Please welcome from Agilent Technologies, Padraig McDonnell, Chief Executive Officer, and Adam Elinoff, Chief Financial Officer, interviewed by Casey Woodring at JP Morgan.
Thank you everybody for joining us today. I'm Casey Woodring, the Life Science Tools and Diagnostics Analyst here at JP Morgan. Pleased to be joined by Agilent's management team, CEO, Padraig McDonnell, Adam Elinoff, CFO. Thank you guys for joining us here. I know it's a long trip away from home. Maybe to kick it off, Padraig, we've seen strong results the last couple of quarters leading to upwards guidance revisions on both the top and bottom line. Maybe could you just speak to the structural changes that you've instituted at Agilent since you announced the Ignite transformation in late 2024? As you look at the momentum that you're seeing across the business here, how much of it is simply a function of better end market dynamics vs specific Agilent, or dynamics specific to Agilent?
Yeah. Thanks, Casey. Thanks for having us. As you see markets steadily improving, what we've been doing over the last two years is really compounding our capability with Ignite, which has moved from a transformation to an overall operating system change. That's how we're allocating resources within the company, how we're at all facets around our operational business and also how we're looking at innovation. That is really showing true in the numbers. I think if you go back and you look at the two-year stack, if you look at our growth rates, and two years ago it was literally flat, but now we're up to almost 10% growth or 11% growth. Our operating margin expansion is over 100 basis points. Again, that's in the face of a lot of tariff headwinds. Again, that's driven by the capability we've driven.
EPS, again, if you go back two years ago, it was a 3% decline, 2025 was 6% growth, and now we're 10% on the EPS side. Again, we had a tax headwind on that side. If you look at that and you see the progression over the two years, you see that we're compounding our capability in a very different way. I would say that it's not only end market improving, but we're seeing it through our share gains. You're seeing it through the innovation we're getting, and of course, you're seeing replacement cycles, et c., driving this growth. In the next phase, as we built a company in the last two years with our capabilities, the next phase is where we bring this, right?
That is largely around this idea of what we would think was going to be defining the next decade in our tool space around autonomous lab and scientific intelligence, and how we are putting our capabilities to bear on that. We have an extremely strong right to win on how we are putting our dollars on innovation on that side. Then you look across our markets. Our markets have been really improving, continue to be very strong. We are in really good sections of our markets, whether it is pharma, chem, and our diagnostics is doing extremely well. So what I would say is we are extremely well set up for the next phase by the choices we made in the last two years.
No, that is helpful. A lot there to get into later on. Maybe just starting with fiscal third quarter results. You reported a strong quarter. One of the highlights for us was the performance in China, right? Double-digit growth in pharma and food, high teens growth in advanced materials, all in the region there. Can you just expand on the strength you saw in China? Similar question to the opening, how much of that strength was really market-driven vs Agilent specific dynamics, share gains? Then, you notably raised the guide for China in 4Q. So, how much of this is really sustainable?
Yeah. Just having come back from China a few months ago, it is great to talk about it. It is perfect timing. We have a decades long history in China. We have a huge install base in China. We have had manufacturing in China for almost three decades, so we had a lot of capabilities. I am just back from China where I opened a new innovation center that is going to be really at the heart of where you see physical automation that is going to really help. China for us, it was broad-based strength. You saw it across all our markets, small molecule biopharma, and also testing laboratories in food and environmental, which is core for us. The things that, again, when you look back on why we are doing well in China with improving conditions, but we are not calling an inflection point yet.
Why we are doing so well in China, it is because of the capabilities we have put in place. We have not gone indirect. We have kept our technical teams there really close to our customers. So as budgets are released and so on outside stimulus, we can take share, and that played out very well in the quarter. We are extremely excited about the future of China. China long term is going to be a mid-high single digit grower for us. Just the pace of innovation, and I am sure you saw the announcement on the 15th Five-Year Plan as it relates to pharma. Just to put it into context, the pharma market in China or the pharma overall business in China for the macros is about $250 billion, and they expect to grow that by two over the next number of years.
How are they going to grow that? They're going to grow that through manufacturing, innovation, but also thinking about laboratories over those times. If you're a trusted partner in China with these type of macros going forward, it's really positive. I think we're going to continue to invest there. Then you look at chemical and advanced materials where there's a lot of investment, semiconductor, and other areas, battery over time, and then our testing areas. We're very broad-based, but we're really excited about the future in China.
