All right. Good morning. Thanks, everyone, for being here. I'm Brandon Couillard at TD Cowen Life Science Tools and Diagnostics, here at the firm. Thrilled to have Agilent with us at the conference this year, joining us for this conversation, Padraig McDonnell, CEO, as well as Rodney Gonsalves, who's the interim CFO and principal accounting officer. So thank you both for being here.
Thanks for having me.
Thanks for being here. Coming fresh off of earnings last week, I mean, you just reported third quarter last week. Really strong top-line growth, 6% core, kind of top-tier in tools. Pharma and CAM were particularly strong. Just kind of unpack some of the key themes and takeaways and trends you saw in the quarter, and we'll go from there.
Yeah. So, you know, we opted our guide for 25 on the revenue side. So I think it was really driven broad-based growth driven with Pharma. CAM and CDMO actually was one of the key drivers in the quarter. It really was, you know, execution by the team. We saw markets improve. Innovation really had their Infinity III to Pro iQ Plus on the LC/MS side and the 8850 innovations are really resonating with us. Our service business, of course, with satisfaction scores greater than 90% provides real intimacy with customers, which is important in this environment. I think if you go through the quarter, you know, Pharma, you know, we were very strong. We saw it was small molecule QA/QC led the way. We grew double digits.
In fact, in Europe, we grew mid-teens in Pharma QA/QC. And what's driving Pharma? I think you're seeing consolidation of supply chains in manufacturing, downstream. You're also seeing some greenfield sites with ADCs, GLP-1s that were winning a good share in. And we see these drivers coming off. And most importantly, you know, we never talked about a supercycle, but we see a steady replacement of Infinity II, and Infinity II grew 15% in the quarter. And we're seeing that, we're gaining share, but also kicked off on that side. And Cam, you know, broad-based 10% on the chemicals and 10% on the applied, on the advanced materials side. And again, replacement cycle kicking off, also greenfield sites in some areas and also supply chain reconfiguration with areas on it. And CDMO, great quarter again, 20% growth, booking well into 2026.
I think strong performance from India and China was stable. You put it all together. It was a very, very strong quarter. I think what was different about this quarter, Brandon, is that when we went through the quarter sequentially from month one, month two, month three, we were ahead all the way through. That's a big, big change. That goes back to the days pre-COVID where, you know, we generally see a hockey stick at the end of the quarter, but this was a very steady progression of the quarter. It was great.
Are you saying that the instrument mix was not so heavily weighted to the last month?
Yes, it was steady.
Okay.
It was steady through the quarter, and that's a change. And I think, yes, we were very pleased with that.
Okay. I wanna touch on margins, which is, they've been variable.
Yes.
Certainly the last several quarters. And gross margins have been surprisingly soft. And there's a lot, I think, behind that, of course.
Yes.
Could you just kind of unpack the impact of, you know, tariffs mix? You've got the BioVectra business. NASD grew a lot in the third quarter, but that's diluted to kind of the gross margin profile.
Yeah.
You did sort of express a lot of confidence.
Yes.
Let's say in the fourth quarter sequential improvement, I think, being up like 230 basis points.
Correct.
So, Rodney, just kind of help us understand some of those moving parts.
Yeah.
And do you think this is the third quarter was kind of the low point for growth and operating?
Yeah, I think so, Brandon. When we look at the third quarter, we do think it was really the low point. The biggest issue hitting us has been tariffs. Third quarter was the first quarter we saw a full effect of tariffs on our quarterly results. That on a year-on-year basis, incremental tariffs, drove about 200 basis point margin decline. Tariffs have been a pretty significant hit to the overall business. We've got mitigations in place. In the fourth quarter, we think tariffs will also still be high similar to what we saw in the third quarter. We expect to see those tariff costs and mitigants to those tariffs coming down through 2026.
