Good day, ladies and gentlemen. And welcome to Agilent Technologies First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I’d now like to turn the conference over to Ms. Alicia Rodriguez, Vice President of Investor Relations. Ma'am, you may begin.

Thank you, Siad, and welcome everyone to Agilent's first quarter conference call for fiscal year 2015. With me are Bill Sullivan, Agilent CEO; Mike McMullen, President, Chief Operating Officer and CEO-Elect and Didier Hirsch, Senior Vice President and CFO. Joining in the Q&A after Didier's comments will be Patrick Kaltenbach, President of Agilent’s Life Sciences and Applied Markets Group; Jacob Thaysen, President of Agilent’s Diagnostics and Genomics Group and Mark Doak, Senior Vice President of Agilent CrossLab Group. You can find the press release and information to supplement today's discussion on our website at www.investor.agilent.com. While there, please click on the link for Financial Results under the Financial Information tab. You will find an investor presentation, along with revenue breakouts and currency impacts, business segment results and historical financials for Agilent's operations. We will also post a copy of the prepared remarks following this call. Today's comments by Bill, Mike and Didier will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our Web site. 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. The Company assumes no obligation to update them. Please look at the Company's recent SEC filings for a more complete picture of our risks and other factors. And now, I'd like to turn the call over to Bill.

Thanks, Alicia, and hello, everyone. Today Agilent reported first quarter revenues of $1.03 billion, an increase of 2% versus last year. Orders of $995 million were up 2% over year ago, operating margin was 17.2%, earnings per share were $0.41. Mike and Didier will provide further details about Agilent’s Q1 performance, but before I turn it over to Mike, I would like to take a moment to thank the investor community for your ongoing support of Agilent. As most of you know, this will be my last earnings call as Agilent's CEO. I am very proud of the accomplishments the team has made over the last 10 years. In 2005 we launched a strategic initiative to focus on our core expertise of measurement science and direct investments into the life science markets. We divested our semiconductor related businesses, SPG now Avago, our semiconductor test business Verigy, now part of Advantest in our solid state illumination joint venture, Lumileds with Philips. With the Electronic Measurement business is the foundation of a Company, we embarked on a journey to turn a hardcore electronics company into a life science and diagnostics company. As a result of the enormous effort of the team, excellent organic growth and several key acquisitions, we have grown our analytical instrumentations, genomics and diagnostic business from $1.4 billion to $4 billion per year-on-year revenue gaining the number two position in the marketplace. This success led to our recently completed split of the company and the creation of Keysight Technologies. The ability of the company transform itself while spinning off or divesting businesses is a testament to the skills and dedication of its employees. Of course the work of the new Agilent is not done. We need to manage through the added cost of the separation to synergy and drive our operating margins higher. We will continue our commitment to be a leader in our market and we must capture the returns from the investment we have made in the clinical and diagnostic markets. Mike and his team are well prepared to lead the Company forward. Mike has a proven track record of building very profitable, market leading businesses. Mike's new team has all the expertise, skills and drive to move Agilent forward. I believe our investors, customers and employees are in excellent hands. And now I’ll turn it over to Mike.

Thanks, Bill. I would like to take a moment to acknowledge the incredible job that Bill has done leading this Company for the past 10 years. He not only transformed Agilent into an industry leader in life sciences, but is leaving us in a very strong position for our journey ahead. And on a personal note I could not ask for better partner during the CEO transition. Thanks Bill. Now I would like to share some additional insights on the transition and the quarterly results. The transition with Agilent is full swing. At the start of Q1 we announced the most expansive reorganization in our Company’s history. Three new business groups were formed to drive expansion in the core Analytical Lab and leverage its leading position to further penetrate the connected clinical research and diagnostics markets. We launched an Agile Agilent program to streamline and create a more nimble customer focused and faster moving company. In Q1 we delivered a strong start to the year, driven by the strength of our core Analytical Lab business. We delivered 2% reported growth or 6% core growth. We have strong profitability despite currency headwinds and challenges in our diagnostics and genomics business. Our Analytical Lab business, which represents 86% of the total Company is comprised of two recently reported business segments, the Life Sciences and Applied markets group and the Agilent CrossLab group. The Life Sciences and Applied Markets group LSAG brings together Agilent’s Analytical Laboratory instrumentation and informatics. LSAG’s revenues grew 2% reported growth or 5% on a core basis. Growth was broad based across most product lines and end markets. Operating margin for the quarter was 19.6%. Our growth continues to be driven by innovative new offerings. The Agilent 1290 Infinity II LC System which we launched in Q4 has been…