Another highlight in the quarter was the continuation of the instrument replacement cycle, low double-digit growth in LC. I think it was the 10th consecutive quarter in a row of book-to-bill above one. Can you just elaborate on what customer segments are driving strength in LC? Which customer segments have seen replacements accelerate, which have yet to see the replacement cycle really start to kick in? Then maybe just talk a little bit about how the order book has been shaping up there.
Yeah. It's another opportune time. We just arrived from Germany last night. We were in our R&D center for LC.
You're everywhere.
We're everywhere, yeah. We were in our R&D center where the InfinityLab was developed and where it was developed over a number of years. Of course, we have some cell analysis products there. What really struck me was how our innovations are resonating. I'm talking to the teams about how the InfinityLab was really around customer productivity. If you see in the world of productivity and AI, you need the tools that are highly productive around this. The replacement cycle, I would say, if you can think, we're less than halfway through that. You can see our quarters over the last number of quarters doing extremely well, double-digit growth in the last quarter on LC over a tough compare. We're less than halfway through that.
What I want people to really understand is our install base is very large, but also we have a competitive install base to go after from many different vendors. We're seeing that we're able to be very successful in areas where particularly people are looking at productivity. As the replacement cycle is going to be 200 basis points-300 basis points, it's going to add to the overall business. We're going to see that continue on, but we're less than halfway through on it. What we're really looking at is, as these new systems come in and as they're put into laboratories, it all doesn't happen at once, right? They can be sequential over a number of quarters in one area. You're seeing that we're looking at our consumables and our service connect rate over time about how that improves on those new systems.
It's an accelerant on connect rate, which is very important. What is not often talked about with us, because our portfolio is much broader than just LC, the GC replacement cycle is really humming along. We're probably one quarter of the way through that. We have a lot of room to grow in that, around chemical and energy, lots of frits systems out there. Again, that's about 100 basis points improvement on the overall business. That's going to continue on it. Again, what underpins the replacement cycle is actually our service capability and our enterprise service capability. One of the reasons customers switch is actually about your service provision.
It's very simple when you think about it, but if you're not able to run sites very clearly on your service side, the replacement cycle can be very different, but it's one of our key strengths.
Got you. You mentioned AI in that answer there. It has been the topic du jour of all tools investors the last few months. Maybe just walk us through kind of where Agilent plays in the whole lab automation and wet lab validation exposure. Are you expected to see some of these volumes flow through into Agilent? Is this a near-term benefit, maybe longer term? Maybe just walk us through how you view AI build modes.
Yeah. We are spending a huge amount of time in the company, thinking about how do we consolidate our resources around autonomous lab and scientific intelligence, and of course, AI is a key enabler in that. One thing that will always be needed is trusted answers from a tool. If people can think of the analogy where the tool is like the eyes in the laboratory, the automation or the physical AI are like the hands, and then the agentic layer is like the brain doing experiments on the systems. The need for tools will only need to expand as AI comes in from our customer point of view. There is more need for testing, there is more need for release of drugs.
You hear from large pharma companies how they are reducing clinical trial times, but also setting out very broad goals about transformative molecules that will be brought out in every year. I think the interplay between development, discovery, and QA/ QC is going to shift a little bit. You are going to see development being more important, actually, and then you are going to see QA/ QC being more important even than that. Talking with our pharma partners, AI is certainly speeding up what they are doing now. From our side, the first manifestation of that is the autonomous lab, and it is in the broader scientific area, and that is where customers are wanting to do more autonomously in their laboratories over time. There is really a future and past with this.
If we talk to our top customers, they have lighthouse autonomous labs, organizations looking at how they are going to kit out labs in the future. It is very much co-creation. It is not about getting the specifications on an LC and I am going to bring out a more sensitive LC. It is about how that productivity and workflow is going to increase. We are working with these companies, and we have created a group in the company under our CTO office, August Specht office, where we have an autonomous lab group that is heavily linked with our AI group that we built out. These capabilities will be gradually brought into customers as we co-create them.
Now, you see it currently in the QA/ QC labs where the agentic layer will be used more and more, but you're going to see that actually speed up as you see physical AI being used on the systems. It actually changes how you look at the future in some ways. You think about automation-ready instruments, not just instruments as they are, but also we're very focused on how we can grab value streams around the tool. That scientific intelligence layer is really important. That physical automation layer is really important. That will be done through partnerships, some M&A with capabilities we need to bring into the company, but it's something that we're very deliberately working on.
