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

All right. Great. Welcome, everybody, to the JPMorgan Healthcare Conference. I'm Casey Woodring from the Life Science Tools and Diagnostics team. Pleased to be joined by the management team of Agilent. Padraig will go through the corporate presentation here, then we'll leave time for Q&A afterwards. Floor is yours.

Thanks, Casey, and good morning, everybody. So welcome and thank you for joining. Delighted to be here to talk about Agilent. But first, before we get started, a quick important reminder from our legal department, a safe harbor statement. So getting into it. One, if you remember nothing else about the Agilent story, here are 5 key points that I want to take you through on how we're delivering growth, gaining market share and how that translates for all stakeholders. First, we are in very large attractive markets with excellent growth potential and many secular drivers within those markets. Secondly, we have a very broad portfolio of industry-leading solutions and a unique focus on the entire organization, making our customer successful. One thing you're going to hear a lot in this presentation is our customer centricity. It drives everything we do, and it's critically important element of how we're driving our innovation also. We're laser-focused on delivering products and services to solve our customers' biggest challenges. Also critically to our success, something that makes us very unique and differentiated is our Ignite operating system. This foundational effort and resources helps the entire enterprise to drive transformation to benefit customers, employees and shareholders. And finally, we are focused on disciplined deployment of our capital. We have a very strong balance sheet, and we will use that to invest both organically and inorganically and to drive shareholder value. We have a rigorous process that's going to identify M&A opportunities, and now we have Ignite that helps drive the integration to success. So a little bit of overview -- a little bit of an overview on Agilent. We're a leading scientific partner for customers in both life science, diagnostics and applied markets with unsurpassed scale and capabilities. We're in over 285,000 laboratories globally, serve over 110 countries with a revenue of about nearly $7 billion and operating margins approaching 26%. We have a very balanced geographic footprint from revenue manufacturing and service standpoint. And our evolving market mix, organic and inorganic initiatives has allowed us over the last 5 years to substantially evolve our product mix to more recurring revenue. Now 2/3 of our revenue comes from consumables, services and software, and that represents a 700 bps increase since 2020. Also, our balanced geographic footprint and our increased -- increasing recurring revenue mix has made us more resilient, and we're ready to execute in any market environment. A little high level in our markets. We participate in markets totaling $83 billion with a 4% to 6% growth. Our biggest market of pharma and biotech is our largest and fastest-growing end market. We see exciting opportunities here in GLP-1 and siRNA. Diagnostics and clinical is a very durable market, a high recurring revenue mix, and we have a strong presence in cancer diagnostics. Academia and government is our smallest end market by revenue, while recent growth has been muted, especially in the U.S., it's still a long-term low single-digit opportunity for the company. And on the right, you see our 3 applied markets, chemical and advanced materials, environmental forensics and food. This is where we are a clear leader and where we focus on growth drivers, which include semiconductor, battery testing and PFAS. Now taking a look at our strategy. Our strategy is focused on leveraging our unique customer intimacy to understand and address the needs that are really going to drive growth. We're a very purpose-driven organization. So our mission and vision is very important to the company. Our mission has not changed to deliver trusted answers and insights to advance the quality of life. What has evolved is our vision to be even more customer-centric, to innovate and deliver seamless solutions to our customers that expands the frontier of science. Our strategic priorities have remained relatively the same. First, I'm going to talk about our focus on enabling our customers across all functions of the organization, customer enablement and intimacy, something you're going to hear throughout the presentation. Secondly, innovation. It is something where we're accelerating. We've had a great year of innovation, but we're going to accelerate with asymmetric investments in key product areas, and we're shaping our portfolio to point to faster-growing parts of the market through both organic and inorganic means. Lab productivity and digital solutions is a critical enterprise-wide priority to meet customers' evolving needs. We believe that the analytical lab will be defined in the next decade about productivity, automation and including software. Finally, we're also on the lookout for high-growth opportunities in markets that are adjacent to where we already serve. We can capture these opportunities either through organic innovation, parking with others or value-creating M&A. And we will continue to leverage our critical enablers, our commercial teams, digital and AI, which is going to be a big focus for AI in '26. And we continue to develop and invest in our digital capabilities, our Ignite operating system and, of course, top talent in the organization. So a little bit about our fundamentals. Our market-leading position of instrument Consumables as a Service paired with our customer-first mindset. It enables us to sustain growth. We are #1 across a number of exciting technology platforms. We have unparalleled customer support with over 90% satisfaction ratings, which