Agilent Technologies, Inc. (A) Q4 FY2025 Earnings Call Transcript & Summary

Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agilent Technologies, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you, Tejas; you may begin the conference. .

Thank you, and welcome, everyone, to Agilent's conference call for the fourth quarter of fiscal year 2025. As many of you know, I recently joined Agilent after after a fun 15-year on Wall Street and I'd just like to say how excited I am to be joining the team at such a pivotal time in our journey. With me on the line are President and CEO, Padraig McDonnell; CFO, Adam Ellenof; and Rodney Gonzalve. Vice President, Controller and Principal Accounting Officer, who served as interim CFO until Adam arrival. Joining the Q&A will be Simon May, President of the Life Sciences and Diagnostics Markets Group; Angelica Riemann, President of Agilent CrossLab Group; and Mike Zhang, President of the Applied Markets Group. This presentation is being webcast live. The press release for our fourth quarter financial results, investor presentation and information to supplement today's discussion along with a recording of this webcast are available on our website at investor.agilent.com. Today's comments will refer to non-GAAP financial measures. You'll 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 and references to revenue growth are on a core basis. Core revenue growth is adjusted for the impact of currency exchange rates and any acquisitions and divestitures completed within the past 12 months. Guidance is based on forecasted exchange rates. During this call, we will 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. Agilent 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'd like to turn the call over to Padraig.

Thanks, Tejas, and hello, everyone. Thank you for joining today's call. Before I talk about our results, I want to start by introducing Adam Elinoff, our new CFO, who officially joined Agilent last week. Adam joins us after a distinguished tenure at Amgen where he advanced through a series of finance, strategy and transformation leadership roles over a total of 19 years, most recently serving as Vice President of Investor Relations and Treasurer. I'm looking forward to leveraging Adam's expertise and strategic planning and M&A and its commitment to cross-function collaboration will be invaluable to Agilent in the years ahead. Adam, would you like to say a few words?

Thanks, Padraig. I'm thrilled to join Agilent at such an exciting time. My interactions with the leadership team over the past few weeks, both within the finance function as we contemplated the guide and with the broader team have only reinforced my optimism for what lies ahead. I'm looking forward to working with the team to drive growth and innovation, advanced operational excellence and preserve Agilent's history of financial discipline.