That's really interesting. I wanted to dig into Advanced Therapeutics, the specialty CDMO, strong growth in fiscal third quarter, 30%. I guess, how did that compare to expectations? Were there any sort of one-timers or pull forward in the quarter given you do assume a step down in growth in fiscal fourth quarter here in the CDMO. Then just maybe along those lines in the fluctuations there in growth, can you just talk about the visibility over the kind of medium to longer term there? Understand that it could be-
Yeah.
lumpier on a quarter-to-quarter basis?
Yeah. I'll start off and hand over to you, Adam.
Sure.
We grew 30% in the quarter. That was in line with expectations. In Q4 we're flat, but that's kind of in line what we see with some regulatory filings, et c., but it was over 40% compare in the previous year. We feel really good about mid-teens over the long term with this business, and we can see that through our pipeline with customers and how we see it. If you think about Train C that's coming online next year as a kind of an example, we have 75% of Train C booked out for next year. Train C lends itself to more commercial batches from clinical. Over the last number of years, we've moved from lower commercial batches, but 60/40 on commercial clinical batches, and we see that continuing to grow on it. We're not beholden to a few customers.
We've a broad range of customers that would be filling this capacity over, so we feel really good about it in the short term and in the long term.
Yeah, I think Padraig covered it nicely. I think the only pieces I would add is we do have good visibility into our medium-term forecast. We have customers take time to develop their processes, et c., and then they put in their forecast, so it's not based on any one or two changes in a near-term period that impacts us. The second thing I would highlight, which I think is underappreciated, is actually the cross-selling that happens between our CDMO business, so ATD, and then our instrument business. It's similar customers and the same customers, and so we're often able to cross-sell, which is a nice feature of the business.
Okay. Yeah, maybe just sticking along those lines, you mentioned Train C coming online the second half of next year. I think you guys have sized the peak revenue generating potential there of around $300 million. Maybe just walk us through, I think you said 75% is booked already.
Yeah.
How should we think about the contribution from Train C in the back half of next year, understanding that there is some variability in the types of programs that come online and the timing of that?
Yeah. Do you want to take that?
Sure, I will take that. I guess a couple pieces. The first is Train C will come online in the spring of 2027, and the way we have articulated the full growth of Train C and D, Train C will take about six to eight quarters. Train D will come online a couple of quarters after, and then take another six to eight quarters to continue to reach full capacity. When both are running full capacity, we would roughly double, so about $300 million-ish, what we are getting out of the site today. A couple other pieces I would just add is that Padraig talked about the 75% line of sight, and then the thing you have to think about is the existing capacity will start to fill up in the beginning half of the year, and then the second half of the year, the incremental revenue will become growth.
It was planned very nicely to come online almost at the perfect time, so I am excited about that. Then the last piece is, as Padraig talked about, is the mid-teens growth that we expect over the near term for the business. So we feel very good about it.
Yeah. Maybe one last one just on the confidence in that assumption. We've seen a couple prominent negative late-stage clinical trials in the space over the last few weeks even. I guess, how do you kind of risk adjust for those different programs that might be in your backlog or what have you? Just what underpins that confidence in-
Yeah.
the CDMO long-term growth rate? Because I think it's coming up more.
Yeah, so the way I think about it is this, and I think this is a helpful number. In 2019, we had three customers that made up 80% of our demand, and now we have three customers make up less than 50%. So we're gaining diversification as we go. The second piece is we have a healthy mix of commercial and then clinical. In 2025 we were 60/40 commercial, clinical, and that's starting to ramp. The commercial side, you'll always want to maintain a certain amount of clinical because that's your pipeline into the future. A couple other pieces is the recent news doesn't impact our forecast for 2027. We continue to love the siRNA space.
You look at the pipelines out there, they continue to grow and there's a number of molecules ranging from that rare, where they've been mostly today, moving into larger indications across different therapeutic areas. So we're excited about the investment and the process, and the progress of the site continues to go very well, right on plan, and excited about going online next year.
Full steam ahead. All right.
Yeah, full steam ahead.
Last one on Train C, but just we haven't touched on the margin implications, right, of the build-out. I think you've previously talked about additional hiring in the first half of 2027 to accommodate Train C coming online in the back half. How should we think about the CDMO margin profile in 2027 and in the context of that kind of 50 basis points- 100 basis points long-term guide-
Sure.
of the total company?
