Perfect. Hello, everyone. This is Rachel Vatnsdal from the Life Science Tools & Diagnostics team. Thank you so much for joining us today. I'm joined with the Agilent team, Mike McMullen, CEO. Standard with your other sessions that you've been attending today, we'll kick it off with a 20-minute presentation by the company, then we will shift to Q&A. During Q&A, if you're joining via webcast, you can feel free to submit a question via the Q&A function. For those of us in person, feel free to raise your hand, we have mic runners throughout the room that can hand a microphone off to you. With that, thank you so much.
Well, thank you, Rachel. I want to say, as I mentioned earlier, it's just great to be here and it's great to be back in a face environment here at JPMorgan. Thanks for joining today. There's three parts to my talk today. First of all, I'm gonna talk to you an overview of Agilent, who we are, what we've been doing in terms of shareholder value creation. Then we're gonna move forward and talk about where are we going to make sure that we can continue to perform at a high level in 2023 after the Agilent team delivered an excellent 2022. Then I'll close with what you'd expect from Agilent in FY 2023. First, for your reading pleasure, our safe harbor statement. Okay.
I wanna move on to who is Agilent. We're a $6.8 billion company, with unsurpassed scale, a leading partner with unsurpassed capability and scale across the world's 265,000 laboratories. I would also say we've been working really hard to change the overall mix of the company's business. You notice we've highlighted here the move to almost 59% of our revenues today come from high-growth pharma. These connected high-growth areas of pharma, clinical diagnostics, and life sciences research. If you had a chance to listen to me talk last year in our virtual format, I talked to you about we had a winning strategy, this Agilent team. The Agilent team was performing at a very high level, and we're gonna deliver.
That's exactly what we did in 2022. We grew 12% core in 2022 on top of 15% the prior year. Margins, up 160 basis points in an inflationary environment that none of us have seen for a number of decades. Our earnings per share growth continues to accelerate. We did 20% growth, this year on top of 32% the prior year. We're not at all satisfied. We continue to push ourselves. We're gonna continue to drive shareholder value creation as we move forward. In fact, in terms of shareholder value creation, I wanna remind you of what is our model here at Agilent.
I stood in front of this group, when I first became CEO, back in 2015, and I described our shareholder value creation model at the time, which was to drive above-market growth, which is continue expansion of the operating margin and deploy capital in a balanced way. That's been our model that's been intact since 2015. What can you expect from that model? What we shared at our most recent investor analyst day back in, like, it was December of 2020, right, Bob? Above market growth, we think we'll do 5%-7% core as a company, continue to expand operating margins.
I'm sure we'll get into some of those details in Q&A, 50 to 100 basis points per year, and continue to use the strong Agilent balance sheet to deploy capital in a balanced manner. Where does that all lead to? A double-digit EPS growth. You can see by our results for the last 2 years, we're delivering on this commitment here. As I show you the results for the last 5 years, you'll see that it's been a continuous story of delivering on this model. In fact, these aren't just some theoretical business model that we talk about with investors. This is what drives the Agilent team.
What I would say with you is that if you look at the growth rate of this company, pre-2015, which I call the creation of the new Agilent after our spin-off of our electronic measurement business and becoming a full focus company on life science and diagnostics, our growth rate has accelerated. Not only our growth rate doubled, but you'll see in the last few years, it actually has been accelerating with 15% core in 2021, 12% core last year. I can remember being in front of a group like this, five or six years ago, talking about operating margin expansion. Could you ever get to 22% operating profit? Well, we've blown right through that. Margins are up 800 basis points since 2015.
Last year, as I mentioned earlier, we delivered 160 points of improvement in an inflationary environment. Where does this all go to? Again, this idea of superior earnings growth, 17% CAGR through the last five years, 32% in 2021 and 20% in the past year, going from $1.74 to $5.22 in FY 2022. Again, we've lined up our compensation systems. This is how we focus the entire company on this model. It's more than a theory. This is what we do at Agilent. I wanna dig in a little bit deeper about the comments on the balanced capital deployment. What do I mean by that? We've got this great balance sheet. How are we gonna use it?