Thank you Mike and hello everyone. To summarize Q1 results, we delivered on our revenue and EPS midpoint guidance, even as currency impacted our revenue by $12 million and our EPS by $0.01. Also, adjusting for the $11 million reimbursements from key sites for Agilent IT and site services, our operating margin was 18.2%, 1 percentage point higher than the reported operating margin. Regarding our Q1 negative operating margin cash flow of $20 million, it was impacted by three factors. First, separation related expenses amounted to $33 million; second; transformation and [indiscernible] expenses amounted to $14 million; and third, we paid $42 million in taxes related to the spin. In addition we paid in December as usual the variable compensation related to the previous six months. I will now turn to the guidance for fiscal year 2015. The strengthening of the U.S dollar since our last guidance has a negative impact of $130 million on our revenue, $30 million on operating profit and $0.08 on our EPS. However thanks to the strength of our business and the initiatives underway that Mike mentioned, we anticipate offsetting about $0.05 of the currency impact. We are therefore only slightly modifying our previous guidance. We expect fiscal year '15 revenue of $4.06 billion to $4.12 billion. At the midpoint of our revenue guidance, our year-over-year growth will be 1% on a reported basis but 6.9% on a core basis, the difference due to currency. Our core growth is driven by strong order funnel, expected recovery in our DGG business, the impact of a significant number of new products and continued improvement and demand from China. We project fiscal year ’15 EPS to range from a $1.67 to $1.73 with a midpoint of a $1.70. Please note that our EPS guidance assumes 338 million shares and that our annual operating cash flow is projected at $550 million. Finally moving to the guidance for our second quarter, we expect Q2 revenues of $985 million to a $1,005 million and EPS of $0.37 to $0.41. At midpoint revenue will grow 0.7% year-over-year on a reported basis or 7.5% on a core basis, the difference again as a result of currency. At midpoint, Q2's adjusted operating margin of 18.2% will be 130 basis points higher than last year’s. With that I’ll turn it over to Alicia for the Q&A.

Thank you, Didier. Siad, will you please give the instructions for the Q&A.

Thank you. (Operator Instructions) And our first question comes from Dan Leonard from Leerink. Your line is open. Please go ahead.

I have a question on your sales to Chemical and Energy companies. Is flat performance you reported in the quarter -- is that a reasonable reflection for how you expect sales in these end markets to trend with current oil prices or is there downside to this result?

This is Mike. I think I want to pass it over to one of the newcomers on the call, Patrick Kaltenbach, who manages our Life Science and Applied Markets Group for his commentary on the impact of oil prices in that segment.

Thank you, Mike. And we have reported our growth in the Chemical Energy segment actually have been flat this quarter. The negative impact of the oil price will most likely be seen, more of our customers who are on the exploration side and they make up about 15% of our total Chemical and Energy segment. The stronger part of the segment is actually on the Chemical side, which actually could see some nice tailwind moving forward with lower feedstock prices.

Is the balance a flat, is that a reasonable way to think about the mix?

Well, as I would say, it's the current version we see. Moving forward again I think both sides probably haven’t fully appreciated the oil price yet. You might see a little down turn on the exploration side, but on the other side, there might be also an upside, moving forward on the chemical side using the lower feedstock prices.

And just to close off on Patrick’s comments, as he's mentioned, only about 15% of this segment is actually impacted directly by the downward trend in terms of the less capital expenditure on the exploration side of the business, and we expect a continued re-pleasant [ph] market in this with stability in this market segment.

And then my follow-up, could you elaborate on the performance in China and whether you're seeing confirmation of the improved trends that you’ve baked into your guidance?

Yes, as we’ve talked in the prior calls we’ve been fairly transparent in China about some of the operational issues we had historically and also our commentary has been that we were projecting a gradually improving market environment in China and I would say that in the first quarter we saw it actually come to fruition. So under the backdrop of gradually improving market environment, we’ve seen a return for example of some food deals. Our operational issues are behind us and we believe we’re growing above market in China. It will be a source of strength for us in 2015.

Thank you. Our next question comes from Paul Knight from Janney Capital. Your line is open. Please go ahead.

Hey Bill, thanks for being a straight shooter for 10 years and congratulations. I guess my question would be you’ve had pretty exceptional growth in Europe as well. How do you explain that dynamic win has obviously been a risk area?

Paul, I’ll go ahead and take call, Bill is saying, hey Mike it's now your turn to feel the calls after 10 years of very transparent dialogue and you will find me to also be a straight shooter Paul, on these calls and our dialogues as well. I think it really comes back to the core of the strength of Agilent, which is the innovation, our go-to-market strategy. So we believe that in Europe, like other parts of world, we have been bringing to market some very innovative new offering to the customer and have a unique strategy focused on the CrossLab, both the services and consumer aspect and informatics of the laboratory. So we think the combination of our go-to-market strategy, the innovations that we’ve had in terms of the new product introductions, as well as our clear intent to go after not only the technology aspect of the lab, but the services that our consumables and informatics side of the lab has allowed us to, to outpace the market, in particular Europe performance has been really strong relative to the competition.