A couple pieces. As it is coming online now, no impact to 2026. 2027, it will be dilutive, of course, but we have committed to our 50 basis points- 100 basis points that you have in the LRP, continuing to deliver that, and it goes back to Padraig's first comments about the Ignite operating system. What we have done is we have seen this coming, we have seen the dilution coming, so you have to hire, you have to start to depreciate the asset before you are getting full capacity. But we have been planning for that. That is something we can see, and through Ignite, we will offset that.
We are very competitive on our 50 basis points- 100 basis points plus.
Got it. Okay. Maybe circling back to the LC replacement cycle that we talked about a little bit earlier. I think this has been a multiyear cycle. You've talked about a three-year timeframe. I guess, are there any broader geographies or customer segments that have really yet to engage at this point?
Yeah, I wouldn't say all geographies. I think China probably is an area where the fleets are older and haven't been replaced post-COVID. So that's an area where we expect to see continuation accelerate. But I think it's very broad-based. But I think it's important for people to understand that we have such a very different age of systems in our install base, and competitors have a different varied age of systems. So it's more about that than the actual geography that makes any difference in it. And of course, when you have an opportunity in a replacement cycle, it is a competitive moment. You have a situation where some people think sites are one company and another site is a separate company, but actually it can be 50/50. The left-hand corridor can be one company, the right-hand corridor can be another company.
As that replacement cycle happens, then it's a highly competitive space where you have an advantage to take some shares. So I would say it's really broad-based, and we're continuing to see it expand. The LC replacement cycle is roughly seven to eight years. We're less than halfway through it at the moment.
Okay. And then within the context of instrument growth, just putting the replacement cycle aside, you've talked about share gains over a number of different quarters here. Maybe just dig into that a little bit. Where are these share gains coming from? Is it a technical aspect of Infinity III? Is it commercial execution via Ignite?
Yeah.
Is it something that we're missing? Kind of-
Yeah. Look, it was our strongest, what we saw in the products, our strongest share gain that we've ever seen. Again, people think that's just against maybe one competitor or two competitors. There's many competitors you can gain share of out there in the market. I would say what was really strong, LC/MS spectroscopy was strong. We saw some amazing results in certain regions, but overall it was very broad based. Why is that happening? It's happening for a number of reasons. It's that commercial engine that we've built up over a number of years and went from strength to strength on it, but also that service capability that underpins it. It's the number one switching reason, by the way, for any company is around your service capabilities. Then we underpin that with our enterprise service business where we're running laboratories.
We run our systems and other vendor systems in an asset management way. We have a very high-level conversation in those laboratories. Now think about that in a market share situation. You get air visibility into problem assets or assets that need to be replaced over time. You're right at the heart of that decision making, and that really helps with share gains, too.
In the LC business, but I guess just more broadly speaking, would be curious to hear if there's any read-through from the Merck and Moderna data to your business with that data seemingly lifting sentiment on that entire drug class's potential?
Yeah. It's very compelling for analytical tools. In Germany, again, I was looking at some of our cell analysis equipment, and it's really right in that space, so it's very, very positive. We do think it's going to be positive in our CDMO business. We have capability around that area on it. I would say we have a dual tailwind around that. And some of our innovation programs, interestingly, that when I was looking at them on our instruments during the week in Germany, a lot of the innovations was around mRNA in some of those areas and some of those technical abilities. I think we're going to continue to launch products that are going to help to fill that space.
Okay. Maybe shifting to GC, you talked a little bit about that replacement cycle as well. I'm curious, is this replacement cycle different in GC given all that we've seen around semi demand with these fab build-outs and so forth, reshoring? Is there anything different about this replacement cycle in GC related to that?
Yeah. It's, again, we have probably the largest install base of GC and GC-MS globally. It's broad based around our chemical and energy customers. You can see it in our food and environmental, but we have an extremely strong presence in semiconductor fabs. People think of a semiconductor fab as it's GC-MS, and spectroscopy. Around those fabs, you have high purity chemical companies that actually need our tools, and actually they buy more tools in that case. That replacement cycle is kind of dual in terms of new technologies on the spectroscopy side that is replacing our 9500s replacing on the fab side. On GC and GC-MS side, there's always a replacement cycle there that's slower. Generally, we see the opportunity 18 months- 24 months before it, so it's a longer run-in, but when it happens, it happens across the board.