And so as we go into 2026, we think this will ultimately be a tailwind, versus the strong headwind that we're getting hit with this year. Now the other kind of key points, our margins did finish below our own expectations, our own internal expectations. And there were three real drivers. One was tariffs did come in higher than we expected. And that was a bit more because of revenue, but it was also, you know, we had a lot of LC business that those ship out of Germany. And so they were taking tariffs into the US. So our mix was a little bit heavier on a tariff basis coming into the US. And we've also built some inventory, which we think will kind of start working down over the next quarter and beyond.
The other areas, we made more investments, additional investments into our commercial. We expanded our coverage model. We're seeing the opportunities of growth, and we're taking advantage of that. The third area is just variable pay. The bonus plans for our employees, overall, as the business has picked up, we've actually adjusted our year-to-date accrual. We ultimately are accruing more variable pay or more bonuses in the third quarter than what we originally expected. Those are the big, kind of the big drivers. Now, if I think of, we are making a pretty strong expectation on an operating margin going from Q3 to Q4, as you said, about a 230 basis point increase. If I look at the pieces, I don't have another tariff step up.
We're pretty much there, and so when I look at my revenue growth from Q3 to Q4, it's almost $100 million step up in revenue, excluding any tariff effects. So we'll get strong flow-through related to that increase. And then we also will see further improvements related to our Ignite program in the fourth quarter. So if I look at these things, and again, the big issue is we don't have these additional headwinds hitting us going into the fourth quarter. We've really taken the brunt of it in the third quarter. And I think from here on, we will be in better shape as we move forward.
On the gross margin point, Brandon, I think it's an important one. If you think about NASD, it's about 15 points lower than the, on the gross margin side than the company average. But the operating margin is on the company average.
Yeah.
It's a different profile of a business. I think what we need to do is educate as we go in more into CDMO gross margin. We'll have a different profile going forward.
Yeah.
Gotcha. I do wanna circle back to those businesses, but maybe just starting with chromatography.
Yeah.
You mentioned the Infinity II. You got this new 8850 GC instrument.
Yeah.
Just talk about where we are in the replacement cycle.
Yeah.
You know, for those two areas and kind of the legs that, kind of remain for, let's say, improved growth or elevated growth, from those two products.
Yeah. So Infinity II, you know, we're at the start of that replacement cycle. We saw a gradual improvement from launch in this quarter, a step up to mid-teens growth. And what we're seeing is people that have bought the Infinity II, maybe four or five systems, are coming back for multiple systems because of the productivity gain of about 20 percent, 15% to 20%. And what we're seeing is, you know, with the replacement cycle in LC, you know, there is no supercycle. You know, you have a big topology in your installed base. You've got competitors installed base. So as CapEx is released and people are expanding capability, you know, we have an opportunity in our installed base with 1100s, 1260s, and 1290s, but also competitor installed base.
So I would say we're in the early innings. 8850 GC, we're in the even earlier innings 'cause our chemical install base is huge. That install base is much older than our LC install base. It's just typically older with the GC side. So we've seen that kick off. So I think you're gonna see a continuing improvement. It's gonna continue into 2026 on both of those replacement cycles.
When's the last time you had a GC replacement cycle? And can you put any numbers around how elongated that installed base is?
Yeah. I mean, if you think about an LC replacement cycle of about seven years, GC is 10 plus years. The last time we saw anything like that was really around the Intuvo launch. You remember that about?
Yeah. It's been a while.
It's been a while. So that's we saw a little bit of emotion on that. We think this is gonna be bigger and more pervasive because of some of the tailwinds that are coming in, you know, about, reshoring and so on. So it's about 10 years, and I think we're seeing the early signs of that now.
We'll shift gears over to some of the end markets. A&G, not unlike many others, I feel like held up a lot better.
Yes.
So it was hardly a disaster.
Yes.
In the quarter, I think it was actually up for you overall. You're kind of forecasting it down mid-singles in the fourth quarter. Is that just an abundance of conservatism in that assumption, and what are you seeing geographically across A&G and markets?