Great to have you on board, Adam. I also want to take a moment to express my sincere appreciation for [ Rodney ] stepping in as Interim CFO over the past 4 months. His long distinguished career at Agilent demonstrated he was more than capable of helping us bridge this important transition. Now let me talk about the Q4 results. It was another strong quarter. The Agilent team executed exceptionally well, delivering the solutions our customers need in a market that is showing continuing signs of normalization. In the fourth quarter, Agilent reported $1.86 billion in revenue, growing 7.2% on a core basis, our sixth consecutive quarter of core growth acceleration. This performance came in above the high end of our guidance. Our customer force approach is paying dividends with excellent top line results that compare very favorably with our peers. Momentum remains broad-based across the portfolio, supported by strong LC/MS demand and share gains. CDMO upside, solid double-digit contributions in key regions and a replacement cycle that continues to accelerate. These trends reflect our structurally resilient portfolio and performance that tracks above the broader market. At the same time, our Ignite operating system continues to improve the effectiveness and efficiency of our organization. Ignite helped delivered more than 200 basis points of sequential margin improvement compared with last quarter, while [ funding ] incremental performance-driven variable pay. The bottom line result was 4 quarter earnings per share of $1.59, above the midpoint of our guidance. Simply stated, in a dynamic environment that continues to evolve, the Agilent team delivered for our customers and our shareholders. As we close the 2025 fiscal year, I want to highlight 4 key dimensions where we made exciting progress this year and that will drive our growth for the future. First, the innovative products and services that we develop with a customer lens to create differentiated value. Second, the extraordinary customer intimacy and trust our unified sales and service organization creates that unlocks high-quality lead generation and fund conversion. Third, the increased capabilities and level of talent throughout Agilent. Fourth, the Ignite operating system that enables us to effectively combine these elements to drive long-term growth and maximize value for customers, shareholders and employees. Let's start with innovative products and services. The success of our customer-focused innovation was on display throughout the year with products and services that differentiate us from the competition and drive our growth by solving real customer problems. This includes our next-generation Infinity III that is delivering as much as 30% improvement in productivity for our customers. Infinity III drove double-digit LC growth in the second half of the year that is underpinned by customers returning to buy large volumes of additional units because of their great experiences. Our Pro iQ LC/MS also has seen an amazing ramp. Its unique value proposition for [indiscernible] Biotech is driving strong customer interest as well as sales that are well ahead of our already robust expectations. The summer launch of our Pro iQ drove overall [ single quarter ] LCMS growth of more than 50% in the first full quarter. And last month, we introduced our Altura bio-inert LC column. Customers are rapidly adopting the Altura column and the columns is an order of magnitude greater than past column launches. This is a clear indication of just how important increased sensitivity and resolution are in key applications that support oligos and GLP-1s. These results also highlight new product launch excellence across the organization. When it comes to artificial intelligence, we are actively using AI to accelerate our innovation engine and drive operational excellence. For example, AI generates 80% of our engineering drawings based on product specifications and customer needs, thereby increasing design productivity and reducing cost and design cycle times by 75% for our GC products. In our operations, our order fulfillment team is leveraging agentic AI for testing, inspection and control to eliminate redundant shifts, reduce downtime and improve quality. Our second key dimension, extraordinary customer intimacy centers on a cornerstone of continued success, leveraging our unified sales and service model to maintain lasting customer relationships. Our commercial team members are uniquely positioned as trusted customer partners. Agilent's commercial model is a unified end-to-end organization to provide presales consultation, a modern and easy-to-use e-commerce platform and a highly experienced deep technical post-sales service and support that ensures customer success. Our field service engineers build long-term relationships with our customers by partnering with them to solve their most critical problems. Those relationships provide highly valuable insights that fuel a vital and growing portion of our demand generation programs. Insights from our service team now accounts for 30% of all sales leads. And these leads come with an order conversion rate that is more than double that associated with the rest of the sales funnel. Because of our uniquely deep connection with our customers, it will come as no surprise that they consistently rate Agilent services as best-in-class. We don't take this privileged position for granted. That's why we continuously implement new ways to enhance customer intimacy. In terms of AI and customer intimacy, we are working to deploy AI within our CRM to support our sales team with predictive insights, automating tasks and proposing personalized content in service of our customers. We're also using virtual agents to complement on-site support in select markets to resolve customer issues more quickly. The third dimension is our increased capabilities and level of talent throughout Agilent. We've leveraged our deep bench of in-house talent and complemented it with external hires that bring fresh perspective and domain expertise. At an executive level, in addition, Adam, we brought on [ Megan Hansen ] to lead our HR team to help us build on our strong culture. August Specht joined us from Thermo Fisher as our Chief Technology Officer, brings deep scientific knowledge and analytical technologies and a proven ability to lead innovative R&D teams. And most recently, Joydeep Ganguly from Gilead to drive world-class manufacturing while leveraging our global scale to realize increased efficiencies. While these individuals are important and visible additions to our leadership team, all Agilent employees are focused on accelerating the pace of innovation driving superior execution and most importantly, delighting our customers. Finally, we are bringing together these foundational strengths through our Ignite operating system, our fourth key dimension. We launched Ignite at the start of the year to improve the pace and quality of our execution and to offer in a new mindset that leverages the power of the enterprise to maximize both growth and stakeholder value. Some examples of Ignite's early success include enhanced top line growth through the creation and implementation of an enterprise pricing program that drove performance across the year, more than doubling our price growth compared to FY '24. Faster decision-making and improved efficiency by reducing layers of bureaucracy, meaningful procurement cost savings through globalization of vendor contracts that leverage increased scale for additional negotiating power. And we saw the power of Ignite in real time this year as it enabled the immediate creation of our tariff task force to drive a rapid and coordinated response to global tariff changes. The cross-functional task force rapidly developed a unified strategy and executed a suite of interconnected projects that greatly accelerated our tariff mitigation efforts. As a result, we are highly confident that we will fully mitigate current tariffs in FY '26. Also Ignite has already delivered well over $150 million in annualized savings. The Ignite operating system is able to quickly assemble knowledge from across the organization, develop a thorough and actionable enterprise plan and actively drive implementation and quantify outcomes. This is critical as Agilent continues to evolve. Finally, and this is important, Ignite has strengthened our organization readiness to identify, acquire and integrate attractive assets. Our integration of BIOVECTRA is one example. It's been a highly productive year for Agilent. We've laid a robust foundation upon which we can drive long-term differentiated growth and value. Now let me share some additional details of our Q4 results, starting with our end markets. We continue to see signs of improvement in the Pharma market. The Agilent team was able to leverage those conditions and our customer-centric solutions into an excellent 12% growth during the quarter. We also saw a nice pickup in spending among our biotech customers. That spending grew in the low 20s during the quarter, a low double digits ex CDMO, which was led by our large accounts. Our customer-focused solutions for oligo therapeutic developments, peptide like GLP-1, an Infinity III drove our performance in Pharma contributing to low double-digit growth in LC and mid-teens growth in LC/MS platforms. That performance is above that of our peers and plans to share gains across the replacement and greenfield opportunities. Our specialty CDMO business continues to be a differentiated growth driver. It represents nearly 20% of LDG revenue and grew more than 40% on a core basis during Q4. During the quarter, commercial programs drove 60% of our NASD revenue, the capacity increases we implemented at BIOVECTRA in the third quarter enabled a record 4 quarter that was in line with our elevated expectations even as the intra-quarter cadence shifted revenue to October. Chemical and Advanced Materials grew 7% as we continue to see strong demand in Americas and Europe. Chemicals customers continue to invest in capital equipment to meet the demand driven by reshoring of downstream customers in the semiconductor market, increasing global competition for critical resources and enhanced focus on regional supply chain security. Diagnostics and Chemical continues to be a durable mid- to high single-digit performer with 7% growth in the quarter. We're excited about the upside potential here as our new Dako Omnis family penetrates medium and low throughput labs. Environmental and Forensics grew 9% as the approaching implementation of a revised EU drinking water directive drives investment in new capabilities. Also, commercial labs and forensic customers in the Americas are moving quickly to spend the capital budgets before year-end even as U.S. government spending in this end market remains muted. Our market-leading PFAS business grew high single digits in Q4 and almost 40% for the year. Despite meaningfully tougher comps and the U.S. EPA headwinds we mentioned last quarter. Environmental use cases remained a bulk of our PFAS revenue though growth is increasingly coming for our end markets such as food and CAM. Our business in the food market finished strong year with a growth of 7% in the quarter. Finally, Academia and government, our smallest end market, at 7% to 8% of annual revenue declined 10% in the quarter. To no one surprise, federal spending reductions had an increased impact on instrument spending in the U.S. In summary, our growth across major end markets continues to run ahead of our peers, supported by stronger LC/MS adoption, healthy contributions from specialty CDMO platforms and solid traction in applied workflows. We continue to see nice momentum in our instrument portfolio with instrument book-to-bill exceeding 1 for the seventh consecutive quarter. We are in the early stages of a normalized replacement cycle and gaining share against the competition, plus the growth of our installed base enables robust attach rates for consumables and service offerings to lend meaningful durability to our top line strong recurring revenue. As we look to FY '26, our priorities remain clear: advance our Ignite operating system, sharpen commercial execution, capture opportunities from improving end markets, innovative new products and a multipronged replacement cycle. In our end markets, we expect continuation of positive trends in Pharma. This will be enabled by improved visibility around pricing and a stabilizing tariff environment as well as the very early stages of pharma reshoring that we anticipate could start to materialize in orders towards the end of the year. And while it's too soon to call an inflection, the accelerating pace of M&A and improving funding environment into October bodes well for small and midsized biotech customers in FY '26. We remain bullish on demand outlook for a specialty CDMO pharma services with strong market momentum in our key modalities, like siRNA and GLP-1s. We expect to drive mid-teens growth in the coming year as we get ready for opening new capacity in 2027. We expect Applied Markets will continue to grow as customers adapt to shifting macro conditions and structural drivers like the expansion of PFAS testing and semiconductor reshoring support durable long-term demand. In diagnostics and clinical, we see continued strength as testing demand growth and our expanded Dako Omnis offerings enables new placement opportunities. In our smallest end market, Academia and Government, we are not expecting a meaningful recovery in FY '26 as ongoing U.S. federal spending headwinds seem to be unlikely to abate soon. Putting it all together, incorporating the stronger baseline comparison for FY '26, we're starting the year with an expectation of 4% to 6% core growth. We believe this range is a prudent initial guide that takes into account secular growth drivers. This includes instrument replacement cycles, demand for our specialty CDMO services [indiscernible] specific needs in GLP-1 and PFAS and Pharma and semiconductor reshoring. This allows for an evenness in ongoing recovery dynamics across our markets. We anticipate these growth drivers reinforced by Ignite to provide continued momentum. We also expect to deliver 75 basis points of operating margin expansion in FY '26 at the midpoint. This target allows us to make critical investments to drive innovation, expand our digital commercial capabilities and prepare for opening of our new CDMO capacity in 2027, all while absorbing incremental material costs driven by tariffs and assumptions for a steady end market recovery. This margin expansion translates into 9% operating profit growth at the midpoint, demonstrating the strong operating leverage inherent to our model. For FY '26 earnings per share, we're guiding 5% to 7% that includes an EPS growth headwind of 3 percentage points from the onetime step-up in tax rate reflecting the new global minimum tax regulations. Adjusted for this tax dynamic, underlying EPS growth would have been in the high single to low double-digit range. Our financial discipline remains unchanged. We are deploying capital where it delivers the highest long-term value balancing investments in innovation, M&A opportunities as well as strategic capacity expansion while returning capital to shareholders. Now let me turn it over to Rodney who will provide additional details on the fourth quarter results and our guidance for next year.