We've talked a little bit about replacement dynamics fueling growth in LSAG and AMG here, but you mentioned it, service earlier. I think it does create a little bit of pressure, the replacement cycle does, on the service component, given the one-year service warranty that all these instruments are replaced with. I guess how should we think about the push-pull here? If we're assuming that replacements will be a growth vector in LSAG and AMG, is it going to be a growth detractor in ACG? How should we think about that?
Yeah. The replacement cycle actually bodes extremely well for ACG, right? As instruments are placed and they come off those one-year warranties, 70% of our business is on contractual services over three years. That's our monolith of a business. As they come off, then that fuels that ACG business as we go forward, including the consumable spend around those instruments. I said that we expect improvement on that with new instrument placements. I think we see that as a real tailwind over the next coming years, and you saw our instrument growth rate in the last few quarters, and you can extrapolate out what that will mean for ACG coming forward. Again, the capabilities in ACG, it's way beyond break-fix. As the ACG business grows, we have a lot of emerging businesses within that. The enterprise service one growing really well.
It's becoming a very material business, and we're number one on that for a large sway of our customers. You look at those businesses, and even something as simple as relocation services, where we're relocating laboratories in regions, we're re-qualifying laboratories. In those laboratories where we do relocation services, we actually see more new instrument placements as people don't want to replace all of those areas. Relocation services and compliance services, really important. As these systems come off warranty, you're going to see those move onto contracts.
Maybe sticking on ACG, maybe just talk a little bit about the visibility into that business. You talked a little bit about it here, and then also just the margin profile between ACG and the kind of corporate average there.
Yeah, I'll take the first bit, maybe the margin profile. You can see that we're high single digits on our consumables business, mid-single digits on services. In the last quarter, you see our Altura columns, which is right in the space of GLP-1s, those launches really driving a lot of growth on that side. We expect consumables and services to continue to grow, and it's a really critical engine around our instrument install base. You can think about it also in terms of the AI influence as more drugs come out, as more efficiencies come, more consumables are being used, services is even more important. I want to go back a little bit about bringing to the future. You think about an autonomous lab. Having an enterprise capability on services is right in the space how autonomous labs will run from a service point of view.
Uptime is not just about when an analyst is in a lab now, uptime is about 24/7 lights-out services. Building this capability around enterprise services is really important for now, but also for the future.
Yeah, I can just quickly jump in on the margin. As you know, ACG is our highest margin business, and the nice piece about the service ramp is once that ramps up, you have a lot of fixed costs there. As the business ramps up, the margin continues to improve. Once again, over time as the service business continues to ramp, we expect that margin to continue to improve. The other component is our consumable business has a nice margin as well. Overall, that is going to continue to be accretive to the overall corporate margin.
Okay. Maybe let us shift to reshoring.
Maybe to reshoring.
Another popular topic. During the most recent quarter, you reiterated prior reshoring expectations. I think the dynamic represents a billion-dollar revenue opportunity for which you expect to capture a third of that by 2030. I guess you guys were the first ones to really put those estimates out there, and that was during a period of time where we were not really seeing any orders come through. Now, I think fiscal third quarter was the first time we did start to see orders come through related to reshoring. I guess, how much more confidence do you have in those estimates now, and is there any sort of upside bias to those numbers now? Maybe walk us through your latest assumptions there.
Yeah. When we put out those numbers in the autumn fall, it was like 11 MFN deals. Now we are seeing 17. Implying we are de-risking our initial estimate, so we feel really good about that. We have laid out the $300 million that we see as an opportunity on it. We booked our first onshoring orders, reshoring orders. Five out of the top 10 pharma companies have booked with us. I have actually visited multiple of those sites around the East Coast, and we are moving those systems into forward stocking locations where they are getting ready to be deployed in those areas as we go forward. I would say a few things that makes us a little bit different in this regard is that about a decade ago, we invested in a strategic account program where we were working with pharma companies at the highest levels globally.
We thought that was really important for two reasons. First of all, to get really good VOC in and where dynamics were changing, and that is really important for autonomous lab. Secondly, when these type of things happen globally, you do not want it to be relationship based. I know my person in the U.S. can talk to the person in Europe or the person on how this is happening. You really want to have a higher level of conversation with these companies. That is why we were very explicit with that number because we were coming from the tops down and the bottoms up on that aggregate. I think that is providing a big advantage.
