Good afternoon. Thank you for attending today’s Agilent Technologies Q3 ‘22 Earnings Call. My name is Tina, and I will be your moderator for today’s call. [Operator Instructions] I would now like to pass the conference over to our host, Parmeet Ahuja with Agilent. Please go ahead.

Thank you, Hannah and welcome everyone to Agilent’s conference call for the third quarter of fiscal year 2022. With me are Mike McMullen, Agilent President and CEO; and Bob McMahon, Agilent Senior Vice President and CFO. Joining in the Q&A after Mike and Bob’s comments will be Jacob Thaysen, President of the Agilent Life Science and Applied Markets Group; Sam Raha, President of the Agilent Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news release for our third quarter financial results, investor presentation and information to supplement today’s discussion along with a recording of this webcast are available on our website at www.investor.agilent.com. Today’s comments by Mike and Bob 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, and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of July 31. As previously announced, beginning in the first quarter of fiscal 2022, we implemented certain changes to our segment reporting structure. We have recast our historical segment information to reflect these changes. These changes have no impact on our company’s consolidated financial statements. 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, Parmeet and thanks everyone for joining our call today. In the third quarter, we once again demonstrated the strength of our diversified business and the unstoppable One Agilent team. We delivered an excellent quarter, significantly exceeding our revenue and earnings expectations. Revenues of $1.72 billion are up 13% core. This is on top of 21% core growth in Q3 of 2021. Third quarter operating margin of 27.5%. Operating margins continue to expand and are up 150 basis points from last year. Earnings per share of $1.34, up 22%. Our strong results in Q3, coupled with orders continuing to outpace revenues, highlight the ongoing strength of our diversified business. The momentum in our business continues, and we once again raised our outlook for the year. Let’s take a closer look at our Q3 results. From an end-market perspective, our results were once again led by strength in our two largest markets, pharma and chemical energy. Our largest market, pharma, grew 16% versus 27% a year ago. Within pharma, both the biopharma and small molecule segments grew double-digits. The momentum in our C&E market segment continues with Q3 growth of 22%. This is on top of 23% growth a year ago. The C&E market is being fueled by demand in chemicals, along with strong secular demand and ongoing investment within the advanced materials space. We are also very pleased to achieve double-digit growth in the food and environmental and forensic markets with both markets growing 11%. In our last call, I shared our belief that the business impact of the Shanghai COVID-19 lockdown would be transitory. I also expressed that we remain confident about the ongoing strength of our business in China. In Q3, the China delivered 29% growth. These stellar results were driven by continued strong end-market demand, coupled with…

Thanks Mike and good afternoon everyone. In my remarks today, I will provide some additional details on revenue in the quarter and take you through the income statement and other key financial metrics. I will then finish up with our guidance for the fourth quarter and fiscal year. Unless otherwise noted, my remarks will focus on non-GAAP results. We are extremely pleased with our Q3 performance. Results were above expectations, and we expect that strength to continue in the fourth quarter. Q3 revenues were $1.72 billion, up 8.4% on a reported basis and up 13.2% core. FX was a 4 point headwind to growth or $76 million. Pricing for the quarter contributed over 3 points of growth year-on-year and improved sequentially. The performance was broad-based as all end markets and regions grew during the quarter. As we mentioned last quarter, the COVID-related lockdowns in China deferred an estimated $50 million to $55 million in revenue from Q2, and we forecasted that revenue would be recovered during the rest of the calendar year. Our team in China did a fantastic job ramping production and shipments faster than expected following the shutdowns. We estimate over half of that deferred total was delivered in Q3, exceeding our expectations. Given the strong performance, we now expect the remainder will be delivered in Q4, which is an acceleration from our thinking from last quarter. The acceleration of the COVID-related shutdown recovery in China contributed to an already strong Q3 for the company. For perspective, we estimate the total business grew double digits, excluding the accelerated recovery. As Mike mentioned, earnings per share of $1.34 were up 22% from a year ago, representing strong incremental flow-through of the better-than-expected revenue growth. This performance is against our most difficult comparison of the year as EPS grew 41%…

Thanks Bob. Hannah, if you could please provide instructions for the Q&A now?

[Operator Instructions] The first question is from the line of Matt Sykes with Goldman Sachs. Please proceed.