is industry-leading, and gives us a great competitive advantage moving forward. We have a really strong connection with our customers with robust customer retention rates of 90%, which is industry-leading. That means when customers spend in any part of our portfolio, they come back over 90% of the time. This year, we had a record year in digital of $1.2 billion, making it easier for our customers to do business with us. We've always had a digital channel that serves smaller orders. We're seeing that migrating to larger orders and including services. And our digital channel continues to outpace our classic channel and we increased the number of orders that came from digital this year with 40% of all Agilent's total orders coming from our digital channel. So when you put it together, our robust customer retention rates and our industry-leading customer support facilitates a degree of customer intimacy that is far greater that is enjoyed by our peers. One proof point of that, our field engineers that are embedded with customers around the globe now account for 30% of all sales leads. And these sales leads that come in have a 2x order conversion rate versus the rest of the funnel. Last but not least, our terrific culture. And you can see we were ranked on Forbes World Best Employers for the last 9 years. So let's go through the segments, I'll do a brief overview of the segments. Life Sciences and Diagnostics Group, led by Simon May. Simon is with us almost 2 years now coming in from a President role with another company. Mike Zhang is with the company about 24 years, leading our Applied markets group. Angelica Riemann is with the company around 26 years, having led services, instruments, consumables. And underpinned, we have a very unique one commercial organization that has service, sales, marketing and digital enablement, all under one leader, Jonah Kirkwood, who's been with Agilent for 18 years. So let's do a double click on LDG. And starting with this business, we are comprises of our liquid chromatography, our mass spec portfolio, specialty CDMO, pathology, genomics and cell analysis offerings. We're established in very high-growth markets in pharma biotech, clinical and diagnostics and the LDG business aligns over these business to capture opportunities. As we look ahead, there's really 4 key drivers. First, the accelerating instrument replacement cycle, the ramp adoption of the Infinity III system and the Pro iQ LC/MS, continues to gain momentum through the year, and we expect that momentum to have a long runway. Customers are looking for productivity in these systems, and we're seeing over 30% in the Infinity III productivity improvements. What has happened in the replacement cycle, some customers, probably a year ago, about 1 or 2 systems, now coming back for tens of systems having seen the productivity they're gaining in their laboratories. Second, regionalization of pharma supply chains. Reshoring of pharma capacity in the U.S. represents a really strong midterm opportunity for us. We're seeing increased investments from the U.S.-based pharmaceutical manufacturers as companies think about resilience and capacity. Based on the announcement, we estimate a $1 billion addressable market opportunity through 2030. Third, increasing specialty CDMO outsourcing as biopharma's pipeline shifts towards more complex molecules, companies are turning to partners with deep technical expertise, which we have. And this tends to play directly into our strength that supports our continued growth of our CDMO businesses. And fourthly, our pharma and biotech customers are developing and manufacturing increasingly diverse menu of therapeutic modalities. Oligo therapeutics, ADC, cell and gene-based therapies, a wide range of modalities, increased manufacturing complexity. And what the challenge for customers and operators in labs is to make sure that we can deliver complete, easy-to-use solutions with a highly efficient outcomes for our customers. GLP-1 is in its early stages, both for obesity and potential new indications. Remember, we were primarily indexed to volume here rather than price or modality, and we have dual pronged exposure via analytical tunes and BIOVECTRA specialty CDMO. Now clicking on AMG. The Applied Markets Group consists of our market-leading gas chromatography and our spectroscopy solution offerings. We have a very -- built a strong leadership in applied markets. And we have been a trusted partner for over 50 years with our customers. Our market share in the applied markets is twice that of our next nearest competitor and is driven by the strength of our gas chromatography and spectroscopy platforms. If you look at the key growth drivers, the GC replacement cycle, which is a little bit more idiosyncratic than the LC replacement cycle, a little bit longer. We're seeing that has really kicked off and we're seeing a lot of demand that has been unlocked in this replacement cycle in our GC installed base. Our 8850 GC with a 50% reduction in footprint and 45% improvement in energy consumption makes it a very compelling offering for customers to replace. Broadening demand in PFAS. We had a fantastic year in PFAS. We're expecting mid-teens this year. Our testing expands the food, chemical and advanced materials as well as into air quality. We're now seeing high priority chemical plants around semiconductor now testing for PFAS, and we're also seeing modalities like air becoming very important in the year -- in this year with GCMS being the critical analyzer. And finally, increasing government regulation and compliance needs to buy local policies. Federal local governments are implementing regulations to increase compliance testing. And one example of that is in China where near-term growth remains muted, but where we also have seen the government with the [ anti-involution ] policy, which we see as a positive long-term driver for us since it