The way we're gonna use this balance sheet is to drive investments for growth as a top priority. Let me start to the far right. This includes organic investments of CapEx. Up through 2015, we've invested about $1.3 billion in CapEx, primarily to do the Phase I of growth for our NASD business, but also to expand production capacity across other parts of Agilent's portfolio. Now, I hope you had a chance to catch our press release that went out yesterday, where we announced another $725 million on top of this as we continue to expand our NASD business. I'm gonna dig deeper about that, our plans there later on in my comments this morning.
Then we've also deployed over $3 billion in capital for M&A, and we're really targeting great companies in fast-growing end markets, and we're really happy with our success to date. In fact, over 8% of Agilent's revenues today have come through acquired companies. You'll hear me talk a lot about today this build-and-buy growth strategy that Agilent has the build our internal organic investments, that NASD investment is one example of that. Then the buy, obviously, is what we've been doing with the M&A side of our activities. While returning capital to shareholders. During the last 5+ years, we've paid out $1.6 billion in dividends.
I think this is actually underappreciated aspect of Agilent's capital deployment, approach, which is a growing cash dividend, that we've been able to do every year since 2015. Share repurchases, we have bought back $4.4 billion worth of shares since 2015, over $1.1 billion in 2022. You may have seen a recent press release where we've been authorized by the board for another $2 billion realization of our share repurchase for another $2 billion. Again, what you're hearing is consistency of execution of what we already called our balanced capital deployment. okay it's not just about the numbers at Agilent, although we're very proud of the results we're delivering for our shareholders. We also have a role to play in society.
I'd like to talk to you about our ESG initiatives, but I'm gonna focus today on sustainability, both in terms of what we're doing relative to our own operations, but also how we're helping our customers. Let's first of all talk about sustainability in our own operations at Agilent. We're committed to net zero emissions by 2015. At Agilent, though, there are real plans to get there. This is not a slogan or some kind of statement. It's real at Agilent. We have multiyear plans that get us there. And in fact, since 2014, our carbon emissions are down 34%. It's not about just what we can do with our own operations. How can we help our customers?
You think about, when you talk to our customers, they're really engaged in trying to meet their sustainability goals, and Agilent has a role here to play. Think about the engineering prowess we have in terms of how we design our instrumentation. It's much smaller, it uses a lot less energy, and a lot less waste is generated. Our engineering for sustainability is really a key part of what we do in terms of our NPI activities. We have an in-industry unique refurbished business unit, which is basically a certified Agilent pre-owned. Instruments aren't getting disposed out somewhere in some dump site, but actually being recycled and resold in the marketplace for other customers. Our efforts here have been actually recognized by the My Green Lab, and we have ACT Label labels.
You also may know that energy consumption in a lab per 1 sq ft is right up there with what you see in hospitals and large commercial organizations. Our customers are very concerned about the energy consumption that happens in their laboratories, and this is where our CrossLab Connect organization go in, where we can go in and really offer them advice in terms of how they can reduce their energy consumption. As proud as we are about the financial results we're delivering, we have a real role here to play in making the world a better place, and we're committed to doing that, both in terms of our own internal operations, but also what we do for customers.
As you might imagine, there is a little bit of a commercial story on the right-hand side as well as we help our customers with their sustainability goals. Okay. Enough about the history and the past. Let's look forward. The point I'm gonna drive home today is Agilent is a diversified and resilient business with multiple growth drivers. What's behind that statement? Let me take you through that. I think first of all, it starts with the market, and specifically, where do you want to focus your company's investments? A number of years ago, we decided that the priority investments we were going to invest at a higher proportion of our investment dollars into the fast-growing pharma and clinical diagnostic marketplace, while at the same point in time, taking advantage of secular growth drivers in applied markets.