Mike, it looks like your growth rate in analytical was above market. Do you think you are taking share and one of you been – from your experience in Wilmington, what’s happening the right way for you to be doing this kind of share gain?

Yes, Paul thanks for the question. And when we looked at the performance for the first quarter, we had 6% core growth and if you actually stripped out the NMR, its 7% growth for us in the first quarter. I think it’s always -- I'll leave the are we gaining market share question to my competitors. But we think that this recipe of new product innovation and really making sure our operational challenges are behind us and picking the right leaders I would add are really driving this strong growth and the growth across our portfolio is really broad based and in fact I’ll ask Patrick to make some few comments here as well. One other thing I forgot to mention Paul around our results in Europe, we had a very strong European regional manager who now is running our global sales operations and the new analytical lab sales force. So quite confident that the [indiscernible] will bring his talent to the globalization and you've seen his success already in Europe. And Patrick, maybe a little bit more comment on what you saw in the lab site for the instruments and then Mark, you can jump in on the CrossLab.

Sure, thanks Mike. We definitely seen a lot of momentum based on our new regionally introduced portfolio and solutions like the Infinity II series LC that we launched in Q4, the ICP OES, the FTIR and high end MS solutions. Those products have been really well received by our customers and we actually have a very strong funnel behind these products. And that’s also why we are looking forward also to very successful Q2.

Thanks Patrick and Mark, if could make a few comments on the CrossLab where the growth was really quite exceptional as we close off this question.

Thanks Mike and obviously with the 10% core growth rate, we had strength in a lot of areas, but I would call out we had exceptional strength in the Americas with both the LC columns and in China our small molecules in general are growing and certainly -- so on the services side we continue to see in Europe in particular, growth from our enterprise services as well as our instrument services side.

Thank you. Our next question comes from Tycho Peterson from JPMorgan. Your line is open. Please go ahead.

Mike can you just talk on multi-progression for the quarter? Just trying of get a sense of how January faired versus December and the strength of the order book exiting the quarter?

Thanks for that question Tycho. So we saw solid order strength through the quarter. I would say we always get little bit of bump at the end of December as lot of our customers close off their budgets and then -- but with the quarterly quota setting process in the Company, there is always incentive for the sales people to close in June and January. So really no changes from a historical seasonality patterns of business through the quarter. And as we noted in the DGG side of our business, we actually built backlog during the quarter.

And to that point when do you think Darko can get back to something resembling a market growth rate? Is that a ’16 event? How do we think about the earliest you could be back to kind of a mid-single digit growth rate potentially for that business?

I’ll make some initial comments here, then introduce Jacob Thaysen, our Group President for our Diagnostics and Genomics business. So as you saw on our call notes, we think we’ll be back to low double digit profitability in the second quarter. Your question really is in terms of the overall top line return to market growth and above market growth and I think it’s -- what you’ll hear from Jacob is some really aggressive plans to continue to push the growth rate and many encouraging signs, particularly with the Omnis side of things but why don’t I not steal Jacob's thunder and induce you to the community here in this call.

Thank you, Mike and thanks Tycho for the question. I do believe that we have an exciting opportunity also in Darko to come back and we had a record number of shipments of Omnis in this quarter. And this is actually a very good indicator for an improved position in the market. And overall the market continues to be very attractive. We -- actually I do believe we have the right solutions to regain market share. For example also on the IQ HER2 FISH site, which is a very important component in diagnosing breast cancer, we have also launched a very good product that has been able to take the turnaround time form 24 hours down to be done within the same day. And this will actually allow the laboratory to perform analysis that was not possible to do before within the same day. And we see substantial market improvement also on that. So I do believe at this point of time we have the right products, we have the right team. And we will see momentum during ’15 and into ’16 also to regain into market.

Last one just on the operational initiatives you highlighted Mike, I mean I think someone argued multiple and stocks kind of given you benefit for that, maybe some M&A expectation as well. But can you just talk about what you see as kind of the path to additional value creation from what you’ve laid out here? In other words why the reluctance to buyback more stock beyond the $365 million that you talked about and the reluctance to maybe cut a little deeper bit to try to get something north of a 22% operating margin by ’17?

So I think I’ll make some initial comments here and then invite Didier into the dialog as well. As I outlined in the prior call and reemphasized today, we think that the way to drive additional appreciation of our share price is to aggressively go after improvements of our operating margin. We’ve outlined I think a fairly progressive plan, 400 basis points and we consider the synergies we're starting off with as a Company. I outlined in my call today some very quick and expansive far reaching changes in how the Company is operating. The story is an organic growth and cost reduction story to drive our margins up. So that's how we're going to do it, by working the income statement and we have fully committed this year to high use of our available cash to repurchase stock. So again, $500 million of share repurchases and dividends is a plan for 2015. And Didier, I know you've done some analysis working with external folks as well in terms of how we've modelled aspects of leverage as it relates to stock repurchases.