Yeah. I mean, if you split it, it's the tail of two cities. If you split out A&G outside, first of all, it's about 8% of the company. So it's a small part of our business, 1% linked to with NIH. But if you look outside of Americas, we're pretty stable. You know, you saw mid- to high single-digit growth in Europe. You saw actually 20% growth in China and A&G, even though it's a smaller market. So pretty stable across it. Americas is very, very challenged with, of course, the funding, which we've seen some changes this week. And we don't expect that to improve dramatically. But I will say that our services and our consumables business, even in the US, is high single digits. So we're seeing lab activity.
We're, I would say, we have a good degree of prudence in Q4, but I think it's necessary given this macro environment, particularly in the U.S.
Yeah. I'd also say seasonally, we do more business for the US government in the fourth quarter. And so that'll have a weighted effect factor on the downside.
Okay.
Maybe shifting gears, you know, over to pharma, you know, tariffs, MFN.
Yeah.
Top of mind for investors. Maybe it's, you're not the best comp, right? Because there is a replacement cycle in LC.
Yeah.
That's gonna be independent, right?
Yeah.
Of maybe some of these factors. But to what extent is that coming up in customer conversations? To what extent is it, you know, holding back their spend or budgets, if at all?
Not at all. I mean, the MFN thing has been for a number of quarters. We've been expecting a lot more noise around it than tariffs. But we really haven't seen it affect that market at all and more so on the tailwind. So if you look at Europe in small molecule, QA/QC, we grew 15% in the quarter in Europe. And you might say, well, how is Europe growing 15%? Because you're seeing replacement cycles happening in the install base and labs. You're also seeing consolidation of supply chain and new capabilities around ADCs and GLP-1s and new capacity needed. So you're putting it all together, I think, there's gonna be a steady gradual improvement. And what we're seeing in our funnels, Brandon, we're seeing the velocity improve. We're seeing the overall funnel rate grow and our velocity improve.
We expect to see that through the end of Q4. We have pretty good visibility on that. You know, thinking about the long-term drivers in pharma, I mean, we're right at the sweet spot of downstream QAQC. So we think that's gonna be a really particularly good growth driver over the next few years, and particularly as we wait for reshoring in the US, which we think is about two years away from a CapEx side.
Lastly, on pharma, one of the things you mentioned last quarter is that the approval, I don't know, timelines or.
Yeah.
Hurdles to getting, you know, final sign-off on.
Yeah.
CapEx orders is shortening.
Yes.
It's lower barriers. That cycle is getting easier.
Yes.
Is that, you think, unique to Agilent? Is it tied to the LC replacement cycle where there's probably good consensus agreement?
Yeah.
As opposed to, you know, how much of that is like company-specific and what's behind that?
Yeah. So first of all, you know, there's a lot of pent-up demand. There's a lot of fleets that are aging. I mean, there's 1100s out there. You have 1260s, 1290s. So people have to refresh their fleets. And there was a point in time over the last number of years, which was very difficult. Sometimes you had a CEO approving a CapEx budget for a multinational company in a region. Now you're seeing the site manager approve it or the lab manager approve it. And that's a big change. I'm not saying that we have strength. We still have some areas of softness, but in general, that has been a very positive trajectory change. And I think, you know, if you go into any laboratory globally and I visit customers every quarter, the one thing that they're absolutely consistently focused on is productivity in a lab.
So you can have the best system that gets the result out, but is it gonna be productive over time? And that's because of the Infinity II, the 15% roughly how we can improve productivity is resonating on repeat purchases.
Maybe switching gears over to the CMO, let's say, platform. NASD, as you mentioned, performing very well.
Yeah.
Now to 20% growth in the third quarter. You kind of raised to the full year outlook, kind of, I think, to maybe low double digits now.
Yeah.
Just kind of unpack, you know, what you're seeing in the order book and how much of that's coming from clinical versus commercial programs and update on what that mix looks like for NASD?
Yeah. So we were really, I mean, I wouldn't be expecting 20% growth next year, but I think 20% in the quarter was extremely strong. And you see the number of public indications that are coming out with some of our pharma partners. We don't go into detail about it, but that's switching a lot to commercial batches. And we're booked well into 2026. In fact, we're booking into 2027. And one of the really important parts of this business is that we invested about $700 million over three years ago in capacity. That capacity is coming online in Q4 2026, which is gonna be at the right time, for a lot of these indications. So, you know, it's extremely sticky. We have really good line of sight because of these cardiovascular indications, these unique disease state indications. So we have, we're feeling very good about 2026.