Hey, good afternoon, Mike and Bob. Congrats on the quarter. Thanks for taking the questions.

Good afternoon, Matt.

Maybe just starting on LSAG, where you had a really good quarter, just interested to know, one, what drove the operating margin expansion in the quarter relative to your expectations last year? And then specifically, I know it was broad-based strength across instrument categories, but was there one or two areas that really surprised you to the upside where you feel is either underappreciated or could see continued momentum in the back half of the calendar year?

Yes. So I will take the first part of that and we will jump in and have Bob and Jacob add their thoughts here as well. So, I think relative to the strength and why the operating margin was so high is one is, I think we have been – we rightly benefited from the leverage impact of having those higher-than-expected revenues. But more importantly, we have been working on the pricing side and really ensuring that we are receiving the value for our offerings. And Bob, I think we are well over 3 points of price appreciation overall for the portfolio in LSAG, I believe.

That’s correct. That’s correct.

And we are – as you may have picked up in my script, it was across the board a great quarter for LSAG and across all product categories. But Jacob, I think a couple really stood out for you, didn’t they?

Yes. I think, as we know, we continue to do really well in the LC/MS space, but this quarter is really a spectroscopy that was standing out. We have – especially in our atomic spectroscopy field we have really seen a lot of momentum based, of course, on the dynamics in the markets, but also the innovation that has been created over the past years. And I think we really see the impact of that these days.

Yes. I think it was a real race to see who had the highest growth, right, spectroscopy or LC/MS. They both did extremely well.

Great. And then maybe just as a follow-up, I know Europe – yes, I just say for a follow-up. Can you hear me?

Yes, yes, yes.

Yes, sorry. Just for a follow-up on Europe, 6% growth. I think getting a lot of questions on just the spend environment in that region. What are you seeing there? And are there any kind of concerns you might have in terms of demand either from the currency fluctuations or just overall demand in certain end-markets within Europe?

Yes. Sure, Matt. So we posted a 6% growth rate – core growth in the third quarter, albeit there was actually 2 points of headwind for the containment of our Russian operations. So really it was high single-digit, 8%, on a restated basis. And Europe clearly is a watch area for us, but we haven’t seen any significant signals of movement to the downside.

Yes. I think, Matt, to build on what Mike is saying, I think in particular we continue to see very strong growth in our pharma business and that really is a global phenomenon. And – but we also saw very nice growth in our chemical and energy businesses as well. And so as Mike mentioned, it is a watch area, but the demand – from what we are seeing in the health of the order funnel continues to be there.

Great. Thanks very much.

Thank you. The next question is from the line of Brandon Couillard with Jefferies. Please proceed.

Hey, thanks. Good afternoon. Mike, could you elaborate just on the core order growth that you saw in the third quarter? And given the strength of order momentum over the last several periods, how does that inform kind of your initial thoughts on ‘23? I mean, should we still think about 5% to 7% still being relevant? And then Bob, should we expect normal 30% to 40% incrementals next year, any headwinds to consider, maybe the new ASP line?

Brandon, we are probably not ready to talk about ‘23, but what I’ll leave you with is a couple of thoughts here, which is very clearly the business has momentum and/or even though we had the highest revenue quarter ever for Agilent in this recent third quarter, we still build backlog both globally and also in China. So, our orders that exceeded our revenues in those. So, it sets us up nicely, I think for ‘23, but we’ll get to ‘23 guide when we get there.

Yes. And I think, Brandon, on your core incrementals, I mean, I think that if you look at historically, that’s where we have been. Obviously, we do have some startup costs in ‘23 for NASD and we will spell those out when we get to the numbers. But I don’t think that there is going to be anything fundamentally different on an incremental basis going forward.

Okay. That’s helpful. And then on the NASD Train B line, Mike, you said it was pushed out a little bit in terms of the launch timeline. Is that like 1 or 2 months? I thought the plan was already mid next year. And could you elaborate a little more specifically on kind of where the supply chain issues exactly what those are that are kind of pushing the delay?