Thanks, Padraig, and good afternoon, everyone. In my comments today, I'll provide additional detail on revenue in the quarter as well as walk through the income statement and cover other key financial metrics. I'll then cover our new full year and first quarter guidance. Q4 revenue was $1.86 billion, above the high end of our guidance. On a core basis, we posted growth of 7.2%, while reported growth was 9.4%. Currency had a favorable impact of 0.9% while M&A contributed 1.3%, the BIOVECTRA acquisition is reflected in core growth starting in October. At a business segment level, LDG grew 11%, well ahead of guidance, bolstered by the strong performance in our LC and LC/MS instruments and robust CDMO results. [ AMG ] grew 3% as expected, led by high single-digit growth in GC and GCMS as we see increasing benefit from the instrument replacement cycle in those platforms as well. ACG grew 6%, in line with our guidance with high single-digit growth in the rest of the world offset by mid-single-digit declines in China. On a geographical basis, both the Americas and Europe saw a healthy 11% growth with broad end-market strength outside Academia and Government. China declined 4%, and the rest of Asia, ex China, grew 4%. Results in China were below our low single-digit growth expectations, though revenue contributions remained stable around $300 million per quarter. India grew in the high teens in Q4 with double-digit growth in pharma and greater than 20% growth in each of our applied markets. This balanced strength across our geographies which saw us deliver double-digit growth ex China remains a key differentiator of our performance profile. Gross margins in Q4 improved sequentially by 100 basis points and came in at 54.1%. On a year-over-year basis, they were down 100 basis points due to tariff headwinds. Operating margin was 27.2%, up more than 200 basis points sequentially, driven by leverage on volume, strong pricing and tariff mitigation. We delivered this result despite absorbing an incremental 60 basis points sequential headwind from performance-driven variable pay. Absent the variable pay dynamics that reflect better business conditions and our strong execution, operating margins would have expanded by 270 basis points over the prior quarter, well above our guide of 230 basis points of sequential expansion. On a year-over-year basis, operating margins were down only slightly due to tariffs. Now moving below the line. We had $10 million in other income, while our tax rate of 12% was as expected. Finally, we had 284 million diluted shares outstanding in the quarter. Putting it all together, Q4 earnings per share was $1.59. That was above the midpoint of our guidance and grew 9% from a year ago. Now let me turn to cash flow and the balance sheet. Operating cash flow was $545 million in the quarter, and we invested $93 million in capital expenditures. We purchased $85 million in shares and paid $70 million in dividends during the quarter. But recently, we increased our industry-leading dividend by 3%, and we ended the quarter with a net leverage ratio of 0.8 pointing to our robust balance sheet that leaves ample room for capital deployment optionality. Now let me share some additional details on the outlook for next year and the guidance for our first quarter. We expect revenue to be in the range of $7.3 billion to $7.4 billion on a reported basis. This represents an increase of 4% to 6% on a core basis as currency is expected to be a 1% tailwind during the year. To help with your models, I want to provide you with additional details on expectations for growth in our end markets during the year. Starting with pharma, we anticipate high single-digit growth, improving market conditions and the strength of our offerings in key high demand applications create a favorable environment. In the applied markets, we expect mid-single-digit growth in Chemical and Advanced Materials, low single-digit growth in Environmental and forensics and flat growth from food where we have especially difficult year-on-year compare against a strong China stimulus tailwind in FY '25. In Diagnostics and Clinical, we anticipate mid-single-digit growth. In Academia and Government, we are guiding to a low single-digit decline as we don't foresee meaningful recovery in the U.S. By business segment, we are guiding both the Life Science and Diagnostics Markets Group and the Agilent CrossLabs Group to grow mid-single digit and the Applied Markets Group to grow low single digit in FY '26. Finally, by geography, we expect the Americas to lead the way with mid- to high single-digit growth, while Europe and Asia ex China grow mid-single digits, building on the momentum we saw in the back half of the year. In China, we are incorporating a flat assumption for FY '26, consistent with what we saw in China this year. Based on our latest expectations around stimulus timing, we are taking a prudent approach and substantially moving stimulus benefits from our FY '26 revenue guidance. Moving down the P&L. We expect to deliver 75 basis points of operating margin expansion in FY '26 at the midpoint. We anticipate a more gradual start given typical seasonality and the lack of tariff headwinds in the first half of FY '25 with momentum building through the year. Reflecting the latest global tax regulations, we see our tax rate increasing to 14.5%, a 2.5% increase compared with last year. We also expect $30 million in other income, and [ we are planning any ] dilutive repurchases to maintain 284 million diluted shares outstanding for the year. Putting this all together, FY '26 non-GAAP earnings per share are expected to be between $5.86 and $6, representing earnings growth of 5% to 7%. For your P&L modeling, let me share some additional expectations we have incorporated into our guidance for the year. Because of Ignite, we expect pricing to continue to improve with an opportunity to grow well above 100 basis points. This guidance also incorporates achieving full mitigation of existing tariffs over the course of the year using cost savings and pricing actions. As is typical, we expect to see substantial sequential improvement in operating margins over the course of the year. Finally, we anticipate operating cash flow will be in the range of $1.6 billion to $1.7 billion and expect to invest $500 million in capital expenditures. To help with phasing, we are expecting revenue seasonality similar to FY '25. Meanwhile, earnings will be slightly more biased towards the second half given the tariff impact on the P&L in the first half. Now moving to the first quarter. we expect our reported revenue to be in the range of $1.79 billion to $1.82 billion. This represents an increase of 4% to 6% on a core basis, while currency is expected to be a 2.5% tailwind. First quarter EPS guidance is $1.35 to $1.38 with 285 million diluted shares outstanding. Now I'd like to turn the call back to Padraig for closing comments. Padraig?

