Agilent at Bank of America Global Healthcare Conference: Strategic Growth Insights

On Thursday, 25 September 2025, Agilent Technologies (NYSE:A) presented at the Bank of America Global Healthcare Conference 2025, showcasing a strategic overview that highlighted both strengths and challenges. The company's robust performance was driven by product launches and a strong services business, while tariffs and variable compensation slightly impacted margins.

Key Takeaways

• Agilent's chemical and advanced materials sector showed a 10% growth, reflecting business diversity.
• The Ignite transformation program is enhancing operations and driving cost efficiencies.
• Agilent's M&A strategy targets high-quality, fast-growing markets with strategic adjacencies.
• A replacement cycle in HPLC and GC is anticipated over the next two to three years.
• Agilent remains optimistic about long-term growth, with a forecast of 5% to 7%.

Financial Results

• Chemicals and Advanced Materials (CAM) grew by 10%, driven by supply chain and monetary policies in China.
• Liquid Chromatography (LC) saw mid-teens growth, attributed to the null Lab LC Series Portfolio.
• NASD growth reached 20%, with expectations of a 60% clinical and 40% commercial mix by year-end.
• China experienced mid-single-digit growth in pharma and higher single digits in chemicals and advanced materials.
• Ignite program yielded an $80 million cost reduction in spans and layers and a $40 million reduction in indirect procurement costs within two months.
• Agilent anticipates a 230 basis point margin improvement from Q3 to Q4.

Operational Updates

• The null Lab LC Series Portfolio improved productivity by 20%, leading to repeat orders from customers.
• In the pharmaceutical sector, Agilent saw a 15% growth in small molecule markets in Europe, driven by supply chain consolidation.
• BioVectra's microbial fermentation capacity is strong, with GLP1 production delayed due to line reconstitution for 2026 capacity.
• Ignite streamlined operations from 21 product lines to 6 groupings, with investments in digital programs like CRM and website enhancements.
• In China, Agilent is setting up a small group in Shanghai to co-create with customers, focusing on automation and productivity.

Future Outlook

• Agilent expects the replacement cycle to continue for the next two to three years.
• Reshoring initiatives are expected to impact within 18 months to two years.
• NASD is fully booked for 2026, with new capacity coming online at the end of 2026/start of 2027.
• Long-term growth in China is projected to be mid to high single digits, with improvements expected next year.
• Agilent's growth plan is set at 5% to 7%, with expectations of being on the lower range next year but building up as the year progresses.

Q&A Highlights

• Reshoring impacts are anticipated two years from announcement to orders, benefiting Agilent in downstream processes.
• CAM performance was driven by a focus on applied markets and growth in advanced materials due to semiconductor fabs and sustainability initiatives.
• The 8850 GC's smaller form factor and 30% more efficiency resonate well with customers.
• Tariffs in Europe are expected to be fully annualized by the end of next year.

In conclusion, Agilent's strategic initiatives and growth prospects were clearly outlined during the conference. Readers are encouraged to refer to the full transcript for a detailed understanding.

Full transcript - Bank of America Global Healthcare Conference 2025:

Unidentified speaker, Bank of America Life Science Tools and Diagnostics Team, Bank of America: I'm on the Bank of America Life Science Tools and Diagnostics Team, based in New York. For our next FastThatChat, we're excited to host Agilent, joined by CEO Padraig McDonnell.

Mike: Agilent, thanks so much for being here.

Thank you, Mike. Format will be the same as usual. It'll be a FastThatChat, but if you've got questions, feel free to raise your hand and we'll call on you. Maybe just to kick things off here, sort of our standard opening question is, you know, you reported fiscal reQ a little over a month ago. You're mostly doing it through the year. You know, can you give us a high-level overview of sort of how you've seen the year played out so far, relative to your expectations? What surprised you for the upside versus maybe what's coming a little bit softer?

Yeah, I would say at a high level, you know, we're very pleased with the execution of the team through the year and independent Q3, I think underpinned by some really important product launches, the Pro iQ, single quad, the 8850 GC really resonating, and of course the null Lab replacement cycle. I think, overall, I think very, very happy with that. Again, our services business has been really critical. Our connection with customers around services and our satisfaction around services helping to underpin the performance. It really kind of four key areas, I would say the CDMO business, you know, really back on track. The Pharma replacement cycle, GC replacement cycle, I think, going well. India, doing well as a geography. I would say, you know, overall, I would say, you know, the start of a replacement cycle across our install base, good execution around that, and sentiment improving.

