Good day, ladies and gentlemen, and welcome to the Q3 2018, Agilent Technologies Inc Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over Ms. Alicia Rodriguez, Vice President Investor Relations. Ma’am, you may begin.

Thank you, Brian, and welcome, everyone, to Agilent’s third quarter conference call for fiscal year 2018. With me are Mike McMullen, Agilent’s President and CEO; and Didier Hirsch, Agilent’s Senior Vice President and CFO. Joining in the Q&A after Didier’s comments will be Jacob Thaysen, President of Agilent’s Life Sciences and Applied Markets Group; Sam Raha, President of Agilent’s Diagnostics and Genomics Group; and Mark Doak, President of the Agilent CrossLab Group. I’m also please to announce that Bob MacMahon is joining us on the call today as well. As you know, he will be taking on the role as Agilent’s CFO in September due to Dider’s retirement at the end of October. 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 Mike and Didier will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year. References to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and acquisitions and divestitures within the past 12 months. Guidance is based on exchange rates as of July 31. We will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please look at the company’s recent SEC filings for a more complete picture of our risks and other factors. And now, I’d like to turn the call over to Mike.

Thanks, Alicia. Hello, everyone. Thanks for joining us on today's call. Before I discuss the Q3 financial highlights and our updated outlook I'm pleased to have Bob McMahon join the call. Bob is an excellent choice for Agilent’s next CFO and a very capable successor to Didier. Bob brings a strong track record of leadership to our team. Many of you already know Bob from his previous role as CFO of Hologic. He officially assumes the CFO role beginning September 1. As Didier hands of the baton, he will serve in an advisory capacity until his retirement at the end of October. Bob and Didier are working together to ensure a smooth transition. I first met Bob over a coffee in Palo Alto where we shared our perspectives on business and company culture. We had an important conversation about values and their importance in business. I knew immediately that Bob would be a great fit for the Agilent culture and of course his management style and business acumen are a perfect match for our approach to creating shareholder value. Bob has joined Agilent at an exciting time. I'm confident he'll help us lead the next phase of Agilent growth. While I'm very excited to have Bob join the Agilent team I will greatly miss Didier's partnership and counsel. He has played a key role in the transformation of the company and our excellent business results. It's important for the CEO to have a very capable CFO. I couldn't have asked for a better partner. So thank you Didier. You will be missed by me and our Agilent team. Now, let me turn to our Q3 financial performance. The Agilent team delivered another strong quarter with both growth and earnings exceeding our expectations. Our core revenue grew 6% and is above…

My pleasure, ma'am, thank you. [Operator Instructions] And our first question will come from the line of Steve Beuchaw with Morgan Stanley. Your line is now open.

Hi guys. Thanks for all the help here and thanks for the time. I'd say first it's hard not to echo some of Mike's comments. Didier, really appreciate everything you've done being such a great partner for us, so I hate to see you go and Bob, welcome aboard.

Thank you very much, Steve much appreciated.

There's a big smile in the room Steve thanks for those comments.

Bob, I have to say Didier is a pretty unique guy, as someone who shared some of his lineage, it's going to be hard for you to match that. The questions I'd like to focus on I'd say first are very high-level for Mike. When you made the decision to raise the guidance at core, it would be really helpful for you to just kind of talk us through; here is what after a good quarter, maybe confident in saying look we're going to beat the expectations that we had set earlier in the year. What really jumped out to you in terms of things going better?

Great question Steve, appreciate the opportunity to share that with you. So, obviously we have a good view of our order funnel so that gives me one level of confidence which is the strength of the orders, but what really gives me a lot of confidence moving forward is two dimensions of the story here. One will be the end-market strength, both Chemical and Energy and Pharma continue to be very strong. And as you know, coming into this year, we had positioned Chemical and Energy as sort of the upside of the plan that was sort of the wildcard to our business, and there were some concerns that perhaps all the rhetoric around tariffs and other things a few months ago might actually be quite detrimental to this marketplace which in fact has not at all occurred, so I think that it's the continued strength in both of those two end-markets, and I think geographically Asia led by China, we posted a really strong China number and then the Americas was also quite strong for us. I think the fact that our two largest geographies in terms of countries in China and the United States are really doing quite well, gives us a lot of confidence about the outlook from a market perspective. And I think we're really positioned well to win. Our portfolio continues to become much more competitive and as you know we have unique value proposition with this CrossLab platform which really allows us to capture a lot of the growth that's out there as well.

And then just a couple of quick follow-ups before I jump back in the queue. One is Mike, you made a comment about customer behavior on tariffs and I appreciate the follow-up there. But it will be really helpful if you could spend another minute on it. It sounds like your perspective is that the tariff headlines aren't changing the way people really think about doing what they do. I wonder if you could give us even just some anecdotes on what you've done on that point? And then Didier it was a really good quarter in terms of core margin expansion, the incremental is really good. Any color on what it is that you've seen that made the quarter so strong on that front? And how should we think about seasonality there would be great. Really appreciate it.