Our model is we can develop core technology and applicate those across multiple end markets. I think as I walk you through our storyboard in terms of our portfolio, you can see why we've gotten this more diversified, resilient mid-business. Building a more resilient business, this doesn't happen overnight. It requires a focused set of efforts over the years. What I wanted to talk to you today was how have we built resiliency at Agilent, how we continue to build resiliency in terms of our revenue profile. First of all, it starts back when we spun off at that time, a very highly cyclical electronic measurement business. That's when we formed the new Agilent. We then made a big bet on services and consumables, our CrossLab strategy.
We entered the clinical market and diagnostics market, and as we'll hear later, we've been investing very heavily in biopharma APIs. This is our strategic intent around how to build resiliency. How's it working out so far? You go back to 2008, 2009, we were in a global recession. I think the global GDP was down 1.3%. Agilent, restate of Agilent would've been down about 2%. If you look at what the pandemic caused in terms of 2020, global GDP was down 3.3%. Agilent actually grew 1%. Even in the face of a pandemic-induced global recession, Agilent has found ways to grow.
You can see it on the right-hand side here, how significantly changed our revenue mix is from back in 2008, 16% was recurring revenue. Now almost 60% of our business is recurring revenue. These are real significant changes in terms of the portfolio of our business, but it came through a series of focused strategies we had started a number of years ago. Let's talk about one aspect of that resilience of business. I mentioned earlier, we made a big bet on the services business, back in 2015 with the formation of our Agilent CrossLab group. The results speak for themselves in terms of how we've been delivering here. The business is now at $1.5 billion of business.
I point out that 60% of those revenues actually come from annual or multiyear service agreements, a high level of predictability about the revenue occurring. We have built a best-in-class customer service organization, second to none. We also tie this very closely to our consumables business. You'll hear us talk a lot about connect rates, which is of the Agilent install base, how much of their consumables and services are coming from Agilent. We hit a new milestone this last quarter, over 30%. We think got a lot more headroom in front of us. You can see how the growth rate has accelerated for the first few years from 15-20, about 8%.
Over the last 3 years, it's accelerated to 11% in terms of our top-line growth. I'm arguably biased, but I think high growth, high margin, high driver of customer satisfaction, there's a lot to like here with the Agilent Services business. I talked earlier about the bets we make in terms of really investing in faster growing segments of the market. A number of years ago, we said biopharma is the place we're going. Now through a series of focused investments and success in the marketplace, it now represents almost 39% of Agilent's total pharma business. You can see how the business has grown. We were less than $100 million in 2015. We're knocking on the door of $1 billion.
I think this chart says $1 billion. I think the actual number is 98.9, but I round it up for $1 billion for this presentation. We've been driving a really straightforward strategy, which is to leverage our positions across the biopharma value chain to expand our offerings. We've provided leading analytical solutions in and out of the lab, building on kind of our strong instrument heritage here. We're a leader in biopharma services for therapy selection. This is where our whole companion diagnostics business comes in. Market leadership in RNA-based APIs and growing CRISPR position. We're gonna dig into that a little bit deeper. Also we talk about our cell analysis business we built here as well, all about providing a capability across the whole value chain for our biopharma customers.
The focused investments are paying off, and I would tell you we're not done yet. We think there's a lot of growth still in front of us in the biopharma space. I've been hitting at this already we have a leadership position today in the therapeutic oligonucleotide marketplace, particularly specifically siRNA. This is what we refer to as our NASD business. This is a large market, already a billion-dollar TAM growing 20%. We've become the market leader in this business in 2022, delivered almost $300 million of revenue, high margin, growing 29%. Why are we winning? We have high-quality oligo API materials. I think it really kind of also the key point of the capabilities we have as a team, superior customer service.
We are known in the industry as the company to work with. We have a solid and diversified client portfolio, like I mentioned earlier, this deep technical acumen, and we're willing to invest. Right now we have what we call our Train B, which is the new production line that's targeted to come online in 2023. We're targeted at mid-year of next year. In addition, on top of that $300 million, that'll add another $150 million of annual capacity of revenue. Again, we're pretty confident about how things are gonna happen for us in 2023 relative to Train B. For the future, we're not done yet.