I would say if you look at the quarter where I thought was a very, a very positive result was in the chemical and advanced materials. When you grew 10% on both sides, it shows the diversity of our business, right? The Pharma is 50% of our business, but chemical and advanced materials, the applied markets, where there's a lot of secular growth drivers, is very important. We saw a really excellent execution on that business. Just to kind of level up, you know, our new group structure kind of, it really, it really mimics the market view of what we're doing on it. The AMG group is overlapped with our applied businesses. That focus is really paying off given the drivers in those markets.

All right, that's great. You touched on a lot of points there. I want to follow up on. Maybe first, let's just start with that replacement cycle. You know, you've talked about it a number of quarters now. I feel it really picked it up starting in the analyst day and some of the quarters since then. Can you talk about how null Lab LC Series Portfolio is doing and how that's sort of maybe helping drive the replacement cycle a little bit, especially, you know, we'll start on the Pharma side.

Yeah, so the null Lab LC Series Portfolio is out a number of quarters now, and again, we talked about a steady replacement cycle starting, and I think that's what we're seeing play out. The null Lab LC Series Portfolio, we did see a lot of deals early on where two or three systems were purchased. Now customers are coming back for multiple systems, 10 to 20 and above. It's really playing out because of the productivity gains with the system. We can say a 20% improvement in productivity, and it's really resonating with customers. In the quarter, the LC grew mid-teens. That was driven by the null Lab LC Series Portfolio. We're very pleased with how it's doing. I wouldn't be expecting every quarter is going to be exactly the same, but the order book is looking strong. I would say the velocity of how Pharma are approving orders has improved, right?

Before, in some cases, you used to have a CEO approving, CEO level approval for CapEx. Now we're seeing plant level approval or even lab level approval, which really helps. I think overall, very pleased with it. LC, of course, is the critical component around the replacement cycle, but we're seeing the start of a replacement cycle in our chemical business, particularly around the 8850 GC. I think you're going to see that play out over the next few years as well.

Okay. Sticking with that Pharma comment, how broad based is it? You mentioned a couple of customers really scaling up. Is it concentrating on a handful of players? Are you seeing it across the spectrum? Just because we've seen still relatively mixed data out of Pharma more broadly in terms of spending levels and decisions this year.

Yeah, it is a tiered to two cities. I mean, our biopharma number was, we were ex-NASD flat in biopharma. And that's the small to medium sized biotech. It's very constrained. You know, if you have a molecule and you have funding, you're in good shape, but if you're looking for more funding, it's a constrained area. Where our sweet spot is, is in Pharma QA QC downstream. That's where we're seeing the largest replacements, which it should be, right? That's where our largest install base is. That's where we see the install base being replaced at the moment. We continue to see that with a number of drivers, you know, of course, reshoring in a few years. We expect new business from that, incremental business from it.

The pharma dynamic, if you think about small molecule or you think about manufacturing QA QC, what's driving this business at a macro level is that you're seeing consolidation of supply chains in region to regions. For example, last quarter in Europe, we grew 15% in small molecule. That's kind of consolidation of the supply chain, but also capacity around some key therapeutics, ADCs, oligos, GLP1s. There's capacity constraints. People not only are replacing their fleets, but also expanding in a number of areas. We think of Greenfield sites just not as a new site, but also an expansion of a site that can happen. That's happening as well, which is driving the pharma business.

Can you put this replacement cycle in context with prior ones? Just in terms of the duration you anticipated it could take, you know, how much could it really boost the front line? Just talk about how far into it are we?

Yeah, I would say we're very much in the early stages, and we expect that replacement cycle to continue over the next two to three years. Three years, I would say, is the average. Of course, it continues beyond that, but the ramp up through that, I think the next two to three years. If you think of where mid-single digits generally in pharma, you go above that in the instrument side when there's a replacement cycle because the opportunity is there. What's kind of very interesting for us is that you have 1,100 LCs out there, in some cases 1260 null II s. The null Lab LC Series Portfolio, including the 1260 null III LC, is backward compatible from a method perspective with all of those. It means the friction of change is low, right? The method development on it is lower. The regulatory requirements are lower.