I will say, when you look at the install base and not only LCs are being reshoried, GCs are being reshoried, spectroscopy is being reshoried, and that is an opportunity for us that is broader, and of course, that services and consumables business around that reshoring. So we feel really good about it. I lived through some pharma reshoring in Ireland a few decades ago when it became the place, and it is actually a very similar motion, but you make yourself very different by understanding what the customers want, but you are also involved with laboratory design and setup, and you think about what that means for the future with autonomous labs. Some of these labs are not autonomous labs, but they are thinking about what will it mean for them over the next decade in that regard. So we feel really good about it.
We've been, I would say, prudent around that number, but you can see from the number of signatories and where it's going, we feel really good about it.
Maybe just to double-click on the orders that came through the door last quarter. Maybe just talk a little bit about brownfield vs greenfield, the lead times on those orders when we can start to see those flow through into revenue and then ultimately kind of like where the funnel?
Yeah, and I would say, first of all, it's not linear. Orders come in in not a linear way. But what I will say is that we've seen the vast majority of our orders coming from greenfield sites, from new builds. And then I would say procurement can really depend on six to 18 months pre-launch of the site for our systems. I think you see bioprocess a little bit earlier on that, but that's what we've seen actually very consistent across all those sites. And 75% of the MFN signatories have announced that CapEx, so we're kind of tracking that as it goes through. So, I think you're going to see the benefit of that in Q1 and beyond.
Okay. We touched a little bit on China growth earlier in the conversation, but Asia growth ex-China was also strong in the most recent quarter. And you're expecting double-digit growth in 2026, for the ex-China Asia exposure that you have. Maybe just walk us through what's contributing to that. Your exposure in India, for example, I'm sure is playing a role. Maybe walk through your expectations in that region.
Yeah. We grew 9% in APAC Asia, what we call our Asia area, and that was against the low to mid-single digit expectation on it. When you think about Asia, people kind of gravitate towards India, but it is much bigger than that. You see semiconductor, chemical, and advanced materials, really important to those geographies.
Actually, India has invested quite a lot in fab manufacturing, sort of setting up the supply chains around that, where we are really going to benefit on it. We have done extremely well, I think, in the generics in India, but it is really broad-based, what we saw. Testing labs have a very high momentum in APAC at the moment. Think about big testing labs around PFAS, environmental, and food testing, and this phenotype of the many different countries we have in Asia, the speed of regulation around PFAS we are seeing is changing very quickly because of food exports, which is a really big benefit to us. Then, of course, you can think of Korea with semiconductor fab. We saw really strong growth in Japan, and that is an area where we have a long heritage, a long history there, and that was really broad-based as well.
It is a very dynamic, I would say, but very important area for us going forward.
In Europe, you did lower the guide for the year on Europe, during the last quarter. Maybe unpack that a little bit for us. What drove the change there? How much of it is just conservatism around the Middle Eastern conflict, or is there anything else that we should be paying attention to?
Yeah, I think, actually you said it in your answer. Number one, we are happy with the performance we have seen in the region. When you look at our Q3 number, it is coming off of a pretty challenging compare, right? So, we delivered low single-digit growth on a high single-digit compare. When you look at Q4, we have a low double-digit compare. So once again, it is just the challenging compares that we have. There is prudence in the guide based on what is going on in the Middle East.
Okay. In the academic market, I know it is a smaller exposure for you guys, but a big focus for tools investors. Maybe just walk us through the latest and greatest on academic trends across the different geographies here. It appears that the U.S. is stabilizing, but that is probably off of a low base as well. So, maybe just walk us through kind of what you are seeing across that market-
So ex-
Geographies?
Yeah, ex-China, AMG, grown low single digits from our perspective. U.S. is a very low exposure for us, about 3%-4% overall in what we are seeing. Our direct NIH exposure is less than 1%. It is always important to put it into the context of where we are in the business on it. But I would say in America, the spending remains stable but muted, is what I would say. Customers are really still cautious on spending in that area, waiting to see what happens. So the bright spot, I would say, is on the government side, we see good improvements on the government side. That is one of the areas that is a little bit underappreciated is the government business that we see. So we have seen that kind of improve.
Europe AMG has grown in the mid-single digit range year to date, but we're seeing some crowding with research budgets, of course, with defense budgets and all those areas. China AMG, to kind of round it out, is a small business for us, and it declined in Q3, but again, that was on a compare of 20% growth year- over- year, and we expect mid-single digit growth over time there. So, that's our AMG exposure.
Okay. Got it. That's helpful. Wanted to take a step back, and we talked a little bit about it during the Ignite answer, but looking at the portfolio now, your R&D investments, I guess, what areas of innovation have generated the highest return for Agilent over the last several years? Where are you putting new R&D dollars to work within the Ignite context and looking ahead, what can we expect from a pipeline perspective over the next, call it, 12 months- 18 months?