I think you got the right timeframe in there, which is a month or two. It’s really been sort of specialized steel that’s required. So, I actually had a chance to see it myself, where you go into a room or you are – the steel pipe fitters are working and they are getting the area ready. They can’t close things off, because they are missing one valve or something. So we have had bits and pieces that have been missing that actually caused us certain delays. I mean, the team has been all over. I think the global supply chains are pretty well publicized, but we thought it was – we thought we should in the spirit of transparency let you know we are still on track for revenue coming out of the facility in ‘23, but maybe a month or two later than you thought initially.

Yes. And I think, Brandon, there is one more important piece. I think based on what we know today, we still expect to be at capacity at the exit of FY ‘23 as well in terms of the ramp up.

Great. Thank you.

The next question is from the line of Vijay Kumar with Evercore ISI. Please proceed.

Hey, guys. Congrats on a really strong quarter here. Hi, Mike. Thank you. Congrats on the print. And one maybe on the guidance here, Q4 at the midpoint is 11% organic. You guys just said 15%. The comps will get easier for Q4. I am curious sequentially, when you think about it, is the change just because of the cadence of how the China deferred revenues were recognized more in 3Q versus Q4? Can you just talk about the sequential assumptions here for the 4Q guidance?

Sure, Vijay. And again, we are very, very pleased with the print. So thanks for the feedback. And Bob, we didn’t use it in our script, but I think the word prudent may apply to our Q4 guide as well.

That’s right. Yes. I think, Vijay, if you think about kind of the moving pieces within China, what we did was we pulled forward some of the revenue that was deferred into Q3, but we also pulled Q1 revenue into Q4. So, Q4, I would say we didn’t have a material change one way or another. We actually feel very good that we are going to realize that full $50 million to $55 million here in the fiscal year versus having it bleed a little into Q1. And as Mike said, I mean we are not out of the woods, certainly in supply chain challenges and COVID situations. And so we thought at this point in time, a double-digit core growth is very good but also prudent, as Mike said.

I love that word prudent. Maybe one on some of the moving parts for ‘23, Mike and I am not asking for a guidance, but if I look at pricing contribution, I think we started the year at 100 basis points. We are running at 300 basis points. I think that pricing should continue until it annualizes until mid of next year. You did mention orders coming in about revenues. What is the backlog conversion? Is that a 3-month or a 6-month or a 12-month visibility that you have from backlog, any impact from NASD? And sorry, on C&E very strong, but obviously, with the macro, should we perhaps be prudent for ‘23?

Yes. So, great question, Vijay. So I think I’d like to – the headline here was as way Bob closed off his prepared remarks, we are building a strong foundation for the future. So, we have got – we had record revenues in Q3 yet we still build backlog. And some of that backlog obviously will carry into ‘23. And we – it’s probably a 3 to 6-month visibility for sure on the revenue coming from the backlog. And Bob, I don’t see that. And we agree with your thesis around pricing and the impact it will have on our ‘23 business as well. And Bob, maybe you want to add to...

Yes. The only thing – I think you are spot on, Vijay. I would say there is not a material change right now in terms of how we are thinking about NASD. And if I think about the various pieces there, they certainly set us up for a good momentum going into FY ‘23. Now there is still some unknowns in terms of kind of the macro environment, but we are expecting to have a stronger than normal backlog. We certainly have that right now and are expecting to continue that into ‘23. And then obviously, pricing is continuing to anniversary and I would expect it to be a higher contributor to growth next year, all things being equal.

Understood. Thank you, guys.

Thanks, Vijay.

Thank you. The next question is from the line of Puneet Souda with SVB. Please proceed.

Hi, Mike and Bob. Thanks for taking the questions. So, first one just LSAG, obviously, a very strong quarter and I mean, obviously, congrats on the quarter here. When you look at the 25% growth that you are seeing in LC overall, the order book being strong, can you maybe just characterize sort of from an end-market perspective, it seems like biopharma continues to do well. But geographically, can you just characterize – is this contribution from biopharma China in the quarter and how should we think about the sort of order book? Can you maybe characterize the order book more geographically? And do you expect this – again in line with sort of some of the other questions as sort of how should we think about this order book flow through – flowing through into 2023?

Puneet, you packed in a lot in that one question. But we’ll try to address it. Sorry, Mike.

I was just saying, maybe you want to take that, Bob. But I think the answer was really across the board. I mean both – I mean clearly, biopharma and pharma, our portfolio is doing really, really well there. And as I mentioned to the team the other day, we just got the most recent auto report, which shows market share movements. And as my Danish colleagues like to say, it was green as a Danish forest. Did I get that right, Jacob? So...