I think you expect that over the next three years, you're going to see that.

Okay. Yeah. Your comment on moving away from sort of CEO or C-suite level approval, more down to the plant managers, is that pharma getting more comfortable with MFN risk and tariff risk in the current environment? Is that something about maybe age of fleet is getting a little bit older and they're kind of, they're desperate, they can't wait anymore? What's driving that change?

Yeah, it's all of the above. I mean, tariffs, pharma will pass tariffs way quicker than you would think. I think they had it assumed in their models. They're making a lot of no regret moves, being in region for region. You see that with the announcements on the reshoring. I think that carries. The MFN, I think, was a big topic, but again, it's pretty mute at the moment. We don't hear about it from our customer side to have it fairly well baked in. An aging fleet, you put it all together, at some stage, you're going to have to release the budgets. Downstream is important to pharma, having productivity in your labs, having your capability in manufacturing to deliver, is really, really important. That's why we're in the sweet spot where we can really have.

Okay. I want to come back to CAM and the GC replacement cycle later, but maybe on the topic of biopharma, can you talk about BioVectra and how that's done? You're a little over a year, ownership, just the progress you made in that business, how, you know, looking back on the first year, how's it gone?

Yeah, we're really pleased. I was there three weeks ago, in Canada with the teams. Of course, it takes a few months for when you acquire a company to get up to standards to be across it, but really complementary capabilities from NASD. They have strong microbial fermentation capacity, which is very important for new modalities. Steroids to the finish, which is another area that's important. Of course, they're right in the sweet spot of GLP1 production. We reviewed it with the team last week. We're very happy with the year and how it's gone. We had a delay in Q3 because of a reconstitution of our production line that was very welcome because it ups our capacity for 2026. I think the pumps are prime for 2026. We have a very strong order book. I think we're right in the right area. We're very pleased with BioVectra.

On the topic of capacity expansion, you've seen a number of pharma companies make commitments to capacity expansions in the U.S. in the last couple just days and weeks. Little, you had an announcement about API manufacturing in Houston. I know others in North Carolina. What's your involvement at those stages? When we think about reshoring, can you talk about how that impacts Agilent and where you would say it's benefiting that for pharma specifically?

Yeah, I mean, I've seen this 15 years ago in Ireland, you know, when I was in Europe, when you see reshoring in Ireland pharmaceutical production. Generally, the topology of how this works is, you have greenfield sites that people break ground on. You're working with the construction companies, the project management companies are engaged. It generally, from the announcement, from the start, it's probably two years before we see the orders. It could be 18 months, but two years is probably the median. What happens is labs are planned in these sites. Then we're brought into how you set up a lab, how do you make it an effective lab with your equipment. Vendors are brought in. That's a competitive, you know, then you have an opportunity to talk about why you're different, you know, with your services and enterprise services going forward.

We expect to see that within 18 months to two years. That will be a significant tailwind to us because we're in, we're in downstream.

One thing we've really struggled and had a number of debates with investors on is whether these announcements are truly incremental or whether it's things that were going to get done anyway and now are just getting a bigger press release, or maybe they would have been done in Ireland or the UK or India and are now being moved to the US and the net net the dollar amount is the same. What's your take on that? What don't you see?

Yeah, my feel is that it is incremental. I wouldn't, you know, it's not like, it's not a replacement per se of say we're going to take down in Europe and we're going to move it to the U.S., but it's going to be both. Of course, you're going to get maybe a different dynamic with CapEx in some areas and different geographies, but I would say it is incremental by the very nature of it, you know. Talking to some pharma CEOs, they want to be in region for region and they want to be close to their customers. Tariffs or no tariffs, these are no regrets moves. Of course, bioprocessing, you probably see the CapEx on that a bit earlier because it's more upstream in the manufacturing case on the round biologics. I think we're going to see a net benefit from it.

For you, the benefit would primarily be HPLC.