Thanks, Rodney. As you've heard, we've built excellent momentum across FY '25 in a dynamic environment. Our distinct growth drivers under Ignite operating system are fueled for success. We are poised to benefit from a broadening end market recovery, win share and deliver resilient above peer growth and margin performance over the long term. With our innovation engine accelerating, our focus on customers intensifying and our best-in-class commercial team executing, we are entering FY '26 from a position of strength. Thank you all for your attention. I'll turn it back over to Tejas for Q&A. Tejas?

Thanks, Padraig. Operator, can you please share the instructions for the Q&A? .

[Operator Instructions] Our first question will come from the line of Tycho Peterson with Jefferies.

Padraig, I'm wondering if you can comment on BIOVECTRA. You guys had guided, I think, closer to $35 million and came in around $22 million. So maybe just talk about dynamics there. And then you're taking CapEx up $100 million. Is that all CDMO?

Yes. So we're very pleased with BIOVECTRA came in strong for the year, driven by GLP business. So Q4 was a good -- was an easy comparable, pleasing nevertheless. So we came in against what we [ talked ] for the year. We have key molecules planned for '26. We're very, very happy about the book of business we have for BIOVECTRA. It was an outstanding integration from our side, which bodes well for future M&A as well. On the CapEx side, Adam, do you want to give some color? .

Sure. Thanks. So the incremental $100 million investment is really around incremental NASD capacity as well as incremental consumable expansion. .

Okay. And then follow-up on margins. Obviously, a focal point, especially coming out of last quarter. Maybe to talk on the 75 basis points you're guiding to, the gives and takes there. And if the top line ends up at the high end, could you do better?

Yes. So on margin, I think we have a prudent margin for '26 set in, and we're going to go through some of the the differences on the call. But Adam, do you want to go through some of the ideas you have on margin?

Sure. So if you think about the margin for '26, at the midpoint, we're guiding 75 bps improvement on a year-over-year basis. And that's really driven by Ignite pricing optimization, some operational efficiencies that you see in the number, and that includes some of the tariff mitigations and then volume growth. The other piece, which I think is important, which I want to highlight is this more than offsets inflationary impact, and we're making incremental investments in growth and innovation as well as adding strategic capacity. So let me just quickly talk about those incremental investments in growth because I think it's something that Padraig talked about with our capital allocation strategy. So one, we're making digital advancements for our commercial teams and customers. The second, adding AI across the enterprise, and we're really being focused there on a number of projects. And then importantly, we're continuing to invest in our core R&D portfolio for our products and with August coming on, we're trying to make sure that we're investing in the most high-impact projects.

Our next question will come from the line of Patrick Donnelly with Citi.

Padraig, maybe just on the general tone from biopharma customers in recent months? Obviously, there were some big announcements. It sounds like things picked up a little bit, both on pharma and biotech. Can you talk about maybe specifically on the instrument side, what you've been seeing? Again, it does sound like biotech is loosening up a little bit for you guys. It sounds like pharma is maybe a little more constructive. Maybe just talk about what you're seeing there. And then even if you get into year-end here, is there already signs of what the budget flush could look like? What are you guys seeing there? Could that be a little more normal than past years? What do the conversations look like there?