That’s right. That’s right, Mike.

It was across the board, but I think it’s the same story holds geographically well. So it really is a nice global story. But I think it’s more than just pharma. I know you’re getting some good C&E growth, right, for – in the advanced materials, LC/MS. We posted some really good numbers in food and the environmental market, which also are big users of LC and LC/MS. So I think it was really a broad-based story there, if I remember correctly, Jacob.

Yes. Correct, Mike. I think we’ve really seen good performance across the board, as you’re saying, Mike. And we are also seeing that the customers are really interested in our full solutions. I think PFAS is a good example of where we see a lot of interest right now both right now, but also where we see some of the big builds that is coming through in U.S. where PFAS have a prominent exposure. So we expect to continue to see momentum in that space.

I think, Puneet, just to build on what Mike and Jacob were saying, I think one of the things you’re really seeing come out in Q3 is just the strength and breadth of our portfolio. And why we haven’t talked about spectroscopy a lot in the past, it continues to be a very important part of our portfolio and solution set. And I think it fits nicely across multiple end markets. And the LC and LC/MS get a lot of headlines, but we’re more than just an LC and LC/MS business.

Got it. Thanks for that. And then just – I’ll keep it simple for my follow-up. Polymer Standards acquisition, can you characterize sort of what’s the contribution this year? And how does that enhance your offering for columns and sort of biomolecules? And should – how should we think about that overall – acquisition overall fitting into the LSAG group?

You want to take the first piece of that?

Yes. Yes, I’ll – it’s not a material business. We estimate that’s less than $10 million annualized today. That’s the 0.1% that we built into our guide for Q4. But more importantly, I think strategically, I’ll let Jacob talk about the merits of the portfolio and how we think it’s going to continue to drive growth for us.

Yes. Thanks for that. And we have a long-standing relationship with PFS, so we knew exactly their strength. And we’ve been very impressed with what they have done in the polymer business for the – for a long period of time. And particularly, our interest was intrigued when we also see polymer science going from advanced material into biopharma, where we see a lot of opportunities. And PFS have done a wonderful job using our instrumentation together with their columns and also an informatics pack they have built to really go after a segment of the market and also the expertise in the field. They have more than 500 application nodes within this field. So we can really leverage that with the strong presence we have across the globe to really accelerate that business opportunity that has been up over the past decades, really.

Got it. Okay, great. Thanks, guys. Congrats again.

Thank you. Appreciate it.

Thank you. The next question is from the line of Rachel Vatnsdal with JPMorgan. Please proceed.

Hi, thanks for taking the questions and congrats on the nice quarter.

Hi, Rachel. Thank you.

The first up on China – thank you, Mike. Yes. Great to hear that some of that catch-up in China was pulled forward there. And then you also pointed to double-digit growth in the region for that ex acceleration recovery. So first off, can you just walk us through specifically what drove that pull-forward on the catch-up from lockdown? And are you seeing an acceleration of demand catch up in China? And then second, how are you thinking about that longer-term growth within China because that we source of upside for the year?

Great. So I’ll start, Bob, here. So I’d have to say it was an extraordinary effort of our team in China. I mean people sacrificed and worked tremendously hard. We had people coming into our factories and living at the factories. They slept and worked at the factories for the entire period of when before you couldn’t really get out beyond – back to your local community. So they did that for several weeks both in our logistics operations as well as our factories. And that allowed us to get our global GC production going as well as the import/export of our products as well. So I have to say it really was extraordinary effort of the team that made that happen. And we’re very optimistic about our ability to continue to grow well in China. In Q2, I think we talked about a greater than 20% order rate. We posted a number of 29% growth in Q3. Yes, we still built backlog in the third quarter in China. So I think we’re well positioned for the fourth quarter. And Bob, I said that probably does represent a level of upside potentially with things continuing to develop as we hope. The wildcards from my perspective are how much money could come into the segment from government stimulus. I know they’re talking about some of the things we haven’t seen any specifics. So that would be something that would be there on a positive. But again, our demand really is coming from the core private sector, commercial sector around pharma and C&E. We think those things are sustainable.