HPLC, you know, a number of other platforms, spectroscopy platforms, molecular spectroscopy. Then, of course, we have our services capability. One thing that's probably not well appreciated from our service business is that we have lab-wide enterprise services where we run labs, you know, where we actually look at the productivity of labs. That's super important when you're setting up these new sites. I think also we have a lot of relocation capabilities so we can move systems as needed, requalify them, get labs up and running. That provides a lot of benefit to our customers. We have a strategic account program with an action that's pretty unique.

We have a high-level team that works directly at high levels with our global companies, and they're really critical in this moment of looking at where the investment's going, what are the modalities going in, and then how do we follow those modalities with our workflows.

Putting that together, are you at all surprised that you're seeing such a significant upgrade or replacement cycle in HPLC ahead of the reshoring? There's going to be a replacement cycle over two years and then a reshoring cycle.

Yeah, no, look, I mean, I don't think I'm surprised by it. It's a normal startup, a standard replacement cycle. You would expect that because if you have labs with aging fleets in Asia or in Europe, they have to be replaced, and I don't think it's predicated on this reshoring that that would change with a replacement cycle.

Okay. Maybe pivoting to GC and CAM. If you look at the analyst, first on CAM overall, like you said, that was probably one of the bigger surprises in fiscal three. It was a strong result there. I think especially because we've seen a little bit more mixed data points from some of the other companies in the chemical space. What drove that outperformance? What's the thing that stood out to you? Just talk about the result.

Yeah, I can go through that market. First of all, I would say execution by our team, right? I mean, it's easy when things are improving, but execution, particularly around Ignite, helping with that. I talked about our AMG businesses, looks primarily at our applied markets, so our focus makes a difference. If you look on the chemical side, we grew 10% in the applied materials side, we grew, and applied markets, advanced materials, we grew 10%. Let me talk about both of those. First, on the chemical side, you're seeing a lot of, in their way, like supply chain, making sure they have the right capacity in region for region. We have by far the largest market share in that business. The replacement cycle kicking in as well.

You can see some of the monetary policies in China with the price of crude oil that drives CAM and our chemical business in China. What is the downstream need from the chemical business supplying in semiconductors? It's supplying in chips, et cetera. There's a downstream supply from that. Very, very pleased with that. That's a sweet spot for us that we continue to see will improve over time. On the advanced materials side, there's a number of particularly idiosyncratic kind of tailwinds in there for us. Semiconductor and high-purity chemicals around semiconductor, you can see from a geopolitical standpoint, fabs are being created in region for region. Even I was in India four weeks ago. They're talking about setting up fabs there and high-purity chemical infrastructure around it. That's driving a lot of business for us. We have a very high market share under our atomic spectroscopy portfolio there.

Of course, sustainability and batteries, that has been a big grower for us. It continues to grow across the globe. We continue to see that very important, both from an R&D perspective, but also from a production perspective.

Okay. You talk about the GC replacement cycle, the 8850 GC. I mean, I feel like the last time we really talked a lot about GC replacement cycle was 2016, 2017, 2018. It's been a number of years, but sort of frame that in context of what you would typically see in LC and what you'd expect there.

You've got a good memory on that one. That was the, you're probably in two vote at that point.

Yep.

Yeah. The 8850 GC is really resonating for a number of reasons. It's a smaller form factor GC, so it can be, and actually with the same workflow that was there, so it can be, you can get two into one place in a chemical facility. It also has 30% more efficiency around power, and it's got a lot of smarts in it that was used in null Lab. We can predict when failures will arrive, and you can imagine in a refinery, knowing when things are going to fail, you need to know in advance to continue the production on it. Very early stages. I mean, we have a huge install base on it. GC replacement cycles usually go across, in general, go across 10 years, versus, you know, the median of what would happen in LC is around seven years. We have a big opportunity.

It's going to be a slower momentum, but we were very pleased to see the funnels, by the way, and also our performance in Q3, see that start off.

Thinking about the install base, sort of framing that opportunity, can you talk a little bit about the size of that base, how much of this amounts to upgrade? I think when we were doing the math, the last replacement cycle, I think we kind of came to like a point, a point and a half of growth upside. Yeah. What's the steady state Agilent model? Does that still hold?