Yes. Thanks, Patrick. So pharma, our largest market, grew 12% overall in the quarter. And what we're seeing is the [ MFN ] tariff deals have really reduced uncertainty for our customers. Our biotech grew in the low 20s or I would say, low double digits ex CDMO and the U.S. biotech recovery is starting in well-funded large caps, releasing capital spend. I think what you're seeing in the small to mid biotech, you're seeing improved funding backdrop. And you're seeing that with like a recent M&A exits, although it really is too early to call an inflection point on that side. But what's driving this is really, I would say, our strong momentum and our innovation around Infinity III is coming in extremely well. And Pro IQ LCMS resonating extremely well. We had 50% growth for the single quad in Q4. And all of these things lead -- bode well for the future, and that was backed up with our Altura bio inert columns. So I would say on the -- in terms of the [indiscernible], we have good visibility and it's more of a typical calendar year-end in [ budget flush ]. So we're expecting that to be more normalized.

Okay. That's helpful. And then maybe on the NASD business, it sounds like that's doing well, double-digit growth [ pretty safe ] for '26, I guess, given what you're seeing. Can you just talk about the visibility there? Is that fully booked out through '26. And then you talked about the expansion, the capacity expansion plans as the year goes. Can you talk about, I think it's Train C and Train B, when those come online, where those are leading towards in terms of market need, market indication. Is there an impact to margins as those ramp? I know NASD is accretive on the op margin side. But as those trains open up, does that change anything? I know there's a few questions [indiscernible] that in there, but that color would be great.

Yes. Thanks, Patrick. So I'm going to start off and hand it over to Simon. So we're really pleased with our CDMO results in FY '25, and we're excited how the book of business is building for '26 with recent wins and we're seeing movements towards commercial programs. But Simon, do you want to give some more color on that? .

Yes. Again, I think we've had a very strong year in FY '25. We've been very pleased with the execution, very pleased with the way that the order book has been developing. We've seen a lot of further reasons to validate the siRNA modality. Just in the last couple of weeks, there was another FDA approval. So we think that we are really well positioned here in coinciding the strength of the modality, the future outlook of the modality and our competitive position in the market. So as we look ahead to FY '26, I'd say we've got a very robust order book as we enter the year for pretty much the full year. So I think it's mainly a case of execution on existing capacity in FY '26. But then as the question indicated, we've got the capacity expansion starting to see the finish line coming [ to side ] there towards the end of '26 and we're looking to go live in early mid-part of '27 with Train C. And as is always the case with the capacity expansion, there will be dynamics there around amortization and growing into the skin. And I think we've got the basis pretty well covered there in '26 and we're well ahead in our thinking where that's in that respect in '27.

Our next question will come from the line of Dan Leonard with UBS.

My first question is on China. Can you talk about the downside variance on China in the quarter? What were the drivers of that in performance by end market perhaps?

Yes. Thanks, Dan. So Q4 in China was -- we were down 4% and that was below our low single-digit August guide. But all markets were down low to mid-singles except A&G, which was up 5%, benefiting for some academic stimulus. [indiscernible], I think, was -- were in line with our key peers. But mix, I think, is an important factor, Dan. So first of all, we saw growth in biopharma and CAM, but we saw declines in food and environmental. And I would say, Pharma, small molecule was stable. . But overall, it's a very stable business. You're going to have quarters, some swings or variance between quarters, but we're seeing sustainable $300 million per quarter as we go forward. And we expect FY '26 to be flat like -- FY '25 was flat. I will say, though, if you look at our business, given our long-standing customer relationships, our recent win rates and our scale and our visibility into our direct channel, we're very confident in terms of what our market share being stable in '25. And of course, we're going to continue with that in '26.

Appreciate that. And then a follow-up, org. I think you mentioned that there were some pharma reshoring assumption in your guidance for 2026. How important is that to your forecast? Any way to put some context or dimensions around that.

Yes. So we're in a lot of conversations with some key pharma companies around reshoring and talking about what it means for their R&D and tech investments. They're focusing on [ shovels ] in the ground under lab equipment needs, and we expect by the end of '26 that we'll get some orders in that area. So we're estimating the opportunity of about $1 billion by 2030. But we're limited in seeing the order benefit at the end of '26. We see an overall $1 billion addressable market opportunity for Agilent about in -- by 2030, and we expect about 1/3 of that. But overall, I think there's upside in the forecast around reshoring.

Our next question comes from the line of Doug Schenkel with Wolfe Research. .

I just wanted to start on GLP-1s, how big is this business? I'm thinking it's probably around $100 million coming out of last year. And then I guess, if that's right, how much of it is LC versus services. What's your positioning with generics coming online in different geographies like in India and China, Canada, just to name a few. And how should we think about the growth outlook for '26?

Yes. Thanks, Doug, so Agilent's GLP benefit really comes for 2 forms: our CDMO business, largely around BIOVECTRA, where we're working on synthetic peptide manufacturing and our analytical tools like our LCMS and Altura columns, supporting QA, QC solutions. So we're actively involved with many of the GLP-1 manufacturers. And of course, on the analytical tool side, Infinity III is a really key component. If you look at Q4, revenue was about $40 million for GLP-1. That's split about 60% for BIOVECTRA, 40% for the analytical lab. And I would say, we saw about a 20% growth rate in the analytical lab in Q4 and BIOVECTRA added about $25 million. If you look overall in '25, I think the GLP-1 revenue is about $130 million, split evenly between both the BIOVECTRA and the analytical lab. And if you think about the analytical lab, we grew 40% in the analytical lab and GLP-1. Altura columns really helping towards the end and of course, the Infinity III. So overall, it's a really important business for us, and we're seeing a long runway into '26 on both sides of the business. India is a particularly interesting part of where you see the GLP-1, where you see the patent cliffs coming, and we've been doing a lot of investment in India around our experience center for customers, workflow help for our customers. So we expect in India we're going to take a lot of share as it goes into '26.