rewards higher technology complexity and quality production in addition to local manufacturing, which we have a very strong base. ACG business is -- which serves all markets and positions Agilent as a go-to trusted partner for our customers' laboratory operations. We provide comprehensive solutions. These solution spans consumables, services and technology-driven offerings that enable customers to improve the scientific and economic output of their labs. ACG is uniquely positioned with our customers to deliver really strong recurring revenue growth. Four key drivers: Our extremely large installed base and our diverse technology set around LC/GC, LC/MS and GC/MS and spectroscopy to deepen customers' connectivity engagement. Also, we have a competitive installed base that we can address through our enterprise services and also through our consumables business. Solution-based innovation, that's where we accelerate the adoption of innovative solutions to fuel stand-alone growth that can catalyze sales across the broader portfolio. One example of this is the recent launch of the Altura inert column, which is a very strong start, especially given our GLP-1 customers. Also, you can see in this business, the Oligo analysis accelerator and OpenLAB is reducing time from days to hours for QC workflows for profiling therapeutic oligonucleotides. And rest assured, in '26, we have a very rich vein of innovation coming out. What makes us extremely differentiated is our enterprise service business. This is a key differentiator, and it allows us to engage with customers at a very strategic level. Particularly with large pharma and biotech, the business model provides unique insights in asset utilization, lab productivity, and also future needs for the lab about how they can move more efficiently. We have many engineers embedded on site. We also have vendor managed inventory on site for consumables, and we are now in 19 of the top 20 pharma companies embedded with Enterprise Solutions. Digital and e-commerce is really important for this channel, as I mentioned before. Digital orders grew 20% year-over-year for $1.2 billion. And ACG, it's nearly 30% of ACG's recurring revenue. And engaging customers through this channel is really fundamental, and we're going to be leveraging AI to accelerate that recurring revenue. Now to our commercial excellence. We have an excellent unified commercial organization under Jona, and that provides superior execution and it allows us to address our customers' most difficult needs. First of all, our customer intimacy is truly unparalleled. And they start with a unified organization. Importantly, it drives faster response times, you can see that with 90% customer satisfaction rates. And the approach also is an invaluable about how we can deliver maximum insights about how fleets of systems are being used, how productive they are and of course, how they're going to replace those systems. The diversity of our offering and our global reach means that we're able to support our customers wherever they are, and we aren't content with our performance. We've invested heavily in e-commerce, CRM and website upgrades. And this is going to continue to be an investment over this year and beyond. Digital orders outpaced our top line. In fact, 10,000 customers placed their first digital order this year, which shows the flywheel we have in place. We're activating opportunities where AI can really enable this and our processes and the Agilent team. And I mentioned -- we've seen that with increased satisfaction rates. The commercial capabilities comes together with a powerful flywheel, one where its unique access and access to our customers is fueled by 4,500 engineers. 20% of those engineers have advanced degrees to help customers with their most important workflows. We bring insights, but most importantly, it can fuel innovation with direct insights from the customers and get strong traction with future product launches. Talked a lot about innovation, and we're extremely focused on solving our customers' most pressing needs. You can see on the LDG group, we had the Infinity III chromatography system that I talked about the Pro iQ. We see a long runway with the Infinity III ahead, LC replacement cycle. GLP-1 demand, improving capital budgets and along with reshoring of pharma in the coming years. The Pro iQ LC/MS is an important example of a really important technology, a single quad technology that is right in the sweet spot of quality and downstream pharma. We saw 50% growth in this line of LC/MS in '26, and we expect to see continued growth. We expanded our specialty CDMO. So the siRNA modalities continues to see strength. We're seeing larger patient populations, and we stand ready to grow with our customers. We launched significantly expanded capacity in our NASD business in '27, and we have very good visibility into the customer programs that will fill that expansion. We are confident we remain a critical part of the siRNA supply chain, and we have technical leadership and quality scale that is second to none. And we have a proven track record of regulatory success and commercial scale-up. The 8850 really resonating with a 5x higher throughput, energy saving and a smaller footprint. And we're seeing -- we're really seeing traction in PFAS for air and the front end of our GCMS systems as it moves to that modality, we are uniquely placed to capitalize. And last but not least, Altura columns. I think it's a competitive differentiation on sensitivity for GLP-1 analysis and Oligo characterization. Within 1 month of launch of this column, the new column sold into half of the top 20 pharma companies and they expect beating our expectations at launch. We've also seen biocolumn accelerate growth over 30% since this launch. And that's really important to understand that you have a halo effect around new launches where it grows the wider portfolio. And