Yes. Exactly, Mike. I think you mentioned Q2 kind of order growth rate, and Q3 was in that same range. And so we’re seeing very strong demand and been able to do a fantastic job of ramping up that capacity, and we expect that to continue into Q4.

Great to hear. And then last one for me, just on the C&E segment. So 22% growth is quite impressive, and that growth has really continued to accelerate in recent quarters in that end market. So how should we be thinking about that longer-term outlook for C&E, especially given some of the macro dependence on that portfolio?

Well, we think that the structure of this marketplace has changed over the last few years. And yes, that’s still a segment that’s tied directly to what happens to the global GDP situation. But we had – it in my comments, there’s secular demand happening here, particularly in advanced materials when there’s investments being made in battery technology, more sustainable materials, semiconductors, onshoring of production. So we think those trends are here for a number of years. I think our view is the sector has probably got a higher growth rate than we viewed it having a couple of years ago because of the secular aspect of growth in C&E. And Bob, what else might you add there?

I think – as you said, I think one of the things that I think is really important, don’t take ‘22 and take – build it into your model because we don’t think that, that growth rate is going to continue. We certainly are pleased with it. But I think the other more important piece is we have a very strong right to win in the C&E business. We’re a leader in this space and feel good about our portfolio. And as Mike said, this is an area that we are seeing kind of a renewed sense in some of these areas that we do think that has many years to come in terms of investment.

I’m going to use an undisputed leader in the space.

I won’t disagree.

Thanks for the question, Rachel.

Great, thank you.

Thank you. The next question is from the line of Derik De Bruin with Bank of America. Please proceed.

Great. Thanks for taking the question. This is Mike Ryskin on for Derik. I want to follow-up on your comments on price.

Hi, Mike.

Hi, guys. You sort of indicated that price continues to sort of grow as you go through the year. Is that a factor of the timing of when orders are converted to revenues and when you’re recognizing those revenues? So it’s just more of a dynamic of that? Or is this an incremental price increase that you’re building in as you go through the year? And just alongside that, any comments you could take in terms of reception to price? Any pushback or any particular areas where are you able to take more versus last? Just sort of give us an update on the pricing dynamic as you go through the year.

Yes. Hi, Mike, this is Bob. I’ll take that ear. It’s the former. And so when we take price, it takes some time to get through the backlog. And so we’re seeing the price realization from the orders that – the price increase that we took back in the beginning of the calendar year. And really, what we’re trying to do is cover our costs. And we’re seeing increased logistics costs and increased material costs. And so we’ve taken it across the board, but also recognizing where the costs are higher, we’ve taken those prices up higher. We haven’t really heard any pushback, I think, as evidenced by our strong order growth. And then also we look very closely at cancellations or – within our order book, and that continues to be very low. And so I think our customers understand why we’re having to raise prices because of the inflationary environment. And I think to date, we’ve been able to actually generate more price than I think we anticipated at the beginning of the year.

Okay. Great. And then a follow-up. You’ve commented on the balance sheet that you’re getting the leverage lower and lower. I’ve done a couple of deals here and there in the past couple of years with the defended to be on the much smaller side. So could you talk about your willingness to lever up a little bit to put a little bit more of that capital to work? And if so, what are the types of assets you’re looking for? Sort of are sellers willing to engage in this market? Or is the – how are things proceeding on that front – on the BD front? Thanks.

Yes. I think we’ve been public about being willing to take on bigger deals than what we have had historically. I think we’re still – we have the benefit of having a very strong balance sheet. We’re going to first invest in our business. We think that that’s the greatest opportunity, but we’re always out on the lookout for M&A. And as you said – I would say the pipeline continues to be healthy. The dynamic has certainly changed in the last 9 months, particularly on the public market side, and I think there’s some good assets out there. It’s probably taken a little longer on the private market side, which is where we tend to focus our efforts. But I can tell you that we have – the beauty of our model is that we have organic growth first and M&A as kind of an adder on top of that. And so it is something that we’re continuing to look at and would be not uncomfortable levering up a little higher than where we are today for the right deal and if the economics work.

Absolutely, Bob.

Is that 3x to 4x lever or...

I’m not – that’s pretty rich. But I think it all depends on what the right asset and what it looks like.

Got it. Thanks.

