Agilent Technologies, Inc. (A) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Agilent Technologies First Quarter 2020 Earnings Conference call. [Operator Instructions] And now I'd like to introduce you to the host for today's conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Julienne. Welcome, everyone, to Agilent's conference call for the first quarter of fiscal year 2020. With me are Mike McMullen, Agilent's President and CEO; and Bob McMahon, Agilent's Senior Vice President and CFO. Joining in the Q&A after Bob's comments will be Jacob Thaysen, President of Agilent's Life Science and Applied Markets Group; and Sam Raha, President of Agilent's Diagnostics and Genomics Group. Due to certain personal engagements, Mark Doak, President of the Agilent CrossLab Group, is unable to join us today. You can find the press release, investor presentation and information to supplement today's discussion on our website at investor.agilent.com. Today's comments by Mike and Bob will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year. Revenue growth will be referred to on either reported or core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of January 31. We will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risks and other factors. And now I would like to turn the call over to Mike.

Thanks, Ankur, and thanks, everyone, for joining our call today. I'd like to start today's call with a reminder that Mark Doak, ACG Group President, will retire on May 1. While Mark and his wife are currently enjoying a long-planned vacation and he's not able to join us today, I would be remiss in not taking the opportunity to recognize the outstanding accomplishments Mark has made in his stellar 38-year career. His track record of results speak for itself. Thank you, Mark. We have a very strong bench at Agilent and have already named Mark's successor, Padraig McDonnell. Padraig knows the business well. He's been on Mark's staff for several years. He's currently run our Chemistries and Supplies division. Padraig and Mark are already working on transition activities as Padraig prepares to take the helm of the ACG business at the start of fiscal Q3. I congratulate both Mark and Padraig. And now on to the quarterly results. The Agilent team delivered a strong start to 2020. Q1 revenues are above our expectations as business grew in all regions and markets. Total revenues of $1.36 billion are up 5.7% year-over-year on a reported basis and 2.4% on a core basis. We continue to translate our top line growth into strong bottom line earnings. Our EPS of $0.81 is up 7% and is at the high end of our guidance. Before going into business unit market details and our quarterly results, I want to speak about 2 specific areas that highlight how our building-and-buying strategy investing in fast-growing markets continue to deliver growth and help us create a more resilient business. First, I want to talk at our most recent acquisition, BioTek. This was the first quarter with the BioTek team onboard, and the business is off to a very strong start with revenue growth above our expectations. We continue to be very enthusiastic about the cell analysis space, and BioTek continues a strong momentum that really got us interested in bringing them into Agilent. The BioTek leadership team was just in Santa Clara for a few days of planned meetings, and they are very energized and excited about the future possibilities in making a great business even stronger as part of Agilent. Second, the resiliency of our business model is on full display this quarter as Agilent delivered strong growth and earnings in the face of a negative Q1 impact from the coronavirus outbreak in China. As this has dominated headlines, let me add a few additional comments regarding the coronavirus and its impact on Agilent. Most importantly, our thoughts go out to all those affected by the coronavirus. On the Agilent front, our team fortunately has not had any direct health impact, and many returned to work last week. We are remotely supporting our customers as a number of them gradually resume operations. We have also restarted our in-country production activities and are shipping product to customers within China and internationally, albeit at a reduced rate. On the business side, given that our first quarter ended January 31, we are seeing business impact across both fiscal quarters, Q1 and Q2. In Q1, our revenues are running ahead of expectations right up to Lunar New Year holiday. However, the extension of Lunar New Year holiday affected our customers' ability to transact and accept shipments during the last days of the quarter. This reduced our reported revenue by approximately $10 million in total for the quarter, primarily in our LSAG instrument business. We have since recognized the bulk of this revenue now in Q2. Looking ahead, we are projecting that coronavirus will continue to impact our China business throughout Q2. Bob will share additional details, but we are anticipating delays in new equipment purchases and slower uptake of consumables and services. This slower uptake is due to the reduced number of selling days resulting from the extension of Lunar New