If you ever have heard me talk before about this business, I've said, "Hey, there's more letters in the alphabet than A and B." In fact, we just announced yesterday in a press release that we're gonna further expand that business. We're on the road to a $1 billion revenue business here as we invest $725 million in what we refer to internally as Train C and D, which is going to give us additional capacity at siRNA, but also allow us to do antisense and more CRISPR guide RNA materials. We're very excited about this. This will actually double the revenues of NASD.
Back to the sustainability story, our new design also incorporates a lot of sustainability capabilities to really limit the impact on water usage and waste production. Very exciting time for us, a great business for us, and highly connected also to our genomics research business as well. Very excited about our ability to be on the road to a $1 billion in revenue. We crossed over $300 million in 2022, and we have more capacity coming on in 2023, and this will start coming online around 2026 for us. Again, pointing to the future of strong growth in biopharma. The cell analysis side of our business. The title here is The Buy Side is Working.
Just as a reminder, what's driving this marketplace is things like immunotherapy, investments, cell and gene therapy, really nice end markets. Through a series of acquisitions, we've built up a $400 million revenue business growing 15% since FY 20 on an annual basis. This will be an area of continued priority of investment for us as we move forward. Again, I think it really shows the power of Agilent's business model, which is we can both build in terms of internal investments, as I just shared with you on NASD, but also buy and build some really nice new businesses for our shareholders and customers.
Remember when I backslide, I said it's all about the markets, as we've been really focusing on the high growth pharma markets and diagnostics markets, but I also talked to you about the secular trends that are going on in this space. There's two that I really like to highlight here, which is what's happening in advanced materials. This is a big market, $1.5 billion. We are the undisputed leader in this space of advanced materials. Two secular trends I like to focus on here. I picked up a few headlines from the newspapers here, but, as , there's a lot of ensuring going on relative to semiconductors.
As COVID-19 kind of highlighted to the world how concentrated the supply of chips was in particular parts of the world, you see massive investments, government-supported investments happening right now to build new fabs in the United States, Europe, and other parts of the world. We're gonna benefit by that. A secular driver that's happening right now, and I think we all know there's a revolution going on in the electric vehicle side of the automobile industry. The demand for batteries is exploding right now. This is where Agilent plays in the space, all the way from the actual mining of the raw materials that actually goes into production of batteries, but also all through the value chain in terms of development, production, and QAQC.
Again, this is a great example of our leveraging core technologies in markets that are growing rapidly. We will get the outsized level of growth here relative to our peers we are the undisputed leader in this space. Another secular drive I point to in Applied Markets relates to the environmental testing area. You may be familiar with an emerging public health challenge, which is these so-called forever chemicals, which are everywhere, and they are forever. I think there's a growing recognition that this has health consequences. You've seen a number of companies announce their discontinuance of production of forever chemicals. Why is it important for this conversation today?
There's increasing levels of research and regulation happening in this space to monitor water, test for water, and other types of contaminants, if you will, out there. This is where Agilent comes as leader in this space with our configured systems to allow our customers to work on PFAS. This initiative has really started initially in the United States. It's grown in Europe, where we expect China and Japan also to follow suit with more regulation, create new opportunities for the company. Again, I just highlight these last three ones just to show you about the secular drivers that happen in our Applied Markets business. In my opening comments, I said, what can you expect from Agilent in 2023?
Just a reminder of the guidance that we shared at our last earnings call. For the full year, we're expecting revenues of $6.9 billion-$7 billion. That would be core revenue growth of 5%-6.5%, EPS of $5.61-$5.69. Then for Q1, you actually see our core revenue growth is guided at a higher rate. $1.68 billion-$1.7 billion in terms of dollars for Q1, with core revenue of 6.8%, 8%, and an EPS of $1.29-$1.31. I went through the numbers pretty quickly.
I wanna get to Q&A, but I'm assuming you've got these already in your notes, but I just wanna remind you what our guidance was in our last call. I'm gonna close with a few key takeaways that I really hope came through in my conversation with you this morning. Agilent has a diversified and resilient business. We've got multiple growth drivers in fast-growing markets, and it's being driven by this Agilent team, which is focused on our customers. I think you saw in the numbers we have a proven track record of success, and I would argue unmatched execution capabilities.