Thank you. Next question is from the line of Josh Waldman with Cleveland Research. Please proceed.

Thanks for taking my questions. Just two for you guys. First, Mike, wondered if you could provide more context on the supply chain situation, how supply and cost to track versus your expectations over the last 90 days. Have you seen any relief on supply? And then it sounds like you built backlog in Q3. Curious whether your fourth quarter guide assumes any work-down in the backlog given recent order rates?

Yes. So I’ll let Bob handle the second question, and I’ll start with the first one. So supply chain challenges are still out there, but our team continues to do an excellent job navigating them, getting the material that we need for our customers. We continue to have very, very low order cancellation rates is something we watch like a hawk. And I think we’re managing the price changes. So I think in the early days of things, we were kind of surprised at what things would cost on the market for chips and others, but I think we’ve now found ways to work that and then offset that with some of the pricing actions that we mentioned earlier. So I think if anything, it’s probably trending in a more positive direction, albeit is still challenging out there.

Yes. And I would say – on the second question, Josh, I would say, first and foremost, demand continues to be very strong in our marketplace. And so we’re expecting order growth to continue in our fourth quarter. As you know, that typically is one of the larger quarters that we have for our sales organization and certainly for our customers as well. That being said, I would expect maybe some slight degradation in backlog just given, again, the deferral that we’re talking about within China. But don’t interpret that as us seeing anything slowing in the marketplace.

Got it. And then kind of along those lines, wondered if the group has any initial thoughts on pharma budget flushing this year given the strength in orders from these accounts. Curious at this point if you’re getting any indication that maybe the strength in the order book is reflecting pull-forward or just not seeing that yet?

Yes. Josh, I’m going to pass this call over to Padraig. He’s the closest to what’s going on. As you know, he heads up our one commercialization addition to running our ACG services business. So Padraig what’s your thoughts on that?

Yes. No, I think it’s pretty steady, Mike. We’re not seeing any pull-forward at this point. And of course, the team are very focused on key end-market workflows where we have the best chance to meet the customer needs. So we’re seeing a very steady-state order rate with not much pull-forward.

Got it. Appreciate it.

Welcome.

Thank you. Next question is from the line of Jack Meehan with Nephron Research. Please proceed.

Thank you. Good afternoon.

Good afternoon.

I wanted to ask about the chemical and energy – good afternoon. So the chemical and energy acceleration, my first question is on the chemicals customers. So your commentary sounds pretty bullish. There has certainly been some headlines from some of the big European chemical players that have been a little bit more mixed though. So it would just be great to get your perspective on how you feel about the durability of that customer class and kind of squaring your view versus what we might be hearing from others in the market?

Yes. That maybe more regionally specific to Europe, where we did see a level of growth a little bit slower than we’ve seen in the Americas and China. So I’d say that’s probably more regionally specific. And as we mentioned earlier on the call, Europe remains sort of a watch area for us because of, obviously, obvious challenges in that region right now. But I think we think it’s pretty durable right now. I mean, I think – remember, the chemical piece is going into some of these supply chains as fabs go up and other things. So it’s fueling some of the efforts in the advanced materials area. Bob, I know that you and Jacob looked at this a little more closely. I don’t know if there’s anything else you’d add to that?

No. I think you’re spot on, Mike. I mean if we looked across the – all regions grew in C&E as, Mike, you were saying, but Europe was below the average. And so – but I think over time, that investment in some of these areas, we think, is ongoing demand.

Great. And then it was only a week ago, the CHIPS and Science Act got signed into law. I’m not sure if you have any early perspectives as to what this might mean for Agilent. If you could call out kind of the businesses that you think could benefit from some of the funding that’s going in? And can you just maybe call out what did the advanced materials business grow this quarter? Thanks.

Yes. So I’m going to – I’ll let Bob handle the second question. He’s got more numbers on the pages than I do in front of him. But relative to the recent enactment by Congress, we see some real upside for us. And we actually were just talking about that before this call. I think the big debate is when is it actually going to release. But Jacob mentioned earlier PFAS. There’s – what we can see there’s some funding in there for PFAS, which will help our LC/MS and GC/MS business and then tied to the chips, both the upstream and downstream side, the semiconductor fabs that play right into spectroscopy strength that that we mentioned as well. And Jacob, perhaps you want to add a few other things.