Year, along with customer and logistics operations that are ramping but not yet fully operational. It's important to note, while we're forecasting the impact to our Q2 business, our full year outlook for total Agilent revenues and EPS remains unchanged. Our business outside of China remains on a solid footing, and we believe a large portion of our China business that is currently being impacted by the coronavirus is not lost, but rather is delayed. As you know, the coronavirus outbreak is unfortunately impacting the health and safety of tens of thousands of people. I'm very proud of how the Agilent team has responded to do our part to help. Our Agilent China team is exactly supporting those customers doing crucial research into the virus. We have donated instruments and supplies to 4 clinical and research institutions based in China to support disease research and drug development efforts. We continue to closely monitor events in China and are prepared to act quickly to help wherever possible. Now on to additional details of our quarterly results. Agilent's growth is broad-based as our business grew across all regions and end markets. Regional performance was led by the Americas posting 5% core growth, with America coming in with low single-digit results and Asia holding steady. Despite the timing of the Lunar New Year and the coronavirus impact late in the quarter, our China business grew low single digits, while all end markets grew our results led by strong growth in the biopharma and environmental forensics markets. Now taking a closer look at how the individual business units performed. LSAG revenues grew 5% on a reported basis driven by strong performance in our biopharma and cell analysis business. On a core basis, LSAG's revenues were down 2% against a tough compare and inclusive of the unexpected Q1 impact from the coronavirus. With the exception of China, all regions and end markets performed in line with expectations. The ACG business continued to deliver strong results, posting 7% core growth even with reduced selling days in China. This growth was broad-based across all major market segments and regions. These results continue to demonstrate the strength of our ACG CrossLab strategy and how we are leading the transformation of the analytical lab. DGG is also posting 7% growth in the quarter against a difficult 12% growth compare. We are experiencing a continuation of positive trends, winning share in our core pathology business and seeing strength in our NGS QA/QC franchise. We continue to be pleased with the revenue ramp at our new oligo manufacturing facility in Frederick, Colorado. In addition to driving strong financial results, I want to highlight some other notable events that took place during the quarter. We continue to bring differential new products to the market, gaining strong customer and external recognition. We just introduced the Agilent SureSelectXT HS2 DNA Kit. This, along with our recently launched automated sample prep platform, Magnis, further strengthens our leadership position in the NGS sample prep market. In addition, 2 industry publications honored the Agilent InfinityLab LC/MSD iQ system with 2019 innovation awards. The award-winning mass spectrometer introduced last June incorporates intelligent designed-in innovations such as embedded sensors that monitor instrument health. And finally, early this month, Barron's named Agilent #1 in the list of the 2019 Most Sustainable Companies in America. We're very proud of this recognition. Sustainability is a critical topic that is gaining increased interest from customers, employees and investors. More importantly, we believe focusing on sustainability is simply the right thing to do. Before I pass the call on to Bob, I'd like to close with a reminder of Agilent's resilience and our shareholder value-creation model, delivering above-market growth, expanding operating margin and a balanced deployment of capital. We are able to thrive by focusing on platforms with multiple large end markets and long-term growth opportunities. We're also driving growth in the aftermarket, increasing our focus on faster-growing end markets, streamlining our infrastructure and operations and investing in the future of Agilent, both organically and inorganically. We do all this while maintaining acute focus on delivering EPS growth with superior quality of earnings and driving shareholder value creation. Despite the temporary business uncertainty created by the coronavirus in China, I remain confident about the longer-term growth prospects of the China market, our China growth energy and, most importantly, our team. I'm very proud and confident in the strength and resiliency of our China team and their ability to overcome any near-term challenges that come our way. When I look at our global team and our business, our growth prospects and team have never been stronger. We're laser-focused on driving revenue and earnings growth. I'm pleased to tell you that all these factors allow us to maintain our growth and earnings outlook for the year. Thank you for being on the call, and I look forward to answering your questions. I will now hand off the call to Bob. Bob?