All right. Super helpful, Padraig. One more on a completely unrelated topic. The academic and government end market, I think you guys were down 10% constant currency in the quarter, if I updated the model, right? I think this is a little bit surprising given seasonality and the fact that there was a little more certainty about the funding environment, maybe the offset was the government shutdown. I'm just curious if you could tell us a little bit about what you saw over the course of the quarter and heading into calendar year-end. And happy Thanksgiving, everyone.

Yes. Thanks, Doug. So academia and government declined about 10% for Q4. That was a slightly bigger decline that we put out in guidance. I would say ex U.S. very stable sequentially. However, we -- I think we faced tougher year-over-year comps with Americas down mid-teens. And I would say the rest of the world was down mid-single digits. U.S. federal spending reductions was really the material impact. The instruments were down mid-20s for the Americas. While I would say chemistries and services were resilient at low single digits for the Americas, so we're seeing a reasonable lab usage. I would say on the U.S. government shutdown that you described or Doug, we saw no material impact from that. And we're expecting continued softness in FY '26 in Americas as U.S. federal spending reductions continue as we go forward. But I will say it's our smallest market, and it's about 1% of our overall business in the U.S. and the NIH spending.

Our next question will come from the line of Brandon Couillard with Wells Fargo.

I mean if you look at the [ ACG ] business, you said all reasons that ex China grew high single digits in the fourth quarter. But I think you only talked about mid-single-digit growth in '26. Do you expect to see a little bit a bit as the instrument cycle continues to escalate next year? Or are you just sort of being conservative here to kind of unpack how you're thinking about AcG in '26

Yes. Yes. Thanks for the question. I'm going to kick it off, and I'm going to hand it over to Angelica like. So we saw healthy high single-digit growth ex China in ACG. We continue to grow in our installed base and ramping attachment rates, and we're confident that ACG is well positioned to really sustain the long-term recurring revenue ramp. It was really a solid quarter and we saw 6% growth in Q4 at the high end of our guidance, and that was 8% ex China. But Angelica, do you want to give some more color?

Yes. Sure. Brandon, so we're very excited by the continued growth that we're seeing in ACG, largely driven by the size of our installed base, but also the customers' utilization of assets in their laboratory. We've -- we've seen some great adoption of our recent chemistries launch, the Altura column. We also launched recently a Remote Plus services offering, which allows us to support customers and build stronger relationships with customers that may have capabilities in-house, but want to leverage the capabilities and the know-how of the Agilent field service engineers to be able to get them back up and running when they have unplanned or unexpected downtime. And we're still seeing a great amount of interest in improving lab productivity. So we're seeing continued adoption of our Open Lab chromatography data system and our enterprise content management capabilities as customers are looking to better manage the data coming out of their instruments, and we're seeing some good growth in our automation. So when you look across the portfolio, we have a lot of things to take as momentum going into FY '26. And certainly, as we see tech refresh and we see replacements of instruments in the laboratory, those provide long-term growth as those insurance continue to be used and we'll be connecting to those with our recurring revenue streams accordingly.

That's great. And then I'm not sure if this is better for Rodney or Adam. Just a clarification, what was net pricing in the fourth quarter? I think you talked about 100 basis points in fiscal '26 but there could be upside to that maybe from some of the AI tools. Can you just clarify what you're penciling in for pricing next year?

North of 100 basis points.

And in the fourth quarter, Rodney?

In the fourth quarter, we were closer to 150 basis points. .

Our next question will come from the line of Vijay Kumar with Evercore ISI.

Congrats on the nice print here. My first 1 on order commentary here in the quarter, hybrid orders and backlog, I'm curious. I know last quarter, you were speaking about stimulus -- China-related stimulus, maybe some pharmacopia updates out there. Some curious if any of that is showing up in orders?

Yes. So I can talk, our book-to-bill was greater than 1. Orders continue to, I would say, continue to be positive as we go through the quarter. It's been very stable through the quarter in terms of our order rate and, of course, a win-loss ratio, et cetera. I would talk a little bit about stimulus. The first one, the [ SAM ] tender. It shifted, I would say, from Q1 to later in the year in '26. And we're expecting roughly about 10 million [ GACC ] orders in Q1 of '26, which was smaller than expected. But that is excluded from our '26 guide adding on the -- I think, in the abundance of caution, we're excluding it from the '26 guide. So if anything comes in on that side, it will be upside. And I will say that we have a very strong track record and a win rate with stimulus in China, winning 50% of the [ port round ] tenders. So we're seeing how the year plans out and staying very close to our customers on that.

That's helpful. Then maybe my follow-up on margins. Gross margins were a little light in Q4. What do you assume in for gross margins in fiscal '26? Should we see gross margin expansion. Could you just quantify what is tariff versus FX dynamics on gross margins?

Rodney, do you want to take this one?

Yes, I'll take this one. So we're not guiding gross margins, but we should see gross margin expansion. Again, from a tariff standpoint, we do think we'll be fully mitigated on tariffs in the second half, and that will be a mix of both pricing and cost reduction activities. So that in itself will be helping help the margin picture along with pricing and leverage. The other thing that was impact for this year has been BIOVECTRA, now that, that's been annualized. It won't be necessarily the impact -- a drag to the gross margin line.

Our next question will come from the line of Jack Meehan with Nephron Research.

I had a couple of questions. I just wanted to unpack some of the competitive dynamics going on in the LC business. So the first one is in LDG. There were a few stats thrown around. I think I heard double-digit growth in the second half for LC, LC/MS instruments. What was the fourth quarter number? Was it also double digit? And I heard the Pharma data point. Can you just talk about how that business is doing in some of the other end markets?

