next, you know, the three-plus years?
Yeah, I would, I would say a couple of things. I mean, stay tuned. We obviously have a new CEO that's coming on board. I don't expect him to do any, you know, anything dramatically different than what we've been doing because it's been successful. I would say, as we look at it, I would see us continuing to expand into those higher growth areas. We still are a big believer, despite kind of the pressure here in biotech, that biotech will grow. The notion of continuing to drive that connect rate has a nice flow-through of consumables as well as services, and then you add on these areas of applied markets where we're by far and away the leader. I think you'll see us continue to move into higher growth areas.
Then, I would think about M&A as optionality, and so I don't think we are being hurt by not having any. You know, there's no big gaps in our portfolio, but I think you can think about us as actually moving into adjacencies based on the strength and the scale that we have. And so that's where I think this long-range plan is still intact, and actually, the market and the business actually drive us to that higher weighting because the faster-growing areas are becoming bigger parts of our market. And one thing you can assume is that focus on customer and that customer satisfaction, that service orientation won't change, and neither will our operational execution.
Great. Well, Bob, with that, I think we're out of time, so thanks for being here. Thanks, everyone in the audience.
Thank you.
Okay.