new column launches are expected in '26 that are going to be focused on PFAS and new analytical techniques within biopharma. All these launches are very exciting, but by no means are we done. And Ignite is the operating system to help us focus our investment, and we continue to have exciting news as we share launches into '26. So something that is extremely unique for Agilent, something that started as a transformation is now an operating system. We launched Ignite at the start of '25 to improve the pace of the quality of our execution and to develop a new mindset to leverage the power of the whole enterprise to maximize growth and shareholder value. Ignite is now becoming a significant differentiator for Agilent, and we leverage Ignite operating system to bring the whole capabilities of the company to benefit our customers, our employees and, of course, our shareholders. The operating system has key principles. You can see them on the left, customer-focused growth, streamlined governance, dynamic resource deployment and execution. And some of the proof points. One of Ignite's early wins was pricing, which approach, which we doubled in '25. In '24, we did 50 bps of pricing. In '25, we did 100 bps of pricing. And in the last quarter, we did 150 bps of pricing. So it's double more than '24. And this comes to our ability to get this across the enterprise. We have best-in-class procurement processes that have been run through Ignite, tripling the cost reductions last year. We simplified the organization. We went from about 20 product lines to 9 groups of product lines. We removed 15% of managers delayering the organization so we can make faster decisions, get to our business cases quicker and, of course, improve cost efficiency. We've also seen Ignite as a best-in-class engine to mitigate tariffs, which will fully mitigate in '26 with a cross-functional task force delivering record speed and actions over a number of weeks with the customer in mind. And finally, Ignite is going to be really important as we drive successful integration. That was demonstrated by BIOVECTRA, which is fully integrated, and it puts in place a playbook we can leverage going forward for M&A. And while we expect continued benefit in each of these areas, we will broaden the impact of Agilent through '26. We are stopping some projects and we're moving on to some new projects. So just to give you a sense of what's coming. Innovation is a critical, one where we're identifying the right opportunities for asymmetric investment and leveraging the required resource for speed to market. We expect a big impact here. Digital and next Gen, we continue to invest in. Artificial Intelligence, we have a track in Ignite specifically around AI to help us identify and execute ROI investments. This is going to be very data-driven. It's going to be very metric and outcome driven. And the specific areas of AI we have underway is generating customer insights via predictive analytics, automating routine tasks to free up critical commercial resources and creating custom designs and reducing cycle times in our manufacturing processes. Software development is a key area where we're going to be continuing to asymmetrically invest. And manufacturing will not only drive efficiency, but will help us evolve in the ever-changing geopolitical environment through a series of no regrets moves that brings world-class manufacturing capabilities close to our customers. So between our best-in-class commercial team, exciting innovations and new focus areas of Ignite, there's already a lot to be excited about. Our laser-sharp focus on leveraging these initiatives to deliver against our key priorities to drive above-market growth rates is what makes Agilent a great investment today. In addition to what I've shared at the priorities to support our LC/GC replacement cycle, our capacity expansion in our specialty CDMO, I want to reinforce our focus of executing our strategy. We continue to innovate, accelerate product launches, bigger platform launches. We'll demonstrate the strength of our operating model with operating profit leverage as Ignite helps us to drive top line and efficiency. And we'll always remain highly disciplined around capital deployment. Investing in organic opportunities via innovation, capacity expansion while staying focused on M&A targets that are both a strategic fit and financially attractive. Finally, we remain committed to growing dividend, and we'll continue to return excess capital to our shareholders. And while these are our priorities for '26, I want to walk you through what continues to give us confidence in our long-range financial targets. If you look at our track record and revenue from '20 to '25, we had a 6% CAGR and our earnings per share between '20 and '25 was 11% CAGR. And over the time frame, we've grown EPS almost twice as fast as our top line. A reminder of LRP slide, 5% to 7%, 50 to 100 basis points plus of operating margin expansion and double-digit earnings growth. We are very proud to be able to reiterate these targets at a time when some of our peers are revisiting long-range target growth expectations. A quick -- before we wrap up, a quick reminder, this is the guidance we shared previously for FY '26 in our first quarter. And as is common practice, we won't get into Q1 specifics here, but we'll address that in our Q1 call. So pulling it all together, we feel really good about the markets. We think that we really have an improving situation in our markets that continues. We think it's a really unique time in the Agilent journey. End markets are improving. We're encouraged by our growth trajectory as we lean into those opportunities. Moreover, Ignite is driving company-wide transformation that has already helped us improve our execution significantly, and we'll continue to gain traction over the next few years. And with that, I'll turn it back to Casey for Q&A.