Thank you, Mike, and good afternoon, everyone. In my remarks today, I will provide some additional detail on revenue, walk through the first quarter income statement and some other key financial metrics and then finish up with our updated guidance for Q2 and the full year. Unless otherwise noted, my remarks will focus on non-GAAP results. Our first quarter results were very good as we had strong execution across all regions and markets. Revenue for the quarter was $1.36 billion with reported revenue growth of 5.7%. Currency negatively impacted revenue by 0.4 percentage points, and acquisitions added 3.7 percentage points to growth. Our core growth was 2.4% in the quarter. As Mike indicated, our performance was impacted by the extension of the Lunar New Year holiday due to the coronavirus. This reduced the number of shipping days in China, and we estimate shifted $10 million in revenue out of Q1. If not for the reduced shipping days in Q1, our performance would have been stronger, with the shift affecting our core revenue growth by roughly 70 basis points. In terms of end markets, we saw growth across all of our 6 end market segments. Pharma, environmental and forensics and diagnostics and clinical led the way for us in the first quarter. During the quarter, pharma grew 3%. Double-digit growth in DDG and high single-digit growth in ACG offset a mid-single-digit decline for LSAG. Within pharma, our biopharma, or large molecule segment, grew high single digits. And on a geographic basis, our pharma business experienced high single-digit growth in the Americas and mid-single-digit growth in Europe. This was partially offset by a mid-single-digit decline in China, largely associated with the timing of the Lunar New Year and, to a lesser extent, the execution of the 4+7 program. The 4+7 program is playing out as we expected, with the third round completed in January and multiple winners per drug. We continue to believe that this is a long-term positive for the industry as drug quality improves and access to health care increases. Our environmental and forensics business grew 4% against a very tough compare last year of 10%. During the quarter, we saw balanced growth between instruments and aftermarket sales. In diagnostics and clinical, revenue grew 3% against a strong 11% compared to last year. Mid-single-digit growth in DGG driven by continued share gains in our pathology business were partially offset by declines in LSAG and ACG, with both only having small businesses in this segment. Chemical and energy revenue grew 2%. Services and consumables grew mid-single digits, offset by flat instrument sales. Academia and government grew 1%, with services and consumables growing mid-single digits, partially offset by flat instrument sales. Mid-single-digit growth in the Americas was partially offset by flat to low single-digit declines in the other regions. And finally, food returned to modest growth, up 1%. Low-teens growth in services and consumables was partially offset by declines in instrumentation. While one quarter does not make a trend, we are pleased with the continual progress in this market. On a geographic basis, we saw growth in all regions led by America's growing mid-single digits. Europe grew 2%, in line with our expectations. And as Mike mentioned, our business in China was running ahead of expectations through the first 2 months of fiscal 2020. As mentioned earlier, despite the shift of the $10 million, China still grew 1%. If not for the extension of the Lunar New Year, our core growth in China would have been solidly mid-single digits. Now let's turn to the rest of the P&L. Gross margin was 55.7%, down 120 basis points versus the prior year. This is a result of the planned start-up costs for our new NASD facility as well as product mix and some negative pricing effects on our instrumentation business. We offset 90 basis points as we leveraged our cost basis and operating expenses. And as a result, our operating margin was 22.9%, down slightly from 23.1% in the first quarter of last year. Adjusting for the $10 million coronavirus impact on revenue, operating margins would have increased versus the prior year, and so we feel good about our continued opportunity to expand operating margins. We were also able to lower our tax rate slightly to 15.5% and expect that rate to continue for the rest of the year. This resulted in non-GAAP EPS for the quarter coming in at $0.81, at the top end of our guidance and representing 7% growth. Before turning to second quarter guidance, I want to touch on a few other financial metrics. Our operating cash flow was an outflow of $59 million, in line with expectations as we incurred the onetime tax outflow of $226 million related to the transfer of intangibles, as noted last quarter. We also paid out $56 million in dividends and purchased 726,000 shares for $60 million. We ended the quarter in a net debt position and a net leverage ratio of 0.9x. Now let's turn to our non-GAAP financial guidance for Q2. We are anticipating revenues in the range of $1.28 billion to $1.32 billion in the second quarter. This range is larger than we've traditionally provided as we've intended to estimate an impact of the coronavirus on our business in the second quarter. As this is a fluid situation, we thought it would be helpful to detail out our assumptions, particularly as we've seen impact across both Q1 and Q2. Our guidance contemplates a $25 million to $50 million impact in our first half of our fiscal year, which translates to roughly to a 1.5- to 3-week impact on China revenues. Of this, we saw $10 million in Q1, and we are estimating a net $15 million to $40 million incremental impact in Q2. The Q2 revenue range of $1.28 billion to $1.32 billion translates into reported growth of 3.4% to 6.6% with core growth of 1% to 4%. Currency is expected to have a negative 1.1% impact, while M&A is expected to contribute 3.5% to 3.7% in the quarter. We are estimating the coronavirus to negatively impact our Q2 core growth by 1 to 3 points. Our revenue outlook translates Q2 earnings in the range of $0.72 to $0.76 per share or 1.4% to 7% growth versus last year. Importantly, as Mike mentioned, we believe the majority of this business is not lost, rather delayed as customers and the government ramp and recover. In addition, our business outside of China remains strong. As such, we expect a larger second half of the year and are not changing our full year guidance for revenue or EPS. So before starting up the call for questions, I want to conclude by saying we had a very solid start to the year that shows the strength and breadth of our portfolio. It is that portfolio, coupled with the strength of the Agilent team that despite the uncertainty caused by the coronavirus, we are maintaining our full year outlook. With that, Ankur, back to you for the Q&A.