What you can expect from us in the future is we will continue to prioritize investments for growth, expand our base of recurring revenue, and anticipate and react quickly to changing conditions to deliver at a high level. Again, thank you for joining us today. Rachel, I think we're going into Q&A. I think Bob's going to join us as well.
Bob, come on up. Yes, we're shifting to the Q&A portion. As a reminder, if you do have a question, please raise your hand, we'll have a mic runner hand you the microphone. Thank you guys again for joining us.
My pleasure.
I figure just to kick it off, cyclical concerns. You highlighted some of the more nascent markets today, like battery testing, PFAS, also some of the more semiconductor testing as well. Can you talk about how the portfolio has really shifted since 2008, and what is the resiliency of your portfolio today? , how much would you view as your portfolio tied to those true, more cyclical end markets like energy?
Yeah. Rachel, it's great to have that first question because you hadn't seen my deck before you prepared those questions. Hopefully what came through on a couple of key points I tried to make earlier, which is, first of all, the big mix of recurring revenues. We've gone from 16 to 58% of our business is now recurring revenue. We now have a very large services business. We have a diagnostics business, we have an API business, and these tend to be fairly insulated relative to global GDP pressures. The big bet on pharma for us as well.
Yeah. I think when you, when you look at pharma that business is now almost 40% of the total revenue back. That's up from 10%-15% probably back in 2015. You've got much more strong growth in more resilient end markets. Coupled with that, even within the CAM and Advanced Materials area, that energy that you had just talked about, at one point in time back in 2015, that was about 30% of that business. It's about 10% now, and with these secular drivers that we've talked about.
Yeah. Bob, I think, probably the energy segment is less than 2% of Agilent's total revenues. That's why we actually changed the name of the segment to be Chemicals and Advanced Materials, more reflective of what's really going on there.
Yeah. Perfect. Maybe as digging deeper into some of those more new markets like the batteries and semiconductors, can you just talk about what gives you confidence that these are gonna be more resilient heading into a recession? We haven't really seen those markets be tested yet. What's your visibility into the growth there longer term?
Yeah. You can imagine something like bringing on a fab is a multi-year investment, but the big difference is there's government funding and public support for these initiatives. It's now viewed as a matter of security and national security in terms of where we want to have chips manufactured. We haven't seen this level of government support in the private sector in the United States or Europe since I've been in this role. I think you've got a level of funding that's coming from not only the private space but also the public sector space. Then on the electro-electric vehicles, and Bob and I were talking about this morning. I mean, all the major automobile manufacturers have major initiatives in this area. They're directly funding a lot of the research.
We're also seeing money coming in from, again, government sources. I think it's this, part of this play here is not just the private sector supporting these investments, but they're also with the government support.
Couple. shifting over to instruments.
Mm-hmm.
Have to ask a few on instruments here.
Oh, we haven't learned about this one before.
Yeah, not once, I'm sure. Can you just talk about how much do you think is either an underlying market acceleration in instrument growth versus Agilent share gains? How are you thinking about this instrument replacement cycle and some of the growth being sustainable going forward? Do you think that we're gonna kinda have a reset given the tough comps? How are you thinking about instruments heading into 2023?
Yeah, sure, Rachel. I think Bob and I would tag team on this. First of all, we're just delighted with the performance over the last 2 years of our LSAG business, where it was housed in our analytic instrumentation business. If you heard me talk before, I've quoted my Danish colleagues and say our market share results have been green. Green is a Danish forest, we've been actually picking up share across our core platforms. I think part of the big story here is there's been a lot of demand. I would submit that in certain segments, there's been an accelerated replacement cycle going on.
In particular, I've been on record talking about the small molecule segment of pharma, which really from our assessment, delayed investments in 2018 and 2019. We're sort of in a catch-up mode. We expect that to move towards the mean as we go into 2023, and that's how we set up our guide. We also think other parts of the instrumentation portfolio are driven by secular demands.