Yes. So in the fourth quarter, we saw low double-digit growth in LC and actually mid-teens growth in LC/MS. So a very strong performance. And as we talked about the replacement cycle before, we're in the early innings of a replacement cycle, and that's accelerating with a lot of adoption of the Infinity III, some initial purchases a number of quarters ago and customers coming back for more on that one. I would say, when you look at the independent market share data, we're gaining share in both those areas. So that's very good to see as we go forward on it. And I would say, overall, it's the new innovation but execution by the team, but also an improving pharma sentiment, particularly with having reducing certainty around the MFN and tariffs. The other thing that we're really seeing in pharma across the globe is reshoring is not just happening in the U.S., but supply chains are being consolidated in different geographies. People are looking for capacity expansion, we're the benefactor of that in QA/QC downstream testing. And that will continue, I think, throughout the year. And of course, as reshoring comes on online in '27. But I don't know if you want to add any more color on that, Simon.

Yes. I think you covered pharma really well, Padraig. A few other key end markets, mid-single-digit growth in food. We saw declines in academia and government, consistent with what we've been seeing elsewhere. Environmental and Forensics was growth in the 20s. And again, in terms of the growth drivers, all the key things that we thought about already the continuing traction we see with Infinity III is just phenomenal. Likewise, the Pro IQ market acceptance is really terrific. And in terms of replacement cycle, we still see that we're kind of early to mid innings here. I think we've knocked off the lowest hanging fruit. But as we continue to iterate the productivity features of our lab assist software. We see that the Infinity 3 value proposition will continue to be very strong, and we think there's still plenty more legs left in that.

Our next question will come from the line of Dan Brennan with TD Cowen.

Congrats on the quarter. Maybe, Padraig, just when you think about the guide, for '26 at a high level, the 4% to 6%, you've given a lot of color on segments and customers. But if you zoom out, I think our [ synergies ] here around 5%, the guide next year incorporates that at the midpoint again, and you've discussed a lot of momentum building. So do you feel like the guide balances, the puts and takes around the globe? Or do you think there's some conservatism more so baked in? Just can you give a sense on kind of the overall kind of [ 4 to 6 ] side?

Yes. So I think, first of all, we're set up for success really by innovative products coming online and the ones that have come online are unified sales and service connection with the customers a winning team and Ignite wrapping it together. So as you said, we have good momentum coming out of the year. Key markets are improving. The top line 4% to 6% is prudent, but I think is appropriate given macro uncertainty. And of course, we're coming into some tougher compares. And I would say, if you look at the high end of our guide, if you see the expecting of biopharma recovery to continue and broaden, that's going to be positive. As I said before, the China stimulus is not in the guide. So that would be that would be positive as well. And we're making investments in the business, right? So we've invested a lot in the business, and we're going to continue to do that, particularly in innovation and digital, as Adam talked about. So but we want to see a small to midsize cap biotech to continue to improve. We're seeing the early shoots on that one. And of course, A&G, academia and government is an area that we're watching. We want to see that stabilize and relative to our current expectations of a low single-digit decline. So overall, when you put it together, strong momentum coming out of '25 and in '26, we're watching the different portions of it.

Great. And then maybe just 1 on the GC upgrade cycle. Just you 10% growth in the quarter overall, which was solid. I think you said mid-single digit for '26, can you gave some color. Just any more color on the upgrade cycle as they're progressing versus expectations? Is it ratable in '26? Just what's kind of assumed on that front?

Yes. No, thanks. I'm going to start off and hand over to Mike here in the room. So first of all, I think we had high single-digit growth in GC, which was really great. We talked in the last quarter about the start of a GC replacement cycle, which is generally a longer replacement cycle than the LC. But Mike, do you want to give some color on the replacement cycle? .

Yes, Padraig McDonnell. First of all, thank you, Dan, for your question. The replacement cycle for the GC and [ GCMS ] is very important for us. And here is what we've seen. The first of fall, I think the cycle is being normalized. It was under pressure for the last few years because of the global challenges, uncertainties, but we're seeing the pace is coming back and normalized. That's number one. Number two, I just wanted to know, we are the master leader. We have got a very large installed base. And as you can imagine, it's actually aging, and we have a lot of tenant demand, which will create a sustainable tailwind for us in the coming year. Last thing I want to highlight, now under [indiscernible] transformation, we accelerate our innovation. So very excited about the new product coming out, and that will further sustain this revenue cycle. So -- in short, I think there are big opportunities and the cycles to be normalized, and we have tremendous innovation on our way to sustain it.

Our next question will come from the line of Michael Ryskin with BofA.

Great. Maybe first one on tax rate. You talked about the higher tax rate for 2026, talking about global tax. Just curious, we've been talking about tax rate potentially drifting higher for a while, it seems like it's a pretty big jump this year. Is this something new that's developed recently? Or is this just sort of the same global tax because we've been talking about for a while? And then just any potential to offset that as you go through the year? Just how do we think about that going forward?

Yes. Thanks, Michael, for the question. I'm going to hand this one over to Adam for some commentary.

Sure, thanks. So our tax rate is increasing 250 basis points, and it's really driven by a combination of things that they take time to come together and now they have. One of them is Pillar 2, the other is [ OB3 ] and then there's other jurisdictional changes. And so as we've kind of put them together, in our tax provision, we've now solidified on this 250 basis point increase. I would -- as you think about it going forward, we have no information that this would change meaningfully going forward. But the thing I want to highlight and point out is that we're more than offsetting this incremental tax burden, and that's really through operating performance above the line. And so we'll continue to seek ways to further mitigate the P&L impact. Ignite in our global network strategy. So if you think about the business being able to offset such an impact below the line, above the line is really something that gives me a lot of confidence in this organization and shows the agility of the organization to navigate uncertainty.