Thanks, Bob. [Operator Instructions] Julienne, if you can please provide instructions for Q&A.

[Operator Instructions] Your first question comes from Tycho Peterson from JPMorgan.

I appreciate you guys quantifying the corona impact. I guess a couple of things. I mean you've previously talked about mid-single-digit China expectations for the full year. So should we assume that's still the case, just more back-end loaded? And then, Mike, as we think about collateral damage within China, how should we think about the C&E market, just given that the broader economic activity in China is slowing? So should we think about some impact on C&E as well?

Sure, Tycho. I think I'll handle both questions. And Bob, correct me if I go off script here, but I think -- we still think that the mid-single-digit number is doable for the year in China. What we're seeing already on ground from our team, we're just on the phone today with our team in China. We're still able to transact and orders are actually coming in as forecast. I think that -- we think a lot of the procurement is going to occur a little bit later in the year. I think a lot of it's recoverable with the exception of probably some aspects of our service business, where customers really are looking for service people to arrive on their sites. I think we feel pretty good about how we're thinking about China throughout the rest of the year, albeit being a very fluid situation. And we really haven't seen any kind of transitory or connected impact on C&E. In fact, C&E actually did better than we were thinking in the first quarter. It's too early to call a trend, but some of the PMIs are actually inching up, which would maybe give an indication of perhaps a better outlook and some initial noise with some of our major accounts about thinking on procurement. But we still remain cautious in terms of the outlook for C&E, but we're encouraged by the Q1 results. And again, we're not really seeing any significant movements around in that area on a global basis. And we think, back to the first comment on China, we weren't expecting a lot in C&E this year in China, anyway. So I think we're in pretty solid shape relative to the outlook there as well.

And then a follow-up on biopharma. You grew 3% on a 10% comp. Last quarter, it was 7% on a 14% comp. So was that a pull-forward last quarter? And if so, can you maybe talk to that dynamic?

No. I think the big story there is China, right?