Yeah, some of the ones that we just talked about, certainly in the, like, Chemicals and Advanced Materials, we think are secular drivers. I think within that pharma business, we still do believe that biopharma is a faster-growing end market than it was going into COVID-19.
Mm-hmm. Mm-hmm.
We still see expansionary opportunities there, in the instrumentation. They're driven by the science, and we're seeing that with our customers. That's about 39% of the overall pharma businesses. Mike just talked about a combination of both instrumentation and services. I think what's important here is it's really a workflow play. It's not just instrumentation, it's also the services and the applications, and that's one of the biggest areas of investment that we've been making in R&D, and we're seeing it in the results.
Yeah. Yeah, Rachel, I'd maybe draw a connection here back to our ACG services business. Actually want to get delayed gratification because we've placed so many instruments over the last 2 years, and many of them are starting to come off warranty as we go into 2023. That'll be another driver for us in terms of growth and services. As Bob just mentioned back to this resiliency question, I forgot to mention this, but we've had this workflow strategy. As you sell a workflow around the instrumentation, you're often into a situation where for the next 7 to 10 years, you have a recurring revenue stream that consumables a service relative to that workflow.
Helpful. maybe just looking at your guidance for the fiscal year 2023. You've mentioned how you have really strong visibility into the first half of the year. You guided to 5% to 6.5% core growth off of a stellar fiscal 2022. Can you talk about the implied guidance more towards the back half of the year? Is that more are you seeing some type of slowdown that could suggest having the back half? Or is it really just out of an abundance of caution and conservatism given this point? , what level of visibility would you need to see to be comfortable with lifting that guide throughout the year?
Yeah. First of all, thanks for the characterization of 2022 as stellar. I'll take that on behalf of the Agilent team. The way we set up the guide was we have really good visibility in the next three to six months. We know what's in our order backlog, and we know what's in our funnel. I think that's really. If you look at Agilent's businesses, keep in mind that we're really talking about the CapEx instrument piece, portion of the business. We have really good visibility that the next three to six months of how that's gonna shape out. As we set up the guide for the H2 , for the full year, we said, "We really don't know what's gonna happen." It's not a prediction.
It's just a measure of, if you will. Can I use the word prudent? In terms of our guide set up, which is we really don't know how the back half of the year's gonna look like. What I can tell you is through calendar 2022, as we finished off our order book, orders came in as expected for the full calendar year. Bob, what else on.
Yeah. You characterized it well, Mike. I think as we look through Q1 and Q2, we'll have more visibility, obviously, into the funnel. Obviously, we're also going up against tougher comps in the back half of the year. That does play into it. I think it is kind of a wait and see.
Yeah.
We're not seeing anything in the market that would suggest a slowdown.
Yeah.
in the back half. we're we're a few weeks in into the calendar year here, a few months into our fiscal year, and we'll know a lot more in a couple of quarters.
Yeah.
Helpful. Shifting over to China.
Yeah.
Obviously, we've had some concerning headlines coming out of China with the recent outbreaks there. Can you talk about what you guys are seeing in the conversations that you're having with your customers in that region? Also, Lunar New Year coming up. Then, finally, you've flagged some potential stimulus in China. Net-net, kind of walk us through what you're seeing in that market, and is there any upside or downside risk to that high single digits you've laid out in China for 2023?
Yeah, sure. Let me just remind the audience how things worked out in 2022 for Agilent. There's a lot of variation by quarters as we were experiencing government mandate. They had to shut down to certain parts of the country. For the year, we actually delivered 18% growth for China. Our business in China was very strong, and we have a great team there. I think we guided high singles for the year. We think that the recent change in the China government policy is a net positive for our business there because we will have in situations where our workforce may be affected with COVID, and maybe you won't be able to work for a period of time, but we're not dealing with government-mandated restrictions.