Yes clearly the leverage and buyback programs and dividend programs are ongoing topics of discussions with the Board. And the Board is assisted by a banker in making sure that we are making the right decisions to optimize shareholders value. So it is -- right now we are authorized to distribute $500 million which basically will put us in a zero cash position in the U.S towards end of the year. So we're utilizing 100% of the cash that we have available. And again the Board is always looking at ways to optimize shareholder value.

And this quarter you bought back 6 million. Is that right?

Tycho, can you repeat that please?

You said this quarter you bought back 6 million of stock?

Yes this quarter we bought back just a little bit. We continued buying back little bit after the end of the quarter. We have a 10b51 filing but it was minimum, yes. But we are still planning to buy back $365 million from now to the end of the year on an opportunistic basis.

And Didier, if I would just add one additional comment here, when we look at our leverage versus our peers, we're right at our peer group.

Thank you. Our next question comes from Doug Schenkel from Cowen and Company. Your line is open please go ahead.

This is Ryan Blicker signing in for Doug. So starting with China, can you provide more color on what you're seeing in China that's giving you increased confidence in your guidance and what level of growth from China is implied in the 2015 guidance?

Sure Ryan. I'd be happy to offer some commentary on China. So in terms of the overall outlook of the market we see a gradually improving environment in China. It's not a snap back to the types of market growth rates we have seen historically, but a gradually improving market environment. They are investing very heavily -- for example in the environmental areas I outlined in my call notes. We have seen -- as you know there has been a massive consolidation and reorganization of the food ministries in 2014. A lot of that reorganization is behind and we're starting to see some bids for some projects and orders coming through. So the indication is from a total market perspective that the market is improving, albeit on a gradual basis. But I'd say the China story is -- for Agilent is not just a market improvement story, it's also the fact that the operational issues which we've been very transparent in disclosing to the investment community a while back, that is completely behind us. So we've got a very strong organization that really is aggressively going after the market in China. So I think it's a combination of both a gradual improvement in market environment and our operational challenges are behind us in China. And we're looking at high to mid-single digit kind of growth rate in China.

And then maybe one more on DGG and some of the recent companion diagnostics announcement. There have been some exciting partnership announcements over the last few months but just trying to think out how this impact 2015 results. Can you quantify what companion diagnostics are as a percent of Agilent or DGG sales now and maybe what you expect them to be as a percent of sales exiting 2015?

What we can do is we can describe the rough breakdown of the three divisions that make up the DGG segments. Roughly 60% is in the pathology companion diagnostics reagent partnership space we talked about, 35% in the genomics and about 5% in the nucleic acid solution division. So in terms of additional financial breakdown, we wouldn't be providing that down to the granularity of the companion diagnostics. But what I would do is ask Jacob to share some insight in terms of what exactly is going on with Agilent's business in this space and why we're so excited about the future possibilities here.

Yes thanks for that Mike. I think there is two elements to companion diagnostic. One is of course the fee for service with our pharma partners where we develop the next generation companion diagnostic and I'm really excited about all the partnerships that we have and we have plenty more in the pipeline and I really consider us as the leader within IC and FISH companion diagnostic. But obviously the big opportunity is with the companion diagnostic on the market and each market has its own potential. So the best way of looking at this that the usual suspect in the market today is CO2 [ph] market which has an overall market opportunity of around I think it's $80 million to $100 million and then you have the other one, the big one, the ALK that has right now a market opportunity around $20 million to $25 million. It is difficult to say what each market will do, but I would imagine that that the companion diagnostic market in the future will be a great growth opportunity, but from launching products and seeing that to be a significant impact on ’15, that I do not consider, but we see substantial up take in our partnerships, that has a great momentum as we speak.

Thank you. Our next question comes from Dan Arias from Citigroup. Your line is open. Please go ahead.

Within DGG, just hoping you could expand it down the manufacturing issues that you ran into with the Nucleic Acid business, now I guess how much of the DGG revenue basis that piece comprised?

Patrick, you want to take that question?

Yes, so as Mike alluded to we have three overall businesses, the former Dako [ph], business, the pathology rating partnership and CDS and we actually saw performance according to our expectation on those businesses. So then we also have the genomics solutions division and then our nucleic acid solution division and in the nucleic acid solution division that’s where we saw the manufacturing chances. And as was alluded to before the genomics, the business is here, the nucleic acid solution business is very small business compared to others, but we have some larger customer and thereby moving the shipment from one quarter to the other actually have a significant impact on our overall performance.