Yes. That's exactly right, Mike. There's 2 elements there. One is the shifting of the Lunar New Year from Q1 into Q2 as well as the impact -- Q2 into Q1, excuse me, as well as the extension of the Lunar New Year holiday. So those are the 2 primary pieces.

Yes. And then within the pharma numbers, Tycho, the biopharma segment really was strong for us again this quarter as well. And then we think as the 4+7 initiative rolls out in the latter part of this year, then we'll see the growth in the small molecule side of that space. And then we have really strong growth in NASD and the ACG business, strong in pharma. So we're feeling pretty good about pharma.

Your next question comes from Doug Schenkel from Cowen.

This is Ryan on for Doug. Maybe just to round out the China dynamic quickly, can you provide some more color on your supply chain exposure within China? It sounds like the operating environment is improving. But how should we think about your direct and indirect supply chain exposure? And do you see any risk to your ability to fulfill demand within and outside of China over the course of this year?

Yes. Sure, Ryan. Thanks for that question. So as I touched briefly onto my call script, we actually have resumed production and are in a really solid position right now to not only ship a product to our customers in China, but also products that are manufactured in China to have them exported into the global market environment. And as we have a very diversified global footprint in terms of supply chain and manufacturing capabilities, we think, for the near term, we're in pretty solid shape relative to ability to meet our commitments from a shipment perspective. And then you also may recall that starting with the initiation of the U.S.-based tariffs, we actually had initiated a movement of a lot of our supply chain out of China. So it actually has mitigated our risk here as well.

Yes. Ryan, this is Bob. Just to follow up. We have twice-weekly calls with our team in China, inclusive of logistics as well as our supply chain. And obviously, it's quite dynamic. But as it currently stands today, we feel like we have the ability to be able to procure not only raw materials, but also produce the finished goods and ship not only within China, but also get product into China and vice versa.

Great. And then maybe just following up with a brief 2-parter. Number one, on the food market, it sounds like things were improving a bit prior to this coronavirus dynamic. Can you talk a little bit more about what you are seeing in the market? And if you think that the China portion of that market specifically could be poised to return to growth as we get past this coronavirus dynamic? And then specifically for gross margin, can you talk about what the timing headwind was for the quarter versus the other dynamics that you called out?

Do you want to take this, Bob?

Yes, yes. So on food, as I mentioned, we certainly are pleased with the progress. We have had several quarters of kind of very predictable performance there and actually Q1, despite the coronavirus, it probably had more impact on the pharma side than in food, grew 1% on a global basis. It was down slightly in China, but certainly not to the level that it had been in the past. So we feel good about that. It's probably too early to call that it's going to return to growth long term. We do believe it will return to growth, but not ready to call that in this fiscal year. In terms of the timing of the coronavirus, that $10 million, that was a quite a large incremental because we had all the costs. So that was probably a higher-than-normal kind of incremental drop to the bottom line. That was probably a little over $0.01 of impact on the full quarter.

Your next question comes from Jack Meehan from Barclays.

I was hoping maybe you could give us -- can you give us an update on the NASD rollout at the new site? And how much that contributed to the quarter in both DGG and the pharma end market?

So as I imagine, you maybe get a little tired of hearing this from Bob and myself. I'm going to pull Sam into this conversation. But as we highlighted in the call script, the NASD business continues to ramp as we'd expect. Really pleased with the progress on how we're starting to fill up that factory. Still not yet at full capacity, operating at full capacity yet, but it was a contributor to our growth in the first quarter, no doubt. And Sam, anything else you'd like to add there?

No. Mike, you hit the nail on the head. It is that the business is performing as we've expected. We continue to see interest in all the customers, the pharma customers that we've given tours to. We're doing work now there for a number of customers. Not to be boring, nothing new to report. It is progressing.

It's all good news right now.

Yes.

Yes. I would just add, Jack. As we had talked about, this will ramp up and be a more material impact in the second half of the year. It's progressing as we expected. It had a slight impact to the DGG and a slight impact to the overall Agilent organic core growth, and we're very pleased with the progress.