Great. Thank you. That's a great overview. Maybe I start just a few on the fiscal '26 guidance and loop Adam here, too. So the guide assumes revenue growth -- core revenue growth of 4% to 6%, notably underpinned by high single-digit pharma growth. So maybe can you just walk through some of the puts and takes there on the top line guidance relative to your 5% to 7% long-term guide?

Sure. Thanks for the question. So as you said, our revenue guide was 4% to 6% core growth, and that was back in November. And the way I break down the components of that is, one is we assume a normalization of the pharma markets; two, normalization in our applied markets, that continued mid-single-digit growth in the clinical and diagnostic space. And at the time, we called our guide prudent, and that was because of three areas. So the first is China. Remember, we said we expected flat year-over-year growth. We didn't include any stimulus in that guide. The second is academic and government. We said that was going to be low single-digit decline. And then the third piece is small and mid-cap biotech. We assume that, that was going to continue to have slower growth than the broader pharma space. But with that said, I think it's important I just want to express to you my continued excitement about the year ahead, number one. Number two, our confidence in our ability to deliver. And the third thing is that the secular trends are moving in the right direction. But that said, we recognize we're in a very volatile world, and I'm very confident in this team and this organization, our ability to react and respond as volatility rolls through if and when it does.

I'm curious to hear what you're assuming for underlying market growth this year. What factors do you think could drive top line to the high end of that range? What does a more pronounced pharma recovery from a broad-based end market perspective mean for growth given that strong initial end market framework you've provided here for '26?