And Jacob as I recall, I think our genomics and NASD business is about 40% of the total of your segment.

And then Mike or Fred on NMR, it sounds like the wind-down is on track internally there. So I guess curious what the current outlook is like for a sale of those assets, whether you're seeing any interest there from growth in this space? Thanks.

I'll ask Patrick to provide some further insight, both in terms of the wind-down from the financial perspective, but also how we’ve been able to work with our customers, who as a result of our decision here and then we’ll double back on the question about the sales of the assets.

Mike, as I said we are on track to sustain our ramp-down. We still expect that we have most of our NMR shipments completed by end of Q2. However, some of the MRI and OEM, both take until the end of the year. Also regarding the savings, we are well on track with that as promised over the last conference call which is based on the fact we have ramped down R&D and marketing as planned. When you look at our service capabilities, we have of course make sure that we are capable to service our customers, we are working closely with Mark's organization to make sure we have everything in place to make sure that we can service our customers and our install base.

In regards to the question about the aspect on the sale possibility, when I made the decision to exit the NMR hardware business, of course if it qualified buyer would surface and interested in taking on the full aspects and liabilities of the NMR hardware business, we will be quite open to that discussion, but we decided it was in the best interest on the Company to make a decision now to end the leading -- the implications on P&L, allows us to refocus our investment elsewhere and also to have a customer focused mitigation strategy retaining our services capabilities to support our customers.

I just have one comment on the benefits of the exit. We committed to save $10 million -- to have $10 million increment operating profit in 2015 and 2016 and we are seeing much better results. So right now we’ve raised high expectations 2015 in the guidance. We expect to save $15 million and then $20 million in 2016 and that’s in our guidance.

Thank you. Our next question comes from Isaac Ro from Goldman Sachs. Your line is open. Please go ahead.

Want to follow-up with another question on NMR. Really you touched on some of the P&L benefits you're looking for here and of course the organization benefits, but curious if you could maybe look at it a little bit from a working capital standpoint, just given the nature of that business and the extent to which you're looking for some free cash benefits to the profile of your business ones all this is sorted out. Is there something you can quantify for us with regards to the benefits to the working capital and free cash flow?

Didier, you want to handle that question?

I would say in terms of free cash flow, it's fairly similar to the increase in operating profit that as mentioned perhaps little bit higher, but -- and then for 2015 there is really not much difference in terms of working capital that we have, as Patrick alluded to, even though we'll be -- we'll have finished the production in the first-half, in the second half we’re going to do all kinds of installations and before we can [indiscernible]. Then we have time to collect the receivables. Obviously, inventories are coming down now. I can follow-up and give you the exact amount of the reduction of working capital to expect as a consequence of the closing, but I would say it's probably immaterial in the grand scheme of things.

Okay. And then just a second one on tax rate. Just wondering if you could quantify some of the opportunity that you see from a long-term here, either in terms of the magnitude of tax rate you could see, and maybe the pacing around it, just the benefits you're looking for if any?

Well the situation for the new Agilent is we have a lot more very profitable manufacturing activities in the U.S. with reagents and then the chemistries and also some instrument manufacturing, then proportionally all Agilent that we used to in the past, as Keysight had most of their manufacturing offshore. So the consequence is that it puts pressure on our tax rate and the 20% I see as fairly sustainable over the course of the next two, three years. What we’ll see after that. Obviously there's all kind of debates that I'm hopeful in Congress will be to different tax regime, but at this point in time the best is to assume that we will maintain our 20% tax rate in the foreseeable future.

Thank you. Our next question comes from Brandon Couillard from Jefferies. Your line is open please go ahead.

In terms of the revenue growth outlook, 200 basis points higher, I'm pretty sure you’re probably the Company on the planet raising guidance at this point in the year. What gives you the confidence? What’s changed exactly relative to three months ago, one or two most important things, whether it’s China or new product flow? Can you parse that out for us?

Sure, Brandon. Thanks for the question and first of all, I’ll start with the strength of our Analytical Lab business in the first quarter. It has momentum, it grew 6% core growth, 7% without the NMR impact fueled by new product introductions. The new products that we highlighted in our call last several quarters are driving new growth and the operational challenges we have in China are behind us and that’s in a backdrop of a gradually improving overall China market. So point one would be strength in the Analytical Lab business fueled by new product innovations and the addressing of previously disclosed operations in China and the second one is cognizant recovery in our diagnostics and genomics business. As we outlined in our call today, we had some operational issues that are being addressed and we’re quite confident in our ability to right the ship and get that business in the direction we want it to be. So there's the two things I will leave you with, strength in the Analytical Lab business and the cognizant recovery of our diagnostics and genomics business.