Yeah, I think that's a good way to look at it at points, point to two points of growth, on the upside. We have, I won't, we don't give out a specific amount of systems we have out there because we want to keep that proprietary, but we have a very broad install base, a lot of different types of systems, you know, 6890, 6850s, and it's very broad based. I would say we have a deep connection with these customers. People think it's just the GC that goes in, but we work with a lot of bar partners, which we call value-added resellers that actually do a lot of customization around refinement. That makes us very, very sticky with customers. Of course, then from a replacement point of view, that's very, that's very important too.

When you think about GC relative to LC or HPLC or UHPLC, we tend to think that, you know, GC is a little bit of a more mature technology and it's harder to make improvements from system to system. You mentioned the form factor of the 8850 as being an advantage. Anything else you can talk to that differentiates that platform in terms of what's going to incentivize or drive the customer base to upgrade?

Yeah, I mean, the need in the analytical lab from a user perspective, and it's the same in the chemical industry as people do not want to be involved in the technicalities of the system. They want to have a plug-and-play system, but also to have smarts in the system to say, right, what is possibly going to go wrong? When do I need to change my column in advance rather than it fail and then change it? How do I get and make sure the uptime of the system is, is, so again, overall productivity. The same smarts that are in the null Lab were used in the electronics of this 8850 GC, which is really important. People are really, really interested in energy consumption within that space.

We can do a 30% improvement on energy consumption on these large fleets, which really helps people with their sustainability goals and also as a differentiator from the competition.

Okay. Maybe I want to hit on a couple of individual points. NASD. We've talked a number of times about capacity expansion there. It's been a little up and down in the last couple of years because of some specific commercial programs. Could you give us an update on your mix there, your exposure there? It seems like you're sort of hitting a bit of a steadier patch as you look at the year. Early thoughts on what 26% visibility there.

We saw 20% growth in the quarter. We're very pleased with that. If you go back to where we had more softness in the business, it was really around pharma companies with true IRA looking at their clinical pipeline and moving that to higher indications. The oligo capability we have there is right in the heart of SIRNA platform in terms with our customers. I think you look at the number of the disease states, number of the indications that have been announced, have been really, really positive this year. We're a key partner with a lot of those companies. We expect to end the year with probably 60% clinical, 40% commercial, which is a nice healthy mix as we go into 2026. For 2026, we have more or less fully booked from customers in terms of capacity.

Our new capacity will be coming online at the end of 2026 at the start of 2027. That's a really important capacity expansion given the momentum we see in the business. We're very pleased with it.

Can you talk to how much of that future capacity is pre-booked or sort of customer specific allocated versus negotiations that are still ongoing?

Yeah, it's still ongoing. I think we're actually booking into 2027 now, and that capacity is a factor in that booking where people want to see what you can do in those areas. Those conversations are going on now.

You mentioned the 60-40 clinical commercial split. Is there anything to talk about? Do you risk seeing that if programs fail or reprioritize? Maybe if there are take or pay contracts, or just how much the backlog there is?

Yeah, look, we have a very strong backlog, and we have very good contracts around that business. When we go into the business, we expect to see the volume from that, and that has played out. I mean, with the exception of the reconfiguration during that IRA change. I think the backlog is there. There's always clinical areas that maybe don't come to fruition, but that's the normal case of the business. That's why having a good, long, broad range of clinical batches going through is important, right? Getting them into the commercial batches is a normal state. I think we should be really good about that, and I think 60-40 is probably the right way to think about it for the future. It might be a little bit bigger on the commercial side, but I think we're feeling good about it.

Can you talk about maybe now that you've brought BioVectra on board as well, between NASD and BioVectra, what are the opportunities you're seeing leveraging the two businesses?

Yeah, I mean, oligos APIs, I mean, steroids to the finish is really important. BioVectra, that has some usages with it. Actually, customers, you know, we have now dual customers that are giving us business on the BioVectra side and on the NASD side. It broadens our CDMO, I would say, reach. Also, having the ability to do ADCs and BioVectra and building on that capability is really important. You know, the regulatory nature of the business and I would say the operations around it, we have a lot of cohesion now having two businesses. We have it at the same standard, get economies of scale through that, through the regulatory side, etc. We're very pleased with the complementary side of it. It's actually under the one leader, and also the commercial side. The commercial motion in CDMO is completely different from the analytical lab, right? It's very consultative.