Is how much of that new capacity is already kind of signed up for?
Do you wanna talk about that one?
So in terms of bookings, we're actually booking into that capacity in 2020 at the end of 2026. We don't give out exact numbers, but we don't give out a percentage. But I will say that capacity is coming at the right time. We're booking to 2026. Just an update on the commercial versus clinical mix.
Yeah.
I mean, for a very long time, it skewed very much clinical. Where does it kind of sit right now, or?
Yeah. I mean, it in the last few years, we had a difficult 2023, but that was far more clinical batches, less commercial, right? You had a lot of repurposing of supply chains. We're actually about 50/50 now in commercial and clinical, and we expect the commercial number to grow into next year.
Gotcha. Okay. It's been a little under a year since you acquired BioVectra. It sounds like that business is, is doing well. Just talk about some of the, the drivers, there, how the expected synergies with NASD are playing out. And one thing in the quarter, you talked about a facility shutdown.
Yeah.
Related to, I think, a single customer.
Yeah.
What was behind that, and what does it mean for business next year from that factor?
Yeah. So let me go from the last question to the first one. So generally, when you have a customer ask, when we do a shutdown for a process improvement with a customer, you know, it's a customer requested process change. This went on two weeks longer than we expected, but again, requested by the customer because their capacity is up for next year, and this process needs to improve the capacity. So even though we had a hit in the quarter, we were actually very happy with that because it bodes well for next year. And we're in really fast-growing spaces, GLP-1s inside, for two major suppliers and also ADCs. And it's very complementary to NASD. So the synergies between it is, first of all, we have a lot of expertise on both sides.
We can improve volume both on the siRNA side and the oligo side, and people then want to expand into the BioVectra side. And of course, it takes us a while to get the quality systems up to speed and so on. But because that was a private equity company, we bought it as a strategic. We're getting a lot of, I would say, interest because of, you know, our long-term and our expertise. So we're very excited about it, and we're booked well into 2026 and beyond.
Gotcha. The switching over to the CAM segment, one of your strongest end markets in the quarter.
Yeah.
which is in contrast to some other, I think, peers.
Yeah.
Kind of play in that more industrial.
Yeah.
Ecosystem. You called out shrink and semis.
Yeah.
EV batteries. You just unpack some of the drivers there, and onshoring, are you already seeing investments from onshoring perspective from, you know, that end market?
Yeah. So if you break it down, I mean, we saw 10% growth on the chemical and the advanced materials, 10% as well. And you know, what we're seeing is, first of all, we have the largest install base of anybody, right? So we have a lot of surface area opportunity with a very aged install base. So the 8850, again, helps us with that replacement cycle. You're seeing, you know, some greenfield investments and actually, you know, consolidation of supply chains around the globe on the chemistry side. And you might say, well, what's driving that? It's actually the downstream usages in semiconductor and advanced materials. So those two businesses are very serendipitous with each other. So we see that as a tailwind going forward and across geographies.
Then in the advanced material side, semiconductor, reshoring and fabs in each region. I was in India three weeks ago, four weeks ago, and they're now starting to build the infrastructure for semiconductor with high-purity chemical plants, which leads into it where we have a big opportunity. Of course, sustainability and advanced materials is something that we see growing long-term. It's our position in the market with a very high market share. It's our very tight connection with customers. We know when customers want to spend, and then you have these tailwinds driving it. It was a fantastic quarter.
Just remind us what you kind of last said as far as kind of end market breakdown within CAM and what that looks like.
Yeah.
I don't know, maybe semis EVs versus legacy.
Yeah. So CAM is about 21% of the company. And it breaks down probably two-thirds chemicals and then one-third semicon and advanced materials, of course, growing at a faster rate.
Gotcha. Okay. Wanna touch on China for a minute. You know, obviously, big market for you.
Yeah.