Okay, that’s helpful. And then Didier, just on the Agilent savings plan. I think you said gross savings expected at $50 million this year. If I just think about the bridge between your prior guidance for revised outlook, can you quantify the buckets between better organic growth, currency lowers, restructuring benefits, just the moving parts?

Well, I did provide the currency impact and the rest is really way too many things. We are having good momentum on the restructuring program, the $50 million. Part of $15 million is NMR, $35 million is -- I would call the Agile Agilent programs which is ramping up nicely although there were some benefits already in Q1. There is some volume benefits also. A lot of other programs -- we are also making sure that we invest properly in our businesses to support our expectations to outgrow the market. So there is really lot of things we do and bridge that very carefully within the Company but there is a lot and lot of different factors.

Didier this is Mike I would just add inclusive of guiding with continued momentum the assumption our Analytical Lab business and recovery of our diagnostics and genomics business, we are also taking other actions to offset the FX win. So this isn’t just a story of momentum on the organic growth side. It’s also true costs are coming out of our structure to drive our earnings per share and we’re pulling out all stops to address these FX wins without damaging our long term growth prospects.

Thank you. Our next question comes from Jack Meehan from Barclays. Your line is open please go ahead.

Just want to start with I guess the life science research business here in the U.S. It sounds like the total was a little bit more muted relative to I guess slightly more optimistic commentary from peers. I guess just curious what’s driving that and what you're expectations are for the rest of the year?

Patrick, why don’t I ask you to offer your perspective on that question?

So we have seen -- as Mike alluded to, the growth in license research this quarter was mainly driven and coming from China and Europe, actually where we have seen higher demand from life science research. In the U.S. I think we are careful optimistic for the second part of the year that some of the funds will get released, but right now that [indiscernible] drive is coming, the momentum is coming out of Europe and China.

Got it. And is there a way to just frame within that business how much is U.S. versus ex-U.S.?

That something I think we are not ready to disclose right now.

Okay, and then just one more I guess in getting back to the leverage and cash that you have overseas. I was wondering if you had any thoughts just on what the optimal use of that cash is and then when you’d be able to put it to work.

I think as we said earlier in our call today, we’re fully committed to tax effectively returning share to our stockholders. Agilent has a long history of doing that, over $10 billion during Bill's tenure as CEO and we're going to continue that strategy of getting cash back in a tax effective basis to our shareholders. As you heard from Didier, pretty much all of our U.S based cash will be gone by the end of this year, having returned that to our shareholders and D, I don’t know if you have anything else you want to add here?

No I'm certainly again waiting for some movement in Washington and hopeful and we'll see. If there would be an opportunity internally to repatriate cash under our new tax regime, I would be very much inclined to do so.

Thank you. Our next question comes from Steve Beuchaw from Morgan Stanley. Your line is now open, please go ahead.

I wonder if we could start with a strategic one on Pharma as an end market. The comments that you made about the growth in biotech and spec Pharma are certainly consistent with what others are saying. I wonder if you are thinking now that the growth of the submarkets in Pharma seems to have diverged. If you're thinking any differently about how to approach the biotech and spec firm segments of Pharma and if you could share with us what any of those strategies might be?

So why don't I make a summary comments and then invite Patrick in on this dialogue as well as Jacob. So overall as we reported 6% reported growth and a very strong end market segment for the Company, and as we also have been highlighting the biopharma, the biotech side of that has been a real area of strength as you peel back the segments within Pharma, moving away from the traditional small molecule analytical side. So pinched [ph] in both your perspectives on how you're seeing that to respond to the question.

Happy to. This is Patrick speaking. So if we look at Pharma and total NMR growth comes from, of course we see all this Joe, the strong pockets like biopharma and the midsized companies but I think it would also be fair to say that during Q1 we have seen several large deals of replacement business coming from large Pharma. And as we -- so terms of strategies, there are several things for Pharma to be important. There is a lot of replacement business loss out there in big Pharma and the way we position our instrument, it's making sure that we are 100% backwards compatible, while really deploying and offering the best solutions in the market and the most powerful solutions in the market. Like for example if we do see a [indiscernible] just recently launched this is a story that has been very well received, especially by the large Pharma companies. Now secondly when you look at biopharma, the strategy there for us is clearly working with our customers and looking at their demand, what their needs are as they develop biosimilars and other novel therapeutics, making sure we have not only the right equipment to test it, but also the right software solutions. So they have the right tools on hand to be as efficient and productive as possible.

Jacob I know your portfolio goes here in the space as well.

Yes, so it's our business is somewhat different from Patrick's business here that we have our companion diagnostic which I have already described and then we have our Nucleic Acid solution division, which are developing or manufacturing the active ingredients for pharmaceutical components and we also see very high demand for that. So within the DGG business we continue to see a high demand from the Pharma industry.