You're working with your pharma partners for years. You know about indications before the world knows about it. You're kind of co-creating in a space that, you know, you're a critical part of that supply chain. Having the commercial groups under one leadership now that we can expand allows us to get more funnel in, quite frankly, on both sides and allows us to capitalize on that funnel.

I don't think we've touched on China yet. Can you give us your latest thoughts on what you're seeing there from a funding perspective, maybe from a stimulus perspective, and just how is that market recovering after the last couple of years?

Yeah, I mean, let me talk about China as a market in general. We had a really solid quarter again. We were mid-single digits in pharma. We were mid-single digits in chemical and advanced materials, actually higher single digits on that side. If you look at the pace of innovation in China, particularly in pharma, the number of licensing that's coming out of China, it's like $50 billion this year. It's double what it was last year. 30% of the global molecules that are coming out are Chinese. There's a high innovation momentum there. I think the baseline is really stable. We expect that to improve next year. We expect China in the long range to be mid to high single digits. I think next year is that year of improvement. I'm leaving stimulus out now, Michael, but I'll talk about that in a second.

On the chemical and advanced materials side, semiconductors, of course, are really important in that market. We saw also the advanced materials battery part of that market really performing. The chemical market, that replacement cycle, we saw that in this quarter. We expect more from the chemical side. Our deep team relationships, our longevity in China, our understanding of the market, and we really kept a high technical expertise in China, underpinned with manufacturing in China for China, has met us. We're really well positioned to capitalize in that market coming back. Let me talk about stimulus. If you look at the last stimulus, that was a $70 million opportunity. It was on the custom side. We won 50% of that business. The next stimulus is much bigger. It's $140 million.

I wouldn't say that 50% win rate because it's broader, et cetera, but we expect a good win rate from that business. The stimulus as well creates momentum in the economy, particularly in our space. We're feeling good about that. There's a lot of new things happening. They're talking about a pre-trade zone around biopharma in one of the cities, on two-tier cities that are being set up, which would be beneficial to us. You see the normal production inside with Wuxi, et cetera, doing well. They have aging fleets. The replacement cycle will need to happen on it. There's a big new government initiative around technology and productivity. Automation and productivity is going to be a bigger story in China. We've set up a small group within the Shanghai facility to tap into that innovation and co-create with customers.

We've seen quite a bit of business on that automation side for the analytical labs so far. Overall, I would say stable and improving.

Okay. On the topic of the investments in automation, productivity, the innovation in pharma, can you talk about what your win rate is among that or how you feel your position there? You touched on Asia and China. We keep hearing increasingly that maybe there is a long, the long awaited move of China to local vendors and U.S. vendors have phased out. It feels like that's sort of an overhang every year. Have you noticed any change there in the current environment?

I mean, that's something we've been quite, to be honest, we've been watching for a decade, local Chinese competitors. You know, we see it in our CRM. We look at it in our win-loss rates. Maybe if I give you a Pareto on the first stimulus order, you know, because we saw the quantitative data that 10% of that stimulus was run by local Chinese competitors. It's usually on lower-end equipment. You know, you see it on GC, molecular spectroscopy equipment. They're competing, right? We compete with them, but we haven't seen any big jumps into the broader range of the analytical portfolio. I think there's a number of reasons for that. Scale matters, right? Your service scale in the country, your scale in R&D, your technical capabilities matter.

Diagnostics is another side of the story where you've seen a lot of Chinese competitors up and take a strong position in it. On the tool side, we haven't seen that jump. We have a huge amount of SKUs. It's a broad business and it's not a very high volume business per se, what you would see in other areas in China. We feel that it's probably going to remain around the same format for the next few years at least.

Okay. All right. We've got about 10 minutes left, but a lot we want to cover. I want to pivot to Ignite. You've been talking about Ignite more and more. Obviously, a major focus. Can you talk about what you've been able to achieve so far, sort of in terms of the long-haul loading of food, how do we think about it playing out over the next two or three years?

Yeah, so it's a three-year program and it was set up really to look at how we could improve the company across all areas. We have 12 workstreams in Ignite. We initiated six this year. I’ll go through some of them. We looked at our spans and layers. We looked at our organizational footprint. We took out $80 million of cost there by taking out layers and also getting our span of controls correct. That's been a massive benefit for the company in terms of speed of decision making and how we're moving forward. We've moved from 21 product lines to six groupings, which allows allocation across R&D in a much better way. That's a fundamental change. We also saw really great benefit initially from indirect procurement. We took $40 million of cost out of that in two months. We're now moving to direct procurement.