Yes. So the items that could really push us to the high end are back to the 3 that we've kind of called that we're -- that made us call it a prudent guide. So once again, if China overdelivers, if we see a shift or an inflection in academic and government, and then the third thing I would point to, once again, is that you see the small and mid-caps reaccelerate. So it kind of goes back to those three, and that's kind of where the pivot is.

Okay. Last one on the guide. Just can you walk through the moving parts of that 75 basis point operating margin expansion that's assumed in there for 2026? Obviously, you had some incentive comp dynamics that were a factor in fiscal 4Q. You'll be working through tariff mitigation in fiscal '26 as well. So can you just touch on the puts and takes there on the margin expansion?

Sure. And so to remind you of the guide, we said 50 to 100-plus basis points, 75 at the midpoint, like you said. The tailwind side, I'll start there is annual labor increases, things like that, plus vendors passing on surplus charges related to tariffs. And then the incremental investments in innovation that we talked about and that Padraig talked about here, specifically related to digital, AI and software. On the positive side, we expect volume leverage will help expand the margin. The second thing is improved pricing, and that's continued from our work we've done with Ignite, and then further operational efficiencies and savings driven by Ignite. Let me just comment quickly, though, on tariffs. And as you said, year-over-year, we expect tariffs to be neutral on the margin. The first half, second half dynamics are important though, because typically, our operating profit comes about 47% in the first half of the year, 53% in the second half of the year. But given that we expect to have some tariff impact in the first half of the year and then fully mitigating it in the second half of the year, we expect the expansion in the second half to outstrip what we would normally see.

Okay. And Padraig, I want to pull you in here because one of the key debates and tools right now is how the industry could benefit from pharma reshoring. You guys have notably estimated $1 billion TAM here by 2030 with Agilent positioned to capture roughly 1/3 of that in revenue over time. Could you just elaborate on your approach to sizing the opportunity? How you're thinking about the revenue opportunity for Agilent? What's truly incremental in some of these pharma capacity expansion announcements? Any sort of updated thoughts on reshoring would be helpful.

Yes. So we're -- where our sweet spot is downstream in manufacturing and quality and development. So it really is where our capability is. But it is a very compelling medium time tailwind. There has been over $350 billion to $400 billion announced. We expect $1 billion through 2030. Now that's not this year. We expect it from '27 to 2030. And the way that we kind of broke it then was when we looked at our addressable market, we assume we capture about 1/3 of the opportunity and that implies about $300 million that we expect from reshoring. And of course, bioprocessing setups are going to be seen first, and we expect to see maybe some orders at the end of '26. Now how do we know this number? That's the important point. It's very tops down and bottoms up. So we have a strategic account program that makes us very unique where we're embedded in our large pharma customers. So we know at a strategic level where the spending is, but also where it's likely to happen and what's the time line. Then we have local teams that are consolidating that with the different sites. So we came up with a number of greenfield labs that we're expecting. So we were very able to kind of -- we were very able to get a really good lead on that because the tops down actually maps what the bottoms-up came from our customers. What's unique about this, and I've seen this over the decades in different geographies on reshoring is that you come in and actually analytical tools companies, if you have a deep embedded relationship with customers, you help in lab design. You're helping how to make a lab efficient. It actually increases the customer confidence. And we see that normally early on in some of those constructions. So we're very bullish about it, and we should -- you should view this as largely incremental.

Okay. Maybe if you just touching on the instrument portfolio, particularly in LC/MS, grew mid-teens in 4Q. You mentioned you're in the early stages of a normalized replacement cycle. You talked about share gains against the competition, particularly with Infinity III. Can you just elaborate on the momentum you're seeing in LC? What's the duration and magnitude of this kind of above-average instrument growth that we've seen?