Thank you, Jacob. And just to close out this question, just to remind those on the call, Mark's, earlier comments about the growth and the services in the Pharma and how he's approaching that marketplace.

And one this – I suppose this would be for Jacob. If we could just circle back to the new genetic screening kit launches that Mike referenced in his prepared remarks for chromosomal abnormalities and cytogenetics. Where are you seeing the most notable potential demand for these new kits? Is there any expanded promotional effort tied to those launches, just a little color on where you see those products headed? Thanks.

Well I would like to start by saying that we have a very, very attractive business within our array business within the cytogenetics space. This particular product is very much suited for the invitro fertilization [ph] business where you have precious samples obviously and what it really does -- the business here is about low cost, but also about our turnaround that you can do and our product is best in class for that. So we consider this in the range of our array technologies and this particular for the invitro fertilization [ph].

Our next question comes from Tim Evans from Wells Fargo. Your line is open. Please go ahead.

Didier, I wanted to ask about some of the sensitivities around the 30% incremental operating margin that you are looking for. If your growth ended up being only 3% or 4% or alternatively if it ended up being 6% or 7%, how would that incremental operating margin change?

Yes I mean we have long talked about 30% to 40% range and which to take into account, kind of reasonable low end and reasonable high end in terms of volume increase. Right now we are shooting for even higher percentage this year adjusting for the synergies. So it is sensitive but a lot of the operating margin improvement comes from hard savings and the Agile Agilent program and really kind of sneaky kind of savings. So it would have to -- we would have to face really, really bad market situation, not to deliver on this 30%, and if the market is delivering as per our expectation, if we are delivering as per our expectations, we could go on fairly significantly higher than 30%.

Thank you. Our next question comes from Derik de Bruin from Bank of America. Your line is open. Please go ahead.

Hey, can you give us -- what the organic revenue growth comps are for the three different segments for the second quarter since we don’t have those on historical basis?

Well, we have those. Didier, you've got a full page of numbers there. Let's hear…

The second quarter forecast, we expect currency to have an impact of -- negative impact on the year-over-year basis from about 7 points, which mostly it's around 7 points an average. And besides that we expect pretty much all the businesses to grow on a currency adjusted basis about at the same level with LSAG, perhaps one percentage point over the rest of the other two businesses. So very much in line by business with the number that we’ve provided for the Company and LSAG a little bit higher and then the currency impact being 7% impacts pretty much all the businesses of about the same way, DGG little bit more and then ACG and other two beacons. As you go into my prepared remarks, you can tease out the actual reported numbers in Q1 in terms of the corporate by segment, and obviously we would expect to see an acceleration of the growth rate in our DGG business in Q2.

Right, I'm just trying to get to the Q2 comp, just for modeling purposes on that. And I guess the -- looking short-term at the gross margin there was the big step up like 150 basis points sequentially and year-over-year and the Agilent CrossLab Group on the new breakout. Is that just simply driven by the 10% organic revenue growth is that the volume driven thing or there is something special that went on that margin?

It's mostly volume adjusted. It's -- as lot of headwinds and tailwinds, but obviously with 10% revenue growth, it is a big impact. On the negative side DGG is pretty much impacted by the, I mean the currency also, but anyway it is mostly on the volume and then the some programs that market will in place and last year we spent a lot of time and resources and money to deliver the new CRM which will provide a lot more effectiveness to the organization. Mike perhaps can talk a little bit about it, but that is also factor that is we expect to deliver incremental operating margin to have deliver overtime.

And Mark maybe you can jump in and could we talked earlier about some of the [indiscernible] even tried to do year and your compares given the synergies. I think that even gives us more positive comments around our performance Q1, but any additional color you can provide here?

And it is -- if you will, it's a compare that going forward it’s hard to look in the past and see how these two actually compare and what we -- as Didier has indicated we actually have made investments associated with putting a single system in place to run our business and services and that will actually bring us improvements in our operating. But as being said, the synergies is related the key element of this and we'll continue to work on those operational elements. But in addition to that, we obviously see top-line growth is the area we’ll continue to push forward on to.

Thank you. Our next question comes from Richard Eastman from Robert W. Baird. Your line is open. Please go ahead.

Yes, just I' wondering this a follow-up on that question, So basically when you see SG&A given the investments you’ve made, the SG&A is up here but you’ve gotten good volume leverage of the gross profit margin line? Are you explaining that?

Yes, I was talking about the loss of dynamics. One of the big dynamics that we have is really the way also we allocate our share of infrastructure services, the so called GIO, and because ACG is growing faster than the -- as been growing extremely fast, they got a big lump of that allocation including some of the cost synergies that we’ve talked about over and over. So….

For Mark, is there a -- for Mark, is there opportunity on the CrossLab in the CrossLab business, by that I mean either side of the consumable side? Are we under penetrated in any particular geography?