If you think about the tariff situation, we had already started talking about our supply chain and our footprint. We're well on our way through Ignite in mitigating all of those things. Ignite is as much about investment as it is about cost. The margin flexibility, we've been able to invest heavily in our digital programs this year, particularly around our website and our CRM, which is really important. We do a billion dollars of digital, and I think supporting that over the next number of years is really important. I think now we're kicking off a number of our new workstreams, one around innovation, where we want to be more asymmetric with our innovation dollars, making sure we don't have a long tail of innovation that is taking away resources from some of our bigger platforms to accelerate it. We have a new CTO, August Spect, he's in place.

He's working with the presidents on this innovation side. That's really increasing the pace. It's really changing how we're working as a company. You see our execution in this quarter largely has to do with a lot of the new Ignite modalities that we're bringing in and the expectations. Of course, we see tariff shocks that come in. We see higher variable pay in the quarter. We see all of these things. I think Ignite really allows us to deliver on that over the long term.

All right. On the topic of Ignite and tariffs, I think we talked about in 3Q, there were a lot of positive surprises. Yeah, you know, GC, pharma, replacement cycle, NASD. I think one of the more disappointing parts was margins kind of came in a little bit lighter despite that top line, and the volume benefit. Can you talk about what impacted margins and how that played out in the third quarter? What gives you confidence in the 4Q margin ramp and sort of what the right jumping off point for 2026 is from there?

Yeah, so first of all, we're very confident in the ramp in Q4. We expect 230 basis points improvement in Q3 to Q4 margins. We're confident on that side. It was really three factors that caused the margin impact, I would say. First of all, the tariffs are higher than expected tariffs in Europe. We were well on our way of moving supply chains to America for LC business, which our production was largely in Europe. Now we have production set up in Delaware. Of course, building inventory around that and getting that set up with a high impact on that European tariff, which was more than we expected. Variable comp. We saw we were pleasantly surprised by our top line as we went through the quarter. The quarter was, first month was good, second month was good, third month was good.

The variable comp is how we had to accrue that, had to be accrued in Q3 and would be accrued in Q4. That was something that wasn't expected on it. Then you had things like the BioVectra shutdown, which was a very positive shutdown because of the capacity expansion. That had an impact in the quarter on margins. We expect Q4 to deliver what we said we would deliver on it. In terms of our long range of 50 to 100 basis points plus, we're not going to guide next year. We're going to guide at our next quarter, both top and bottom line. We're very positive about that margin expansion over a number of years going forward.

That 230 bets quarter to quarter from 3Q to 4Q. Part of that in terms of what's the underpinning is the BioVectra moving out, and then, tariffs, you're going to start to have a better handle.

Surcharges from the sourcing of the best gets in. Surcharges from take-up lines that kick in because of the nature of quoting and so on. We'll get a benefit from that. Of course, the top line leverage number, the number on the top line driving margins as well. That's where we expect it to be.

Can you break down that $230 million? Roughly how much of it is coming from a change?

It's probably one third, one third, one third is the way to look at it in general. You know, all of it contributing. Next year, you know, next year tariffs is going to work itself out. I think by the end of next year, we'll be completely annualized with it.

By the end of next year.

Yes.

There'll still be a gradual impact.

Yeah, as you see, you go into Q1, you have some resonances from the previous quarter and what you saw in the last year. It takes over time, but it gets less and less and less through the year.

Okay. Maybe, I mean, you just mentioned tariff surcharge. Maybe we talk about price here. You had a nice price tailwind in fiscal 3Q. What are your expectations about price at 4QX surcharge, and then again, longer term in 2026 and beyond?

Yeah, longer term, we expect, you know, 100 bps of pricing a year improvement or improvements a year, you know, and the pricing was really an Ignite workstream, where we were looking at pricing fragmented across the company. Now we look at it on an enterprise basis. It really allows us, as we sell multiple products into a customer, to optimize that pricing. It's about one third of the mitigation in Q4 and we expect it to continue into next year. I think pricing, we have room for improvement and we've seen that improvement start.