Yes. I think, I mean, actually, even though spectroscopy and GC are the big winners in the – related to the CHIPS Act, we actually see across the board. It’s both the mass spec business, also the LC/MS that Mike was mentioning and then, of course, a lot of our consumables also. And so we see a lot of opportunities here. I think both the CHIP Act, but also the other bill, the – what’s it called, the...

Inflation.

And the Inflation Bill here, all of them are driving some of our technologies. So we see a lot of opportunities in that. Now it all comes down to timing here.

Yes.

And the answer to your last question, it was above 30%.

Thanks. Super. Thank you, guys.

Thank you. The next question is from the line of Elizabeth Garcia with UBS. Please proceed.

Hey, guys. Thanks so much for taking the question. Congrats.

Sure, Elizabeth. No problem. Thank you very much.

Yes. Great. So maybe I just didn’t catch it, but I know there was the planned shutdown this quarter for NASD. But just thinking about kind of how we should think about kind of close this quarter and then maybe sequentially as we head into the next quarter, in 4Q?

Bob, you and Sam want to tag team on this one?

Yes. So we had a planned shutdown this quarter, expect return to strong growth in Q4 for NASD.

And Sam, I don’t know if you want to add some comments about what you’re seeing on the market as well?

Yes. Yes. Thanks, Mike, and thanks for the question. I mean, listen, it was a good quarter. We had the planned shutdown you already heard about. But I want to note that we are very pleased with the trend that we’re seeing that increasingly these very therapeutic oligos that we’re working on that the treatment modalities beyond the more rare indications are expanding into diseases for larger populations. For example, you might have seen just the recent news from Alnylam that reported favorable results on their Phase 3 study for patisiran. And this is for patients with ATTR for cardiomyopathy. And as Alnylam’s supplier for the API and patisiran, we’re of course, excited. We also think this is indicative of just generally the trend that we’re starting to see in the promise of therapeutic oligos. And our book of business remains strong as we go into the quarter and as we will go into next year.

Thanks, Sam. I probably should elaborate a little more, Elizabeth, on the routine. I think it’s also important understand why we were shutting down, right? It’s both for routine maintenance but also a critical milestone in the construction of Train B. So we tied the infrastructure together. So that’s why we’re speaking with confidence about our ability to get revenue in ‘23.

Great. Great news. And I guess just one more for me thing on the theme of kind of biopharma. So you kind of – you’ve announced the collaboration with APC for real-time process monitoring. We also had announcement Merck around downstream PAT. It would be great to kind of get your thoughts around the space and kind of the work you’re doing here.

Yes. Yes. I’ll make some high-level comments, and then maybe, Jacob, you want to provide some specific as well. So we love this space. And we’ve been putting a lot of our investments over the last several years targeted at the biopharma space. And you see it reflected now in the growth rates and actually how we’re shifting the mix of our pharma business both in the lab but also plays outside the lab. And Jacob, I know you’ve got a lot of interesting things happening there.

Yes. Thanks for that, Mike. And we are very interesting in the bioprocessing space, especially from the unlatent perspective, where we truly believe that the – that instruments will start to move into the manufacturing. Historically, we have had in the small molecule space, the QA/QC sitting in a different lab. And now we see the opportunity to bring adline online LC and LC/MS technologies into the bioprocessing space itself or manufacturing space itself. And hence, we have decided and we have made collaborations with leaders in that space, Merck being one of them, where we’re developing, of course, based on our individual strength new solutions to address that. But we’re looking at the multiple partnerships in this space here, and we’re really bullish around that.

Thanks so much.

Welcome.

Thank you. The next question is from the line of Patrick Donnelly with Citi. Please proceed.

Hey, guys. Thanks for taking the question.

Hi, Patrick. Sure.

Mike, maybe one for you – hey, how are you? Maybe one for you just on China specifically in terms of the linearity of the quarter. Can you just talk about – I mean it sounds like things clearly picked up as we went, obviously, on the supply side and you guys kind of got back online. Can you talk about the demand environment as well? Obviously, you guys are the only ones who have kind of a full July in the quarter. So just curious what kind of ramp you saw throughout the quarter. And then again, as we work our way through August here, I mean, it certainly seems like the order growth has been encouraging. But maybe just talk about how things trended there throughout the quarter kind of going into this quarter.