Well, we've performed well most geographies. I would say our opportunities -- looking our consumables and the chemistry and China is still I think great growth opportunity for us. China in general from a cross line perspective, we’re starting to see customer respond to enterprise services much that we’ve seen in the Western markets and in fact we're seen excellent growth in the pharma segment throughout Shanghai and Beijing.

Okay. And then just one last question as a follow-up, you say -- have you seen any competitive disadvantage from a pricing standpoint with the strength in the dollar in particular maybe on the analytical chemical analysis side of the business where those products, food [ph] forensics, maybe there's a little more competition there?

Richard, this is Mike. I’ll take that question. Actually no I think it speaks to a couple of things, first of all the strength of the portfolio, but also the fact that with one exception most of the major competitors in this space are dealing the same FX wins. So nobody has any unique pricing power and our Japanese competitor is clearly trying to work on their margins as well.

Thank you. Our next question comes from Ross Muken from Evercore. Your line is open please go ahead.

This is James Clark in for Ross. Most of my questions have been answered but I guess a quick one on the 22% margin target by 2017. I'm just wondering if you guys have said anything about sort of where you need to get from a segment margin perspective and specifically on the DGG side to hit that 22%

If you look at the DGG business historically, this should be a strong double digit operating margin business. We’re going to be low double digits in Q2. So clearly getting to that north of 20% kind of operating margins for that business is part of the plan. And as you’ve heard from Jacob, it’s quite doable, a lot of confidence that as we have our remediation -- we move beyond our remediation efforts, we’ll have the trajectory we need in the business to attain those goals.

Okay, and then just a quick one. No one asked but Japan down 6 during the quarter. I know funding has been constrained. We’ve heard some other peers talk about this. But just wondering when you sort of expect to see some clarity there and are you seeing the same dynamics as the peers or is there something specific to Agilent that’s going on in Japan right now?

As you may know, I’ve spent 5.5 years of my life in Japan. So I'm always a little bit biased in terms of my view on Japan but if you look at what’s unique about Agilent is our position in that marketplace relative to the competition. Number two, right behind -- with obviously some other leading in that marketplace. So I think we’re seeing some of the same currency challenges that our competitors see in this space. And obviously we’re waiting for some of the -- for the budgeting discussions to conclude and get relief. Although you can’t see it in the currency results, because the currency has been such a huge impact in the most recently reported quarter. We believe we're actually making some traction in that marketplace, particularly back in the discussion around services and consumables in our CrossLab site. So we often think about markets in terms of instruments, new instruments in the capital market side or capital budget side of things. But that’s been a source of strength for us. But you just can’t see it right now in the numbers given the overwhelming impact of currency.

Thank you. Our next question comes from Miro Minkova from Stifel. Your line is open please go ahead.

Most questions have been answered. I just have a clarification on the Diagnostics and Genomics business. It sounds like you are assuming a rebound, including on the revenue side not just the operating margin in the quarters ahead. Can you maybe help us understand what are the actions that have been completed that give you the confidence you can do that and that its turning and what still needs to be done? I guess what are the milestones that you were looking for to see the rebound?

So Jacob, why don’t you comment on some of the things that are going on, on the manufacturing side relative to the 40% and what’s going on with the technology side.

So thanks for the question Miro and as we also alluded to before, the main reason for our challenges on the operating profit and the revenue side in Q1 was due to some manufacturing challenges we had on our nucleic acid businesses, both genomics business and the nucleic acid solution division. Those have both been dissolved within the quarter and with that we expect to see us coming back to an on-situation in 2Q again.

Okay, and how big was the impact of these? Roughly any sort of magnitude?

Well, if you look at the profitability we had in Q1 and then we’ve been fairly explicit in terms of our expectations for Q2 to low double digit profitability in Q2. So I think you can perhaps model off those vectors.

Okay, thanks. And perhaps I missed it but maybe comment a little bit on the gross margin as well as R&D and SG&A as a percentage of sales for the new Agilent, apart from the operating margin I guess. I'm not seeing explicit breakdown in the release and how those trended for the new Agilent ex Keysight?

Yes. We did not provide the breakdown. We provide an EPS guidance and that we don’t provide the whole -- the full P&L. Clearly with the kind of growth that we expect you would think that our OpEx as a percentage of revenue will come down over time. Our gross margin are going up not just because of the revenue but also because of the actions that we are taking, many actions that are taking. But we don’t provide more granular detail for the guidance.

Thank you. I'm showing no further questions at this time. I’d like to hand the conference back over to the Ms. Alicia Rodriguez for closing remarks.

Thank you, Siad and thank you everybody joining us today. We appreciate you joining our call and if you have any questions, please give us a call at IR. Thank you. Bye, bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.