You've been local there forever, right? What's your state of the union on China? Different companies have kind of talked about, you know, different seeing different things as far as stimulus contribution.
Yeah.
What are you seeing there? And kind of what's the kind of macro picture look like for China right now?
Yeah. If we zoom off to the macro picture, I mean, it's been a very stable business for us, not what it was, but $300 million a quarter. You know, we had an oversized win in the last stimulus order, about 50% win rate, $35 million. And we have a large stimulus coming. But if you look at, let me break down the markets. If you look at pharma and biopharma in China, you know, about $50 billion of out-licensing this year in pharma molecules, which is double what it was last year. So the level of innovation is really, really high. You also have, in terms of the overall molecules that are coming out of phase three and phase four, like 30% globally are coming out of China. So high innovation rate.
The customers or the governments have now really started looking at how they can create free trade zones around biopharma. And we've heard some initial plans around that. So we think that pharma, the tools are gonna be needed. It's not gonna be a huge jump-off, but we have a replacement cycle momentum there. But also these tailwinds of innovation is going really well. On the CAM side, I think, the research in batteries is very strong. Semiconductor, as you know, is very strong. And of course, the chemical side, we have a large install base for replacement. So overall, putting it all together, even with PFAS, we see China steadily improving next year. And that's without stimulus, by the way. The stimulus that we expect at the end of the year, the opportunity is $130 million-$150 million.
It's right on our sweet spot of opportunity. And we expect to see that in the calendar year, Q4 into Q1. So overall, and you know, it's really important, I think, Brandon, one of the things that's very strategically important for us is that we're continuing to stay very close to China in terms of manufacturing capability, true manufacturing in China for China, and then tapping into innovation groups there, particularly around productivity and automation. And I think, we're gonna benefit from that in the next few years.
Just to clarify that stimulus number, you just gave $120 million-$130 million.
Yeah.
Is that orders that you have booked? Are those competitive bids?
Yes.
Is that what you anticipate falling somewhere between calendar 4Q and 1Q?
Yeah.
For the revenue contribution?
Yeah. So it's, sorry, it's,
Yeah. That's total size of the.
Yeah.
The stimulus, which we expect to get a portion of that piece.
It's the overall funnel. And I wouldn't be expecting a 50% win rate 'cause it's a different pathology or surface area around that, but we expect a very strong win rate in that. So we expect we'll see that in Q1, really, of calendar year.
Okay. Is there any baked into the fiscal 4Q?
No.
Q4 stimulus? So anything you might get in the fourth quarter would be upsized. Is that how we should think about it?
Yeah. If anything, we may get some orders. That would be it. But I don't think we'll ship anything in the fourth quarter.
Okay. One question I frequently get is just like, look, if China can backward engineer a battery car to compete with Tesla at a lower price, why can't they backward engineer a mass spec? And so, like, to what extent do you see local competition in some higher-end analytical instruments that have kind of remained Western markets?
Yeah.
Is that something you see popping up out there? Is it something you spend a lot of time thinking about?
That's a great question. I mean, we've been thinking about that for over a decade, but I would say in the last five years, we've been watching this and if you look at the first stimulus order, which I think gives you a good Pareto, and we see it's public information, about 10% of that opportunity was won by local Chinese competitors. And where we see that is more on the GC and the molecular spectroscopy side. We don't see it on the higher-end side. So no doubt about it, it is we have competitors there. But unlike diagnostics, because of our breadth of technologies, and this is for everybody in the space, but also the mass spectrometry barrier, I would say, we expect that it's gonna be, we're gonna be able to compete very well over the next few years.
But if you do not have true manufacturing in China for China, if you're only badging something, you don't get a chance to quote for that stimulus order. So that's really, really important as we, as we go forward.
So maybe it exists in molecular spectroscopy GC, but you don't see.
No, you see it in.
You see some small.
Mass spec or LC.
No. You see some LCs, but not really gaining. And I ran the service business for a number of years before coming into this. And one of the questions that I got is, well, why did Chinese local companies not just do the service? And they haven't been able to, you know, get a foothold for two reasons. It's the scale around our digital platforms that we can do inside and also the technical capability very close to our customers. It's a barrier.