Yeah, so maybe I can start off about how Ignite was at the start of this. So we simplified the organization where we went from an aggregate of 19 product lines, and we grouped them into nine product line groupings with clear line of sight. One of the issues in any company is how you allocate your innovation dollars that is not incremental across the board, but where you can asymmetrically invest. So we created a CTO office, and the portfolio office is really thinking about those areas of what areas of science do we need to continue to invest in, but how the allocation happens in not an incremental way, but an area where we need it most. You heard me talk about autonomous lab, you heard me talk about AI. These areas are really important.
But if you look back over the last two years as we're building on this, we've been extremely proud of our Infinity III LC innovation, around productivity and how that's done. You see the expansion of our Dako Omnis family and the pathology business doing extremely well. The 9500 ICP-MS, we have over $60 million in funnel in that. It's highly resonating with the customers. We have a very high market share in ICP-MS, which is a highly technical tool, and of course, innovation and CDMO. We're a specialty CDMO company, so where we're working with these customers, we're working on a lot of innovations, which is really important. So looking ahead, I think you're not going to see it just in hardware and consumables, but where areas around physical AI and the autonomous lab of where we can bring it to bear.
Innovation is really our top priority, and you can see it through the numbers on it. I think as the months and quarters go beyond, you're going to see a number of launches that are going to be very impactful and are going to be impactful in the right area to create that right customer outcome.
That's helpful. Wanted to touch on the model a little bit. Adam, this might be more your wheelhouse here, but just the question we'll get a lot is just exit rates Q4. You're guiding to 5.2%-6.2% growth. How should we think about this exit rate in the context of 2027 top line to the extent that you want to take a stab at giving some color around that?
Sure. I think I'd start with just the high level of we're seeing really strong commercial and then operational momentum in the business. That's broad-based. The second piece is our end markets, right? So you're looking at pharma, CAM, and our clinical and diagnostics business are all doing very well right now, so feel very confident about that. Even AMG we're starting to see stabilize, so that's another good performance that we're having in the business. On a geographic basis, remember we had started the year guide in China as flat, and now in the fourth quarter we're saying it's going to be in the high single digits once again. So seeing that market reigniting, so to speak, and then if you look at the five-year plan, we believe that that helps the stability of that market and feel excited about that.
I'm not going to guide today. We're in the middle of our planning process, but coming out of the year, we feel very good about our performance. The other note that I would highlight is we're one of the few companies that's actually maintained our LRP and continued to deliver on that. That's on the top line, that's at the operating margin level, and at the EPS level. So feel very good about the performance of the company, feel very good about our ability to deliver on our commitments, and excited about 2027.
Got you. That's helpful to put some takes. Maybe you touched on margins there. I think given the CDMO Train C ramp impact we talked a little bit about earlier, is the lower end of the LRP range kind of fair game for next year? Or at least like a starting point. I would be curious to hear what offsetting levers you have to that Train C ramp, or at least the hiring that you're doing ahead of that are at your disposal, really, and how much more can you really drive via Ignite on the margin line?
Yeah. I'd love to take this one. I guess a number of pieces. One, I'm not going to guide for this year, but we're confident in our LRP, where from a margin perspective, we talked about 50 basis points- 100+ basis points, and this year we will be delivering 100+ year-over-year expansion. So we feel good about that. As you think about the Train C ramp, as I said earlier, we've been anticipating this. As we've moved through the organization, we've really looked at where there are opportunities to continue to improve our performance. I have to talk about our operations organization, where they've really taken a hard look in using technology for how do we improve our quality, how do we improve our manufacturing performance and delivery, but at the same time do it at a lower cost, and you can see that running through our margin profile.
Do we have more to go? Absolutely. So we're implementing a number of different programs, and I think each time we see success, we learn from it, and then we are able to take it to a different level in more complex areas of the business. The one piece I would just highlight is that as you think about the margin expansion for next year, we think about it and as I talk about it, ex-tariff refunds, and that's why we've been so clear about the tariff refunds that we received this year.
Yeah, bring it back to the way I opened. You can see we did 100 basis points in margin expansion, and that was navigating tariffs. That was navigating a tax headwind. This compounding capability that we have, an example on our pricing, 200 basis points of pricing this year, that is something that compounds over time. We feel really good that we can mitigate anything.