Let me take on the first question. So, when I have been out talking to the customer base, we talk to people in the pharmaceutical industry, we talk to people in the research space, whether it be in academia and in the private sector, they plan on -- they're taking a long term view of investments on purchasing our equipment, purchasing our solutions are absolutely critical for their enabling their growth plans if you will and research plans. So they're not at all distracted by the tariff discussion. As I mentioned on my last call, we have seen some cautiousness in certain aspects of the chemical energy market where they were a little bit slower to approve the deals, but still getting the deals approved. It's the same kind of situation we had last quarter, so no new changes in customer buying behavior. So this is coming directly from conversations I had with customers. So again, that gives us a lot of confidence about our outlook because despite all the noise and rhetoric out there, it really hasn't yet affected any of the actual buying behavior of customers. Obviously it's creating some work for us relative to adjusting our supply chain and production locations to mitigate the duty impact side of things, but in terms of customer buying behavior have not seen any real changes.

And then Steve, on your question on the core operating margin incremental you're right. It's been impressive at 57%. The reasons are multiple, we started off with last year's compare that was a little bit of a soft compare. We had the operating margin down a little bit sequentially from Q2. Then there was good operating leverage, good mix certainly the impact of all the Agile Agilent programs and we certainly don't expect to maintain such a high level of operating margin.

Part of your parting gift --.

Well, I certainly appreciate the send off gift from the Agilent team that's for sure.

But in all seriousness, I think going back to few some of the things that Didier outlined at the AID meeting in New York, where he said listen, our pipeline and our programs are as robust as ever in terms of really allowing us to work on the operating margin incrementals.

Thanks so much, guys.

Thank you. And our next question will come from the line of Tycho Peterson with JPMorgan. Your line is now open.

Hey. Thanks. Mike I want to follow-up in some of the strength in China. Can you maybe talk about some of the puts and takes there? I think you called out environmental weakness in the slide, so maybe if you could talk maybe where there some softness. And then on the supply chain dynamics, can you maybe flush that out a little bit? I think you do some of the TC production there as well as in Delaware. So can you may be just talk about how you are thinking about potentially moving Supply Chain if you need to?

Sure so happy to do so Tycho. So let's start with China. Again very important market for us and we were just delighted by the strength in the business, so if you look at the six end-markets we had strong growth in all but two and then we actually had foreshadowed this coming in our last call saying, hey we know there's some things happening relative to some realization -- ministries in the country nothing happened to us relative to the competitive side of the business. So we saw really strong, continued strong demand in Pharma, in Chemical and Energy, investments in Academia and Government hints back to some of the comments I made around tariffs. And as you may recall in our AID presentation, we talked about the opportunities we had with our CrossLab business and our DGG business, and you saw us starting to deliver on those promises with really strong double-digit growth in both of those businesses, and then relative to food and environmental we think it's a temporary situation as related to the instrument purchases. You have to keep in mind though that they will continue to buy consumables and services from us and we're just waiting to have the reorganization complete, the budgets finalized and then we know-how to follow the money where it's going to go because two things are really happening here. You've got the consolidation going on where new budgets are created, being created in a new consolidated set of ministries and then part of that money is also getting deployed to what they call tier 3 and 4 cities so we're following the money and we'll be ready to capture once it's there.

And then on the Supply Chain?

Oh, yeah I forgot about that so relative to the Supply Chain, as I mentioned in my script, we took some actions actually in advance of the formal announcement of the tariffs, so we've already relocated our production for China-made products into our site in Wilmington Delaware and now we're in the process of moving aspects of the Supply Chain which is also subject to the tariffs, but we've already moved the production in some of the Supply Chain.

Okay. And then two quick follow-ups, for NASD you highlighted kind of just the inherent lumpiness in that business and the fact it'll return to growth in the fourth quarter. Can you maybe just talk about how we should think of the ramp there next year ahead of the capacity coming online?

So we'll be able to, we're going to try to get as much growth out of our current facility as possible and then the growth, the expansion will start to come on line in the second-half of next year. The current plan is the second-half of '19, you start to see some initial revenue is starting to ramp through the quarters, and Didier I think we put out a number of…

Next year, like about $20 million is what we said at AID.

So it really gets started next year and then when you get into 20s when you get the real full year ramp and Bob and I and Didier were just in Colorado as I mentioned and had a chance to also review the progress of the facility construction and capability expansion, but also what's going on relative to perspective demand from customers, so the pipeline looks really encouraging.

Last one, can you just comment on how much Ultivo is contributing to C&E growth at this point?

I think its part of the mix, growing with the average. I think that's it. I wouldn't say it's an outside contribution, but solidly delivering.

Okay, thank you.

Welcome.

Thank you. And our next question will come from Doug Schenkel with Cowen. Your line is now open.

Hi, good afternoon. And before I get to the questions another Harvey thanks to Didier you've been a great leader at Agilent and I know I can't speak for many of us and saying we really appreciate your help over the years and I look forward to grabbing another glass of wine at some point soon as always it will be your choice.

Okay. Thanks, Doug.