Yes. So you've seen it improving over the quarters, and that's exactly what we expected to see. And you see the three things that are really driving it first is an aged installed base that's helping in drive a replacement cycle, but our technology is pretty unique around productivity that people really are motivated to do it. We expect on the LC replacement cycle about 200, 300 bps growth uplift over the next 3 years and versus kind of mid-single digits, which is the normal LC growth rates. LC recent trends, our LC grew 11%. Our LC/MS grew 16% and double digits in Q4 and across a lot of H2. So we expect to see an extended period of investment, capital spending. And of course, this innovation is propelling it. And I think you can't really say what side at what time would you see that we have 1100s, we have 1260s, we have 1290s. We have a very diverse installed base that is all available to upgrade. So we expect this is going to be a meaningful contributor over the next few years.

And outside of LC/MS, last quarter, you highlighted the early stage of a GC replacement cycle, which typically has longer duration compared to LC albeit a shallower slope. So can you just provide more detail on where you currently stand in that replacement cycle in GC particularly?

Yes. GC, again, we have the largest installed base globally. We expect that cycle to be 3 to 5 years, and it's going to be about 100 bps uplift versus which is a low single -- mid-single-digit growth rate. And we saw strong momentum in Q4, which was very pleasing in our GC and GC/MS, which was high single-digit growth. And the basis of our GC replacement is around this productivity gain and value proposition with 8850s. And we expect it to be more moderate, a bit longer period of time than an LC replacement cycle, but it certainly has kicked off.

Okay. Maybe one just on China here. So you're embedding around $300 million of China revenue per quarter within the fiscal '26 guide, which nets out to around flat year-over-year growth on a full year basis. We know China revenue will be lumpy on a quarterly basis given the Lunar New Year dynamics that you guys have called out. But generally speaking, what's your visibility into China right now, that $300 million revenue run rate on average?

Yes. I mean we've navigated a huge amount of change over the last 18 months, and we're able to deliver $300 million a quarter, which is very stable. We have a very long history in China. We have a strong trusted partner with our customers there. So we continue to be optimistic about China for the long term, mid- to high single digits. We think this year is going to be flat. That's -- we're not taking into account any stimulus that may come along because you want to see how that unfolds. But if you look at the pace of innovation in life sciences in China and you look at some of the semiconductor businesses that are happening there in batteries. The market is expanding quite a lot over time. And it's fully aligned with what is the 15 Chinese 5-year plan, which is around innovation, AI, green and sustainable development and of course, new regulations, including PFAS, that drives quality of food, et cetera. So that's where we are in China, we're continuing to monitor it.

Maybe let's touch on the CDMO. While we have some time here. So in fiscal 4Q, CDMO core growth was over 40%, driven by capacity increases at BIOVECTRA. Strong GLP-1 activity. And you would expect this business to grow at a mid-teens rate in 2026. So could you just elaborate on the growth opportunity in this segment this year? What you're seeing in terms of GLP-1 activity and how you're positioned in 2026?

Yes. And the key word is specialty CDMO, right? So it's something we need to continue to remind people that we're involved in siRNA peptide GLP-1 in a lot of API -- high-potency APIs. We have very strong order momentum going into '26. And that said, it's always important month-to-month, it can be lumpy. But NASD -- our NASD capability are world leaders in siRNA and we have really differentiated capabilities in oligonucleotide manufacturing. And people will see many FDA approvals in this therapeutic, and we're engaged in very positive discussions with customers that have those approvals. And when you kind of see BIOVECTRA, we're key partners in the GLP-1 space. We have that on the analytical side, and now we have it on our specialty CDMO side. And there's significant tailwinds there in GLP-1, really for the first recent price reductions, I think, has been very important. Direct-to-customer access, wider indications. And of course, emergence of pill formulations. We are actually linked to volume in the GLP-1 business and we -- not a drug price or modality. So we expect that the CDMO business will be really good on both those areas.

Okay. I wanted to touch on capital allocation and M&A specifically. So there's been a lot of recent activity in the industry. There's also been increased interest in your own approach to potential M&A. Are there specific areas within your portfolio that you would look to strengthen through acquisition, any gaps that you would look to fill? And then what's the ideal size of an acquisition for Agilent here that you'd be willing to pursue? And maybe touch on public versus private assets where you're seeing valuations currently.