We think it's overall net positive. It's gonna take a little while to kind of work through some initial disruptions as the well-publicized waves have been gone through different parts of China. We're experiencing it right now. We've gotten pretty good about navigating our workforce and being able to work from home and avoid situations where people can't work all the time. Lunar New Year, I would just say I was talking earlier this morning with one of our investors.
I said, "I'd love to not talk about Lunar New Year, but it always seems to be the case." For Agilent, this year will actually lead to a condensed revenue cycle in China, so we'll be fine.
In Q1.
In Q1. Don't be spooked by Q1 numbers. It's all assumed in our guide that it will have.
Yeah
... less, a week or so less of revenue.
Yeah. I would say, rachel we're positive on China.
Yeah, yeah.
And, and, uh-
Oh, yeah.
... we think that that business, is gonna be the fastest growing region, coming into this year off a fast-growing last year. The stimulus that you talked about I think will find its way much faster.
Yeah
... stimulus finds its way in Europe and, in the U.S.
Yeah
... into key strategic industries-
Yeah.
... which we support.
Yeah.
Whether that be semiconductor, bioprocessing, and even the energy areas, I think that those are critical strategic areas that are part of their 5-year plan.
Mm-hmm.
Removing the uncertainty of the overhang around shutdowns and so forth and being able to manage that internally, I think is a. There will be disruption, I think short term perhaps, it's much more manageable than all of a sudden government-mandated shutdowns.
Yeah. Mm-hmm
where you can't go to the factory.
Yeah. Our capabilities are smack dab in terms of the priorities that China's government has set for the country. As Bob mentioned, we're very positive on China.
Perfect. Shifting over to NASD then. Train C and D, great to hear about that announcement this week. You said that cost will be estimated $725 million, set to open in 2026 and 2027. For starters, really, how should we think about the pacing of that investment over that timeframe? On the demand side, can you talk through some of the levers there that gives you confidence that you're gonna be able to warrant enough de-demand to really double the capacity there?
Yeah. Bob, you wanna take the first piece and then I'll-
Yeah, yeah as you can imagine, we've done a lot of work, trying to quantify that and looking with our existing customers and looking at the clinical trial demand of not only our existing customers but also other opportunities and feel very confident. One of the reasons that we feel confident is if you look at the therapeutic areas that are being targeted for oligonucleotide therapeutics or siRNA, they're broader and broader patient populations.
Mm-hmm.
More and more patients, and we're just seeing that with some of the products that we have on market, in partnership with our partners. We're looking at that. We feel very confident about that. We already have Train B already orders in hand. When we look into the future.
Mm-hmm
... not only looking at our existing customers, but the number of new therapeutic areas that are being focused on, we feel very confident that there will be enough demand out there to satisfy the capacity that we have.
Yeah. I wanted Bob to speak to it because, it's not just me that shares the excitement around this business. Bob, maybe you can talk a little about the pacing of how.
Yeah. when you think-
cap's actually deployed over-
Think about this pacing.
Yeah.
, we're, as a reminder to what Mike just talked about, we're scheduled to have Train B, which is $150 million of revenue opportunity coming online, mid this year. We expect that to be actually fully ramped up by the end of our fiscal year on an ongoing basis. That'll be a nice 2023, we're expecting double-digit growth for that business and then going into 2024 as well. From a CapEx perspective, that hasn't been built into the $300 million that we had built in. It's roughly $100 million-$150 million in addition this year, and then more in 2024. As we build the factory-
Yeah.
... 'cause this will be a new shell, in Frederick, then we'll start bringing that online in 2026.
As I mentioned in my presentation, we have a large and diversified customer base, so we have good line of sight to demand even out to 2026 and 2027. It's not like we're trying to build something and go look for the business. We know the business is gonna be there.
Perfect. Helpful. During your comments earlier, you mentioned some of the small molecule and the robust growth there.
Mm-hmm.
It grew 21% in fiscal 4q really strong numbers for small molecule.
Yeah.
We haven't seen that in a long time. Can you walk through what's really driving some of that acceleration in small molecule? You mentioned some of the replacement cycle, but just dig deeper into that. How resilient is this growth, and at what point should we kind of see it reset here?