Great question. Yes, sure. Happy to do so. I think it’s a great question. And I’ll pass my response into two areas: orders and revenue. So I think I would say the order intake throughout the quarter was there. It was linear, smooth, no, no big lumpiness and the fact that what we saw in the second quarter as well. So now as you know, the revenue side has been a different story because the ability to get product in and out of China as well as produced in China was affected by the COVID-19 shutdowns. And that’s where we saw maybe a slower start first few weeks of Q3, but then the team’s efforts really started paying off when we were able to get back into our facilities. So I think the ramp rate of revenue had looked at a little different profile throughout the quarter. And Bob, I don’t know if you’d add anything?

Yes. No, that’s exactly right. I mean if you think about the months in our quarters, May was very light. As we talked about, we were ramping up, and I think we exited May at like 25% capacity. And then the teams really started kicking in in gear as the COVID restrictions started to ease. And July was very strong as they not only got the production up to full capacity, but then were able to not only satisfy existing demand, but also some of that deferral bring it in.

And they were really focused on meeting the expectations of our customers who wanted the product. And as I mentioned earlier in my earlier comments, we had teams working a lot of overtime, working in the factories over the weekend. So really some heroics that got us back on track.

Yes. It’s encouraging to hear. And then, Bob, maybe one for you just on the margin side. You talked about pricing a few times on the call. Can you just talk about, I guess, the flow-through to the margin side? You basically said it’s offsetting some of the increase in costs. Maybe just talk about the give and take on that front in terms of pricing increases, the cost increases and how we should think about kind of that algorithm going forward on the margin piece.

Yes. I think if you looked at our 150 basis points year-on-year, it was roughly 50 basis points in gross margin and then 100 basis points of leverage on the SG&A OpEx side. And I think if you looked at that, there was some productivity. As I mentioned, price probably would have kept things flat. And then the other 50 basis points were a benefit of some productivity that the OFS team did and then the volume. That’s the thing that really – I think really helped drive a benefit in gross margin is just the amount of product that was able to be produced through the factories. And so that I think – think about pricing as covering our costs. And then if those incrementals around better-than-expected revenues drove the margin improvement on the gross margin side. What I would say is we continue to leverage the OpEx side to drive our productivity as a company overall.

Helpful. Thank you, guys.

Welcome.

Thank you. The last question is from the line of Tim Daley with Wells Fargo. Please proceed.

Hi, everyone. Thanks for the time.

Sure, Tim.

Quickly, wanted to touch back on NASD here. So if we’re just thinking about when we’re past the Train B build-out, things have kind of normalized a bit, you’re starting to leverage those investments and upfront costs here, what’s the clean run rate margin profile to think about in that business, I guess, initially when we get past that capacity build-out here?

And Tim, that question brought a smile to Bob’s face. I’ll let him answer that.

I would say very good. I’ll leave it at that.

The company average, right?

Yes. Yes.

Alright. I can work with that. And then a quick one here on capital allocation. So another strong quarter of buybacks. Just thinking about the go-forward outlook, how should we be sizing this in our heads? The $1 billion, you’ve already hit in ‘22 with a quarter left to go. Is that a good base for the out-years? Just kind of – just general thoughts on the capital allocation hierarchy as some assets are probably getting a bit cheaper and more attractive here.

Yes. I mean, I think our methodology really hasn’t changed. I think what we do is invest for growth first internally, and then we look for value-accreting M&A. But if there isn’t anything imminent, we’re also not going to keep cash on the books. And if I looked at historically, we’ve generated roughly 2% of earnings per share growth kind of below the line through share repurchase. And I think that that’s probably a fair way to look at it going forward. But in terms of – to be very clear, our priorities are investing for growth internally and then M&A before we would do share repurchases. And we’re also committed to continuing to grow our dividend as well.

Alright. Great. That’s it from my end. Thank you.

You quite welcome.

There are no additional questions waiting at this time, so I will turn the call back over to Parmeet for closing remarks.

Thanks, Hannah, and thanks, everyone, for joining. With that, we would like to wrap up the call for today. Have a great rest of the day.

That concludes today’s call. Thank you for your participation. You may now disconnect your lines.