Yes. Bob, I think there's maybe just one more point, too. I mean look at the second half outlook for the business, it's not all about China recovery. The other elements of the business, including NASD, which we know we're going to have a strong second half.

That's right.

Great. One follow-up on DGG. The core growth of 7%, not to nitpick it too much, but was there anything that was a little softer in the quarter in that segment? Just knowing some of the other growth drivers relative to how the segment was growing last year.

I think it was really -- this is Mike, Jack. And Sam, feel free to jump in on this. We had a 12% growth last year. So a tough compare. We had solid growth across all elements of that business. And outside of again maybe a China impact for an element of the business, I mean things are firing on all cylinders across the business, is how I recall.

Yes. That's right, Mike. I mean we had -- we continue to have good growth with market, above market, with our overall NGS portfolio. So we feel good about that in the low double digits. Our pathology business, as you heard in Mike's opening comments and Bob's as well, we believe we'll continue to gain share there, growing in the mid-single digits. So -- and you just heard about NASD. So you look at the major parts of DGG, we had, I think, a really well balanced good quarter.

It's mainly just to compare [indiscernible]

Your next question comes from Dan Leonard from Wells Fargo.

So just a couple of things to circle back to. One, what decelerated in the Americas in the quarter? Your growth rate in that region had been trending higher than 5% for quite some time.

Yes. Dan, welcome back, and I appreciate the question. It's really a combination of a very tough compare. I would say probably the area that was a little softer was the instrumentation business. They had a very -- the most difficult compare in the first quarter, and we would expect that to improve in Q2 through Q4 as we get to easier compares.

Yes. I know, Jacob, you were looking into this. So...

Yes. And I think the continued depressed PMI certainly impacts the C&E business, chemical and energy business. So we continue to see that in U.S. being performing at least flat, and we would like to see improvement. But I think it's still -- going to still take some time before that is happening.

Yes. And I would add that it ended where we expected it to be.

Yes.

Yes.

Sure. And then a related question, Bob. You mentioned when discussing the gross margin dynamics that there were some negative pricing effects on the instrument business. Could you elaborate on that? Or are you pulling maybe the pricing lever to drive more demand in the instrument business after 4 quarters in a row of soft demand in LSAG?

Dan, I just can't help but to jump in on this one. And I think that question would be posed to our competitors because we saw -- particularly as we finished the calendar year, we saw some very aggressive pricing by some of our competitors, particularly in the liquid chromatography and mass spectrometry platforms. And I don't know if you want to add anything to that, Jacob?

No. I think it's fair to say that we continue to be premium-priced, but there is certainly some competition in the market space right now. And yes, so there is a price pressure.

But we don't play the price game here. I mean that's not how we want to win.

Your next question comes from Patrick Donnelly from Citi.

This is Jesse on for Patrick. First, just wanted to touch on the China impact, and I think you guys had laid out about 1% impact to core growth from that. I just wanted to understand how that kind of compared to your expectations that if coronavirus -- made that a lot worse than anticipated.

Yes. Maybe just to be crystal clear here. We saw roughly a 70 basis point impact in Q1. We had product that was getting ready. It was staged and getting ready to ship. And on the last couple of days of January and with the extension of the Lunar New -- the formal holiday, there was no one there to pick that up. So we know that was clearly an impact in Q1. In terms of Q2, what we're expecting between the -- the first half of our year, it's roughly a 1.5- to 3-week impact as we're ramping up and most of that's happening in Q2. We're expecting in Q2 that the coronavirus has roughly a 1- to 3-point impact to our growth in Q2, roughly $15 million to $40 million. In the first half, it's $25 million to $50 million, and we'll expect to get that back in the second half of the -- our fiscal year.

Okay. That's helpful. And then just maybe one on the BioTek acquisition. Just wondering how that business performed relative to expectations and just kind of how the customer reception has been so far as you've kind of broadened the portfolio offering there.