Okay. I want to make sure we touch on M&A. You've been talking about it a little bit more and more, obviously, BioVectra and a couple of other smaller deals over the past year. It seems like there's a lot of opportunities out there and the balance sheet's in a really good place. Could you give us an update on sort of your latest thinking on capital deployment and M&A? What are you targeting? Where do you see opportunities in the market right now in terms of facilitations?

Yeah, so first of all, I think, you know, you're going to, the targets that we look at, it's a very small list of high-quality targets. It's going to be linked with our strategy. If you look at our overall strategy about faster growing markets, increasing the pace of innovation, automation, productivity, and, you know, faster growing markets, parts of our markets, really addressing that and adjacencies is important. We're going to be very disciplined around it. You know, we've looked at a number of deals this year. We said no to those deals. Some of them were strategic fits, some of them weren't, but the financial profile has to make sense. I would say, you know, the one thing that's going to be really impactful for future M&A when it does happen is the Ignite transformation, right?

You look at the cost synergy element of Ignite, has been able to take out significant costs within the company as a really deliberate engine. I think that capability lends itself to M&A going forward on it. You're not going to see any surprising shifts. In terms of size, you know, I get asked this all the time, what's the size? It's not really about the size, it's about the profile of the deal, the financial returns we get on the deal and where it's going to bring longer from a total shareholder return point of view, where it's going to bring us.

Would you be willing to use equity, or just how high would you be willing to lever up, just in terms of?

Yeah, I mean, look, our balance sheet is in great shape and, you know, it depends on what the situation is, you know, whether it's equity or not. Of course, there's a lot of talk about that currently given some other deals that are going on in the environment, but we're very focused on our, we're not focused on what we're going to do in M&A and not getting over our skis in any different areas of it. Like, you know, our leverage, we want to remain investment-grade. Our leverage can probably go up to 3 easily on that side, and we continue to look at what we need to do.

Okay. Maybe rolling it all together as we kind of sit here, but towards the end of your fiscal year, looking forward to next year, a lot of moving pieces in terms of BioVectra, turning organic, and some of that capacity coming online. NASD we talked about, you know, replacement cycle and LCGC. On the other hand, on the margin side, Ignite, and some of the tariff effects. What are the key moving pieces as we get into fiscal year 2026? Again, maybe not a specific guide, but just sort of what we keep in mind as we update our models to get to next year. Tailwind, headwinds, puts and takes.

Yeah, look, I think, you know, we expect to finish the year strong, and next year we continue to see improvements. I think the big area that we continue to look at is the continuing spend from pharma. You know, it's over 50% of our business, so continuing to see that. There is nothing that I would say that's changing, but we're seeing that gradual improvement. Of course, the chemical and advanced materials are going to be really important. As PFAS, I think, settles out in the U.S., we have a temporary blip in the U.S. given the EPA reconfiguration. I think that's going to be a huge growth driver for us next year. There's a lot of positives. On the negative side are the watch areas. Geopolitical shifts, some shock in the systems that we haven't seen, but I think we're very resilient around that.

Compares are going to be tougher as we go through the year, but I believe we're going into the year in a very positive position. We're very confident in our long-range growth plan of 5% to 7%. I think next year is going to be on the lower range of that. We're going to build up as the year goes on and beyond that, but we'll be giving out guidance next quarter.

Okay. If there's any questions in the audience, this is the last chance. Otherwise, our standard closing remark: what do you see as most underappreciated or misunderstood about Agilent? Any misconceptions you want to clear up or just sort of take away messaging?

Yeah, we're going to be doing more detailed deep dives and things like, you know, I think the CDMO business is always, I think, a key area. Our services and our commercial connection with customers makes us really unique. The scale of our service business and the way we have commercial under one organization makes us very unique, and our investments in digital are going to really pay off on that going forward, not only for us, but in future expansion areas. I would say the Ignite transformation, you know, we've been able to withstand a lot of shocks this year through it, but it's changing the company in terms of how we're executing. That execution is coming through in the numbers, and I think as we go towards the end of the year, we'll be talking more about the delivery on Ignite and what's coming out.

I think, go ahead.

Thank you so much for that.

Thanks a lot. Appreciate it.

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