Okay. And then for the follow-up, I want to touch on M&A and capital deployment. Padraig, you talked about the health of balance sheet and maybe looking to do a couple of more deals, [indiscernible] from the portfolio. Could you just talk about what the deal funnel looks like now, appetite for deploying cash next year, sort of what kind of deals you're looking at in terms of size and any specific areas you're focused on?

Yes. So we -- I'm going to start off and then hand over to Adam here. So our capital allocation priorities are not changing. And if you think about M&A, we have capacity to do M&A, but we're going to remain very disciplined, linked with our strategy. And we don't talk really about size, we talk about fit and shareholder return on M&A about how it's going to drive us forward. What I. Will say about our M&A target list, it's very -- it's a shorter, very high-quality list that we continue to develop. And of course, we continue to keep everybody updated as we go through the year, and we're looking for growth opportunities where we have a right to win. And of course, the BIOVECTRA integration having been such a great integration this year bodes extremely well for the future. But Adam, do you want to give some broader capital allocation color?

Sure. Thank you. So our capital allocation priorities aren't changing as Padraig said, and I think that's very important. We're going to continue to invest in innovation, as you hear on our guide. We're going to use our balance sheet to invest in M&A and then make strategic capacity expansion. The other piece I'd highlight is we're going to continue to return excess capital to shareholders as you see in our guide as well. And then the one note I would highlight in addition to what Padraig said about remaining disciplined, it's about the right opportunity. It's about making sure we understand the value drivers and how we can maximize on those. Then it comes down to making sure that we pay the right price so that we're disciplined about price and then focusing on integration upfront. In my experience, I've lived through integrations and the best are those that you plan for upfront, and it's not an afterthought, and I can assure you it won't be here. the Ignite operating system, as I've dug into it gives me a lot of confidence. And then as Padraig said, the recent experience with BIOVECTRA gives me more confidence. So I think we're ready to go and you should expect to see consistency with what we've said on our capital allocation priorities.

Regina, to help us get to as many analysts as possible could we please limit it to 1 question per analyst for the remainder of the call.

Our next question will come from the line of Dan Arias with Stifel.

Padraig, you mentioned upside potential for the Omni franchise. Is that more of a placement comment or a pull-through comment? Where do you think the opportunity is strong as there?

omnis, yes, So I'm going to hand it over to Simon for some color on the Omnis franchise. .

Yes, it's a bit of both. We've recently launched the Omnis family, and we've been very happy with the uptake from those systems. And if we look year-over-year across the entire on this instruments franchise. We've seen double-digit growth in instrument placements. We're also focused on new expansion. That's a key product development initiative here over the next 12 to 24 months. And I think we're going to see momentum from both of those. We see momentum already on the instrument placements. So I think it bodes well for the future. We've talked a few times about this franchise now how we see really durable mid-high single-digit growth through a combination of these portfolio investments but also the very strong macros that underpin this business with aging populations, cancer incidents and so on, not to mention the emerging therapeutics to supporting diagnosis and therapy guidance. So we put all that together and we're bullish about the future.

Our next question will come from the line of Casey Woodring with JPMorgan.

I guess within Pharma in the quarter, excluding the CDMO, could you break down the large molecule versus small molecule growth? Last quarter, you talked about you did biopharma spend ex NASD. It sounds like that got a lot better this quarter, specifically in biotech. And then maybe what's factored into the guide for large molecule versus small molecule in 2026, excluding the CDMO?

Yes. So I think we saw growth on both sides. I would say we're equally placed both large large molecule was about 10% growth, a small molecule in around the same growth rate. It's roughly a 50% split for we saw that in the quarter, and we expect that to continue.

Our next question will come from the line of Catherine Schulte with Baird.

I guess I'll ask the annual Lunar New Year timing question. I think that was a 2-point headwind in the first quarter last year, but it's back to falling in February this year. So if we think about the 4% to 6% guide for 1Q does that mean like 2 to 4 ex Lunar New Year? And if so, what's kind of driving that sequential slowdown there?

Yes. So I think if you look at our Q1 guide, we're assuming low single digits growth for China on reduced [indiscernible] volume. That's about a negative 700 basis point year-over-year impact and that's offset by the favorable lunar year timing, which is about 800 basis points. But the Q2 will be, I would say, meaningfully impacted by Lunar New Year timing and I would say, a tougher comp. But overall, I think it balances out over those quarters.

Our next question comes from the line of Luke Sergott with Barclays.

Great. I just wanted to follow up on [indiscernible] question earlier in the call about and you guys were talking about keeping the flywheel going and investing in back into R&D as the top line continues to accelerate or be strong. So after you're pretty much done, you guys had a pretty big launch here across many different platforms. So give us an -- where are you looking to deploy that R&D? What are the new high-growth areas that you guys would like to be bigger in? Or is this just kind of updating parts of the portfolio that have been underinvested?

Yes. What I would say is that we have a very key innovation focus with our new CTO, August. And what we're looking at is really looking at our portfolio of innovation across the company. We simplified the company structure where we went from about 20 product lines to 9. So ability to get the right innovation dollars into the right place is much clearer and faster now. So what you're going to see is that you're going to see that in a number of platform launches over the next year -- next coming years, but also areas where we need to accelerate in certain areas like oligos, GLP-1s and workflows around that side. And I would say software is a key area for us. It's an area where we have a lot of focus across the company in the ACG group, we're going to be asymmetrically investing in our software products and also making sure we have the right software for particular workflow. So overall, I would say it's refocusing, but very agile refocusing of our R&D dollars.

I'll turn the call back to you, Tejas.

Thank you. Thanks, everyone, for joining us, and happy holidays and happy Thanksgiving.

This concludes today's conference call. You may now disconnect.