You kind of front-run there. Kind of my next question is, you have multi-vendor service in China.
Yes.
But it's not been historically a market that has been, you know, conducive to service contracts.
Yeah.
What does your mix look like there? How fast is that business growing? I guess kind of just outlook for.
Yeah. No, we've been working a lot on our portfolio in China from a contract basis. So we have a lower contractual service rate in China versus the rest of the world, but we think we can improve that with more offerings around our productivity solutions. So we see we have a lot of headroom to grow in services in China.
I think, remind me, service, maybe 10% of the overall portfolio. And how big is it in China, or cross-lab within China?
Services is $1.1 billion. So it's more than 15%-20% of the company, I would say. And in China, we're probably less than 10%, I would say.
Yeah. It's gotta be in single business.
Yeah.
Yep. Okay.
But again, a lot still in China, though. It's again transitioning customers more to contracts. Break fix, we're still often in those accounts doing that work.
Okay. Rodney, one of the things off the call is, I think you mentioned that pricing was up 100 basis points in the third quarter.
Yeah.
I think you talked about some lag of how when it takes to actually show up in realized pricing.
Yeah.
What does that look like for 2026? And does that 100 basis points include tariff surcharges that you might be taking to offset some of those costs?
Yeah. So the 100 basis points excluded we haven't put in place any tariff surcharges yet.
Okay.
Those will go effective in the fourth quarter. We're not expecting to see. We'll see a little bit of the surcharge effect probably in October, but more of it will be showing up in the first quarter of next year. The 100 basis points improvement that we saw in the third quarter on pricing was just pure pricing excluding tariffs. We've continued to see pricing improvement. As one of the things we mentioned, we were about a 50 basis points improvement a year ago. We're now up to 100 basis points. A lot of this is just a focus from an Ignite standpoint, working with the sales organizations and doing a better job of pricing over our portfolio and getting that price realization with our sales organization.
So as we look to the future, we think we can continue to see that expand at a higher percentage, particularly as we start then adding in surcharges and other pricing. So we did a price increase in July, and then we've just implemented some new surcharges in actually September. And so again, all of this effect should start showing up again a little in the fourth quarter, more into the second half or into the first half of next year.
Have you quantified the surcharge amount that you're taking? And is it fair to think that net pricing adds 150, maybe 200 basis points in fiscal 2026? Reasonable?
What was the surcharge? What was it? What were you announcing?
Yeah. I, I think we, you know, on the surcharge thing, it's a point in time. But I think over next year, we feel good about 100 basis points improvement in price.
Okay. PFAS has been a strong growth contributor.
Yeah.
For several quarters. Seems to maybe take a step back in the third. One of the things you called out was uncertainty around the U.S. budget.
Yeah.
You know, just kind of unpack what you're seeing from an EPA perspective. Are you concerned that the administration's gonna roll back the.
Yeah.
PFAS regulations? And just where can this market be in, you know, two or three years?
Yeah. So it, you know, it's kind of like, again, two situations. If you look at it globally, we were extremely pleased with PFAS. We grew 50% year over year across the globe. We did have, you know, a softer Americas around the EPA changes in the agency. And that's, you know, a lot of confusion about who's got what job, you know, and etc. So CapEx has been challenged on it. I will say two things that makes us feel good about, you know, we think this is gonna be a two-quarter phenomenon in the U.S. How we're gonna come out of that back to the normal rates is, first of all, the regulations are set. There's been no rollback in regulations, so they're set, and secondly, there is an overhang of litigation. So you've seen some of the high-profile litigations around PFAS.
When litigation comes in, testing follows with it. I think we expect that to go back. Across the globe, you know, regulations are changing. We're moving to food and air now where we have a sweet spot for GC/MS. You have this geographic expansion, regulatory changes, modality, you know, what we're testing is expanding. We see it as a long-term growth driver for us.
Have you sized the PFAS business recently? Is it somewhere in $1-$200 million range?
Yeah. It's in that range, and the overall market, we think, is about $500 million.