And Bob while Agilent has big shoes to fill, it's great to know they made such great choice, so congrats through and the company. So now for the questions. On Q4 guidance, can you talk a bit more about the rational behind 4.7% core growth. This would be a deceleration versus what we saw this quarter and that's in spite of comparisons that don't appear much different. I didn't hear anything in your prepared remarks regarding timing dynamics or changes in momentum relative to what you generated year-to-date. Is it fair to assume you're baking in some conservatism here? I've admittedly having a hard time figuring out why growth wouldn't continue at around 6%, the underlying rate for most of this year. So am I missing something on end markets or timing dynamics or something else?

I think we decided to stay true to the guide for last year we had and even though as Didier retire. So as Didier has mentioned in prior calls, we don't assume everything's going to be perfect in the quarter. And again, the one that could go one way or another always has been chemical energy. So if that business holds up and it has been holding up, we should be in a good position to beat that number.

>: Great. And then sort of related from a buyback standpoint, the stock was in the low-60s for much of the quarter. I think you still have about $240 million in the buyback authorized and if I'm not doing that math right there's certainly enough dry powder there to put in place another authorization. I'm just wondering why you weren't a little bit more active in buying shares during the quarter ?

Yes. Thanks for that Doug. I think we've -- I think the numbers are right about 240, 270 from a...

ye

So you're in the right range. And we actually -- Bob we're fairly aggressive because we went outright after what we saw was a dislocation in the stock price after the Q2 announcement and bought the $200 million right away and then continued anti dilutive. We obviously continue to look at that during the upcoming quarter.

Okay. And one last one. You guided us to expect China food revenue growth would start to rebound in early fiscal 2019. Based on what you've seen over the past few months, anything that would tell us or tell you that this is aggressive or maybe things start to thaw a little more quickly than anticipated?

I think I want to stay with those initial estimates. So we signaled that in the last call and released our experience. It takes a good six months or so to kind of work for these things. And I think I want to hear from my team, it's tracking along the same lines.

Okay. All right. Thanks again. Thank you. And our next question will come from the line of Patrick Donnelly with Goldman Sachs. Your line is now open.

Great. Thanks. Just expanding on Tycho's question on supply chain given the tariffs and focused, could you just walk us through the import export dynamic in China, just looking explicitly kind of how much of the China revenues is being imported from the U.S. and may be where the majority of those revenues is being manufactured? And then kind of the same thing on U.S. revenues anything being imported from China there.

Patrick after you're looking at both the incoming to China and from China to the U.S.?

Yeah, exactly.

So from China to the U.S., it's a relatively small amount of Agilent's business. It's primarily the gas chromatography product line and related support parts. So it's about $100 million and that's why the 25% gives us about $25 million gross impact. And then as we mentioned, we're going to reduce that amount over time to even before pricing adjustments $9 million on an annualized basis. And then going the other direction, basically, China, we import from the U.S. the GCMS and many reagents in the chemistry that is made in the U.S. but there's no tariff at this stage. There might be in the future and we'll update you on the potential impact that it's not significant really at the end of the day. So it's about $100 million and that's why the 25% gives us about $25 million gross impact. And then as we mentioned, we're going to reduce that amount over time to even before pricing adjustments $9 million on an annualized basis. And then going the other direction, basically, China, we import from the U.S. the GCMS and many reagents in the chemistry that is made in the U.S. but there's no tariff at this stage. There might be in the future and we'll update you on the potential impact that it's not significant really at the end of the day. But that's not subject to retaliation. So basically we have a lot of our business outside of this tariff discussion.

That's helpful. And then just staying in China, given the soft July data points out this morning including China industrial production coming in light of expectations, can you just kind of talk through the cadence of results in China this quarter? How are trends in July in particular given that data and then also the tariff rhetoric was kind of increasing during the month so just curious as you went through the quarter how you guys were feeling.

Great question, I saw that same article as well, and I have based on what we saw it was having no impact so we saw no hesitancy in customers or any signals from our field that things were different.

Great. Thank you. Operator: Thank you. And our next question will come from the line of Brandon Couillard with Jefferies. Your line is now open. Thanks. good afternoon.: Mike, just in looking at Europe, it was flat in the quarter. Realized you lapped a tough comp there, but you did so too in the second quarter as well, just curious if you're seeing changes in any of the end-markets if you could just give us a little more color on what you saw in that region? I think we did obviously have a tough compare and I do think that it's probably fair to say that the region is a little bit slower than it was last year, but it's dramatically, not dramatically different. I wouldn't over-interpret the Q3 results. I even mentioned to Didier, should we mention the World Cup, but and the reason why I say this is to not get overly worried about the third quarter result is spent some time with our field teams and the European funnels look pretty good. The only thing that we're kind of keeping an eye on is whether this situation in Turkey could actually spread more broadly across Europe, but again, I think that no significant changes in the overall market environment in the third quarter and I wouldn't over-interpret the one quarter's results. Thanks. And I guess secondly, with the Alnylama approval now on the tape, I'd be curious as to how you're thinking about the next leg of capacity expansion at the NASD facility? When you might be in a position to perhaps pursue I guess the next capacity build-out and what the indicators might be that might lead you to do that? Yes, sure. Thanks for that question. We've already made a decision to make the investments…