Okay. That is helpful. I wanted to spend the last few minutes we have here on capital allocation and M&A specifically. I guess post-Biocare deal, how you are thinking about both M&A and other capital allocation priorities. I think in the past you have talked about using Biocare as a footprint for-
Yeah.
future deal. A blueprint, I should say, for future deals in terms of the size and scope. Is that still the way that you are thinking about it? Then maybe weighing M&A vs other priorities.
I will start and then-
Sure. Absolutely.
I will turn to you if that's okay. What I will say, you can see the deals that we've done in the last two years. There've been a certain phenotype of a deal, but they've been really linked with our strategy, right? That's the first thing. You can see Biocare creating over 300 antibodies creates a moat around our business, high recurring revenue, highly innovative, and a plug-and-play with our commercial engine across the globe, right? So really effective. What I will say is we have a very strong pipeline. The way we're looking at that pipeline is where does it fill out gaps, right? Where can we continue to grow, and particularly around recurring revenue. There's a lot of exciting spaces, right? Where we can continue to put a moat around our business and continue to expand.
The way I would look at M&A is not just from acquisitions. You can think about partnerships and how do we build towards acquisitions in certain cases. But also this idea in this new world that we're in, we're clear that we will need to bring in some capabilities that the company doesn't have, and sometimes that comes through acquisitions, right? Some in key technology bolt-ons. What I say, it's very much strategy-based, very high degree of discipline on how we look at it, and our integration engine with Ignite is really, I would say, performing extremely well on what we've seen in Biocare, so you put it all together. But in the broader capital allocation, maybe Adam, you can speak about it.
Sure. Consistent with what we've said in the past, we believe that we want to invest our capital in growth. As Padraig said, that can come through M&A in all its different forms. We will be investing in our internal innovation as we've talked about, and then through CapEx, where there's strategic capacity opportunities, we'll also consider that. But we're going to maintain discipline, and we've talked about discipline a lot with our four principles related to M&A. So one, we want to make sure that it's on our strategy. Two, that we have the right to buy it and we have the right to win. Biocare is a great example of that, and Padraig laid out nicely why. The third piece is that we're paying the right price. Then the fourth is can we integrate, and will it be a cultural match with us?
Because we understand that from a strategic standpoint, things can look great. You can pay the right price, but if culturally it is not going to fit, it is not going to work. We are going to continue to stay disciplined. I think Biocare is a nice blueprint for what we are looking at, and we will obviously continue to evaluate all the opportunities to deploy our capital in an efficient way.
We will not be doing a transformative deal. I had to say it.
Had to get that on the transcript.
I have said it many times, but I will say it again.
Note, just quickly, last minute here, Padraig, you mentioned that there is a few kind of strategic areas where maybe inorganic investment would be the right move. Can you be more specific what areas in the portfolio are you seeing?
Yeah, for sure. Look, if you look at Biocare, how it put a moat around that pathology franchise, which is highly durable business, and it just increases our connection and our customers there. If you look at our broad platforms in the analytical space, and you look at our core technologies, there are areas where we can enhance that with outside capability. That can be recurring revenue around it. It can be actually some software that can really enable things moving forward on this. That is the way we are looking at it. Then the one thing is our lens is very wide. We have opened an innovation center in China, which is very unique, and we are going to continue. We have an innovation leader in China, in Shanghai. Part of that is really to tap into that innovation ecosystem, particularly around physical AI and companies.
I will give an insight to that. We had a very large order, which we took from an autonomous lab company in China, and we fitted out the whole lab from the tools side. What we wanted to make sure as we were doing that is how can we partner with this to actually move up the value stream as we go forward? That's what we see as innovation, and partnering going forward will be very broad based. Technology is moving very fast. You look at some of the models that have come out from Anthropic on the connection there with instruments, that removes a real barrier for us to even move faster in certain cases.
Again, having these, I would say integrator view of how we're doing it, but also making sure that we're not just picking one bet going forward, but hedging our bets in a few areas to see how this autonomous lab is going to play out. Anybody that can say that the autonomous lab is defined and everybody knows what it's going to be, I can tell you from talking to our customers, it's not. We have to meet customers where they are and build from where they are, and that's going to be a question around some M&A and technologies, too.
Great. Well, looks like we have to leave it there. Thank you everybody for joining us and everybody on the webcast. Thanks, Padraig. Thanks, Adam.
Thanks, Casey.
Enjoy the rest of the conference, everybody. Thank you.