Okay. I wanna touch on, you know, 2026. I know you're not necessarily giving guidance, but you sounded really upbeat about the fourth quarter.
Yeah.
You raised the implied fourth quarter organic guidance to, I think, 5%-6% now.
Yeah.
Maybe pricing is a little better. Sounds like the replacement cycle still has some legs to it. Stimulus, China stimulus is there. NASD and BioVectra is gonna roll into the base. That should be accretive next year. So, you know, is there, you know, to what extent do you sort of feel comfortable with kind of next year being a mid-single-digit year, number one?
Yeah.
And you'll pick up the tariff benefits or the $20 million on the operating line, maybe mixes a little more favorable next year. So is kind of 5% core, 10% EPS like a reasonable sort of base case, based on kind of what you're pointing to in the fourth quarter?
Yeah. We're not gonna guide, Brandon. I know we got asked that everywhere a number of times. But what I can say is we feel positive going into next year. But anything can happen in this environment. Geopolitically, tariff shocks, you know, you can have changes in different rates. We're taking a very prudent approach to it. You know, if you look at our long-term growth plan of five to seven, you know, I think we're gonna, as we go through the year, we're gonna get into that range towards the end of the year. But we're gonna be very prudent in terms of what we're gonna put out and guide because of these changes. And we'll be guiding in three months.
The balance sheet's in great shape. It's been almost a year, right, since the BioVectra deal. You passed on one or two things that it, you know, traded in the market. So you've been disciplined on M&A and capital allocation. Anything holding you back, on the M&A front? And just kind of how do we think about, I guess, your priorities, going forward? You've been active on the buyback. Should we expect that to remain the case?
Yeah. So look at, I think if you look at our new strategy around markets, our enterprise strategy, the way we realign groups with that strategy, we're looking very much at a company level about where we can add capabilities. There's nothing gonna be surprising. It's gonna be right in those pillars, right? Faster-growing areas, recurring revenue, and I would say if you come into our discussions, we have a very small list of very high-quality targets we're talking about. But we're very disciplined. You know, we looked at a number of deals that were out there this year. They didn't fit our strategy. They didn't fit our profile in terms of revenue or profitability. So we're gonna wait for the right one.
But I think one of the really great, we have, you know, we feel really good about M&A going forward is we've seen the engine of Ignite take out significant costs. So we have a cost synergy engine that can be applied going forward on it. And we're in a number of attractive markets where we can, we can add on. So I think it's gonna be interesting. And we have a balance sheet as strong. Our leverage is, is low. So we're, we're in good shape.
Great. Maybe just to close, Padraig, I mean, you've sort of been in the CEO a little over a year now, I think.
Yeah.
And gone through some organizational changes. What do you think's misunderstood, if anything, about Agilent from a premier point of view? I mean, the valuations kind of well below historical levels, discount to the S&P. I mean, if there's one or two things that you think investors may be sort of missing.
Yeah. I don't wanna talk about, let me put it into context of the quarter. You know, that quarter just doesn't feel like it was really extremely strong execution by the team. Everybody says their commercial engine is the best and they've reorganized commercial. But having reorganized that commercial for three years before coming into this job, we have an amazing service and sales connection with customers that makes us very, very different. And then you look at our surface area across all these markets with these sector drivers. We're right at the heart of these areas on it. And the areas we're gonna continue to be really focused on is, you know, asymmetrically investing in innovation pipeline. The CDMO business makes us very different, very sticky. Our cross-lab business makes it very sticky.
Actually, our China position of where we haven't, you know, we've stayed very close makes us very sticky. So I think we're very excited about it, and there's been a lot of change in Agilent, I would say, in the last year, but each one of these changes has actually led to that quarter, so our applied markets and so on, and I think Ignite. We're in the early innings of Ignite. That's gonna roll for the next few years of really creating a lot of value.
Super. Well, fortunately, we're out of time, so we'll have to leave it there.
Thanks a lot.
Thanks so much for being here, both of you. And everyone, have a great day.
Thanks a lot.
Thank you.