I feel like we're going to get that question a lot today, I guess.

Yes, yes.

So I'll start about where and Adam can talk about size. So it's clear -- that's why we were very clear about our strategy -- having our strategy as our guiding principle on it. You can see software and productivity are areas of interest. You can see increasing our recurring revenue mix. We have a lot of ability to kind of expand our reach with customers with some technology. So we continue to use that, but we're highly disciplined about it. We look at a lot of deals, but we're very disciplined about looking at those deals, and we move along quickly when it doesn't meet the financial targets. But maybe you can describe on the price.

Sure. Happy to do it. So with regard to size and we get the question a lot. And I think we frame it like this because, number one, we don't limit what we're looking at based on size. We want to make sure it's the right strategy, number one. Number two, that we can uniquely add value to that asset or a place that we can have a right to win, as we say. The third thing, and I've lived this personally and take it very seriously. It's not just words as we can integrate it and integrate it effectively. And then the fourth thing is that we pay the right price for it. So we want to make sure we have cash-on-cash returns above our hurdle rates, maintaining a solid investment-grade credit rating is important to us. That said, we would be willing to flex it if we could return back to that credit rating for the right asset. So from a size perspective, we look at everything. We want to make sure we have an opinion on it, but that's not how we frame our lens.

Okay. And we haven't really hit on Ignite here, but maybe through a pricing lens, you've called out at least 100 basis points of pricing in fiscal '26 from Ignite. Maybe just walk through what the pricing ceiling could look like after you saw such success from Ignite price in '25.

Yes. I mean pricing is one of the big wins for '25. As we said, we doubled our pricing. And in fact, in the last quarter, we did 150 bps of pricing. We're guiding over 100 bps this year as we go forward on it, and we had surcharges, of course, from tariffs kick in, in the last quarter, which addressed it. So I think 100 bps plus of pricing, but it's a really unique mechanism and it's driving a lot of value within the company.

Okay. Maybe one here. So you launched Infinity III in October of 2024, and you've seen double-digit LC growth in the second half of '25, particularly due to strong demand in pharma. So can you just more broadly share more about the Infinity III adoption curve? Where we are in terms of the installed base penetration for customers and how you're thinking about that in '26 and beyond, really?

Yes. First of all, I think it's important to understand the topology of installed base, right? So installed bases can be your own installed base. It actually can be mixed insights, right? So you have an opportunity to replace competitive instruments. I would say market share is in general on your own installed base or those areas where it doesn't change quite a lot in LC. Well, we're expecting a 200 to 300 bps growth over the next 2 to 3 years on it. We're in the early aimings of that. And the reason we're seeing that is because not only because of aging fleets, but you're seeing supply chain consolidation in different regions. Capacity expansion around new GLP-1 modalities and ADCs as needing more instruments for testing. So I think it's really important that we don't miss that the innovation part of Infinity III is making that installed base replacement have continued to improve. That's better productivity, about 30% better productivity for sites. It means we have early warning for a system going down and also walk-ups that make it easier for analysts to do their business. So we're really excited that we're in the kind of early aiming of it, and we see that continue through '26 and beyond.

Okay. Well, less than a minute here. I just want to pose a question. We're early on in the year, what are you most excited for, for 2026 for Agilent?

Yes. Look, we have a lot -- we have built an amazing foundation in '25. You see the work that we put in with Ignite, our strategy is really clear. We have a fantastic team. The markets are improving, as everybody can see. We're very excited about '26. And we're also very excited about investing for the future as we go beyond that. And so looking forward to talking to you more, Casey.

Awesome. Well, I guess we will have to leave it at that. We're out of time. Thank you for the Agilent management team for joining us. Thank you for all of you for attending. Enjoy the rest of the conference, everybody.

Thank you.