Yeah. We're assuming it's gonna reset in 2023.
Mm-hmm.
We're just delighted with the growth that we've seen over the last several quarters in small molecule. For the most part, this is a more mature market in U.S. and Europe. Our thesis is that there was a delayed reinvestment in this area in 2018, 2019. You may recall some of our earnings calls, we were actually talking about that. China's always been an expansionary mode, so we expect that to continue. We think over time you'll start to see a tapering down of the replacement cycle in liquid chromatography. Again, keep in mind, it's still an attractive market even when it's They're still invest, but it'll probably be like 5% or 6% growth rate as opposed to 20-plus.
Yeah. Exactly.
Helpful. Also in terms of announcements, you announced a partnership with Akoya last week.
Mm-hmm.
I was just wondering if you could dig into that. Why was Akoya the right partner to partner with from a technology perspective? Then more generally why do you view spatial as an attractive market? Is it safe to see that Agilent could do more in that area going forward?
We're delighted with the partnership we announced earlier this week. We know Akoya quite well. For a period of time, we actually were directly invested in the company. We're a big believer in their technology, their capabilities, and where things can go on the spatial front. We saw this as a natural extension of real, or if you say, a real recognition of the strength of our Omnis sustaining platform. We thought this was a great way for us to participate in this space with Akoya. It's non-exclusive. We think there's more that can happen in the space from Agilent.
Helpful. PFAS testing, that's an area that you and some of your peers have started to talk about much more meaningfully recently. Can you talk about you highlighted some of the regulation here today, but what should we look for going forward? Are there any other regulations coming down the pipe on PFAS, and how meaningful of a market can that be?
Yeah. I think you can expect to see more regulations. A lot of it's being driven in the United States at the state level. I think you'll start to see things happen at the national level. We expect the same thing to happen in Europe, as well as China, and Japan. This is a $200 million market we think is growing greater than 10%. We expect that growth rate to continue for a number of years.
Helpful. Shifting over to M&A, you guys have noted that you're willing to do maybe a larger deal here. You also spoke recently and said maybe looking at a public company. Can you just dive a little bit deeper into that? What areas of the portfolio do you think-
Yeah.
would be best? There's obviously been a lot of beat-up names in our sector as well what areas are you really looking at for M&A?
Yeah. By the way, our recent comments aren't anything new. It's just a restatement of what we've always said, which is, we have the ability to do larger deals relative to our largest deal to date was the BioTek acquisition. But we have really strict parameters in terms of how we think about M&A, both in terms of maintaining investment grade. It's gotta be creative. It's gotta be the right kind of deal that we can make it work for our customers. I mean, excuse me, our shareholders as well as customers. What I would say is. I realize that this is an interesting microphone. Okay, sorry about that. I think the areas that we have been investing in, you've seen us do deals, cell analysis, genomics, and diagnostics.
Those still remain the priority areas for the company.
Yeah. I think one of the things that we're looking at is making sure that we're in markets that we know.
Yeah.
, the beauty of the end markets that we play in are large already. I think there's a lot of opportunities and targets out there, and I think with our strong balance sheet and cash flow we are our funnel is quite healthy.
Yeah. Again, I keep coming back to our comments about we talk about our build and buy growth strategy. The buy is all optionality for the company. We don't have to do deals to make our model work, but if we can find great companies, we will move on them.
Helpful. Last question, just on leverage just given this market and what we're in today, what are you willing to go to from a leverage standpoint for looking at some of these deals?
yeah we've been on record in saying it's our goal is to make sure that we maintain investment grade.
Mm-hmm.
That's even more important in today's environment, than, in the past when money was, I would say almost free.
Mm.
Where we are today, we still have plenty of leverage to get there. I think we'd be comfortable with several turns. Again, being focused on maintaining that investment grade.
Mm.
Perfect. With that, we are out of time today.
Thank you.
Thank you.
Thank you so much for joining us today.
Our pleasure.
Thank you.
Thanks.
Thanks, everyone.
We got through your questions.