Yes. Jesse, I happen to hit that right up, and relative to expectations, that's ahead of our expectations. It really has been just a tremendous addition to the company. And we were talking about this the other day inside the company. Typically, when you put together a deal scenario, it's often out of the gate. You don't see a team beating the revenue numbers all the time, and that is actually what we saw in the case of BioTek in the first full quarter as part of Agilent. And Jacob, I know you've been talking with customers. And how are you thinking about the BioTek being part of Agilent?

Yes. Again, I just want to underscore once again that we've been very pleased with the performance of BioTek while it's been here in Agilent. But not only BioTek, the whole cell analysis business is doing very well, and we are posting double-digit growth for the whole business. So we're very pleased with that, and we actually believe this is going to continue for quite a long time. We see lifestyle analysis is going to be a key driver for understanding the immune system and immuno-oncology. And with -- and all the Seahorse, ACEA and BioTek and Luxcel combined, we have a very unique value proposition. And that is really what excites us. And what also is very exciting for customers is that when we combine those technologies, these techniques together, we can create more insights for the researchers and the biopharma customers that nobody else in the industry can do. So this is very exciting, and we're just getting started.

Your next question comes from Puneet Souda from SVB Leerink.

So first question on Europe. You pointed 2% growth there. I was hoping to get a view from you on outlook and what you're baking in the guidance here.

I guess, Bob, why don't I just talk about the performance, and you can maybe comment on the outlook. So came in right as expected. And I think that Europe is in a difficult economic environment, and we think our team is really doing well there relative to what's going on in the market environment. So we were actually quite pleased with how Q1 came out for us in Europe. And Bob, in terms of the outlook?

Yes, yes. So Puneet, as Mike said, we were pleased with the outlook of being 2%, and that's kind of what we're forecasting in Q2 and the rest of the year. And so certainly, the team is doing a really great job being able to deliver in a tough environment. But it kind of hit where we expect, and that's kind of what we're expecting for the rest of the year as well.

Okay. That's very helpful. If I could touch back on China, I know you covered quite a bit. But if I -- really appreciate your thoughts there given one of the strongest legacy positions in that country for Agilent. As the recovery happens here, are there certain segments which you think where you will see more acceleration, more faster recovery, certain product lines or certain segments where you see recovery faster versus others? And then I was sort of also surprised with the growth you were seeing in ACG, just CrossLabs continues to deliver. Was trying to understand what sort of exposure you had there in China. And given the travel restrictions and everything, are you still able to ship products and service instruments, seeing the growth in CrossLabs here? Or was that -- how much was the impact in CrossLab, if you could quantify it.

Yes. Puneet, let me take -- there was a lot into that question. So let me try to hit them. In terms of recovery, we would expect that, obviously, the instrumentation portion would recover within that -- probably pharma first, and so we would expect that to be prioritized over some of the other markets. In terms of ACG, we continue to be pleased by the broad-based strength there actually. Even in China, despite kind of the reduced selling days, it grew 11%. We do expect probably a slower ramp-up there, less on the consumable side as the factories are getting back to production, but more on the services side. As you can imagine, having our folks getting into labs right now is fairly difficult, and there's a portion of that would be on demand for servicing equipment. And so we would see that probably ramp up a little slower in Q2, but then ramp back up to normal latter half of Q2 and into Q3 and Q4, at least that's our current assumption. As Mike mentioned, we've been in close contact with our teams in China and have been watching the order flow, and the order flow to date is across both ACG and LSAG as well as our DGG business, which is a smaller piece, tracking to our expectations.

Okay. And any sense on terms of the exposure that you have in China? And could that mix change given the -- in the next quarter or so?

No. I don't anticipate a major shift. We've largely got a instrument-heavy business in China relative to the rest of the business anyway. But our opportunity really lies in the consumables and service over time. So I don't see a dramatic change in Q2 or in the back half of the year.

Yes.