Agilent Technologies Inc. (A) Q1 2021 Earnings Call Transcript

Agilent Technologies Inc. (NYSE: A) Q1 2021 earnings call dated Feb. 16, 2021

Corporate Participants:

Ankur Dhingra — Vice President of Investor Relations

Mike McMullen — President and Chief Executive Officer

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Padraig McDonnell — Senior Vice President, Agilent President, Agilent CrossLab Group

Jacob Thaysen — Senior Vice President, Agilent President, Life Sciences and Applied Markets Group

Sam Raha — Senior Vice President, Agilent President, Diagnostics and Genomics Group

Analysts:

Tycho Peterson — JPMorgan — Analyst

Brandon Couillard — Jefferies — Analyst

Vijay Kumar — Evercore ISI — Analyst

Puneet Souda — SVBL — Analyst

Dan Leonard — Wells Fargo — Analyst

Doug Schenkel — Cowen — Analyst

Matt Sykes — Goldman Sachs — Analyst

Mike Ryskin — Bank of America — Analyst

Daniel Brennan — UBS — Analyst

Patrick Donnelly — Citi — Analyst

Steve Willoughby — Cleveland Research — Analyst

Paul Knight — KeyBanc — Analyst

Presentation:

Operator

Good afternoon and welcome to the Agilent Technologies First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] And now, I’d like to introduce you to the host for today’s conference, Ankur Dhingra, Vice President of Investor Relations. Sir, please go ahead.

Ankur Dhingra — Vice President of Investor Relations

Thank you, Jason and welcome everyone to Agilent’s first quarter conference call for fiscal year 2021. With me are Mike McMullen, Agilent’s President and CEO and Bob McMahon, Agilent’s Senior Vice President and CFO. Joining in the Q&A after Bob’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 Padraig McDonnell, President of Agilent CrossLab Group. This presentation is being webcast live. The news release, investor presentation, and information to supplement today’s discussion along with a recording of this webcast are made available on our website at 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 the acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of January 31st. We will also make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are 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 would like to turn the call over to Mike.

Mike McMullen — President and Chief Executive Officer

Thanks, Ankur and thank you everyone for joining us today on our call. I’m very pleased to be on the call for you today. We are off to an excellent start to our fiscal year. The Agilent team delivered outstanding results in the first quarter. The momentum in our business continues. Revenues for the quarter $1.55 billion. This is up 14% on a reported basis and 11% core, exceeding our mid-January revised expectations. Also, as expected, COVID-19 tailwinds added roughly 2.5 points to our overall growth. Operating margins are a healthy 25.5%. EPS of $1.06 is up 31% year-over-year. Overall, a very impressive start to 2021.

Our growth is broad based. All three of our business groups delivered double-digit growth. All regions grew with the two largest leading the way. China grew 25% and the Americas posted 13% growth. We continue to see strength in most of our end markets led by pharma growing 20%. These results are a testament to our build and buy growth strategy and the Agilent team’s relentless customer focus. Demand remained strong for the full breadth of our offerings. We have been gaining market share in key areas. We are clearly keeping our foot on the gas.

Now, let’s take a look at our performance by business group. The Life Sciences and Applied Markets Group generated $722 million in revenue, up 13% on a reported basis and up 11% core. LSAG’s growth is broad-based across end markets and geographies. We are particularly pleased with our cell analysis business. Cell analysis grew in the high-teens led by biotech, which grew 26%. Growth is also strong at liquid chromatography and mass spec product lines with both growing in the teens. Overall, our LSAG business saw very strong demand as many customers utilized their end of year capex budgets and our market share gains continued. From an end market perspective, food and pharma led the way for LSAG.

Continuing our biopharma investment focus, we introduced new updates to our MassHunter LC/MS software. This new software enables data integrity consists with important regulatory requirements for our biopharma customers. As we continue to build our digital lab, we introduced the Agilent 7850 ICP-MS System, which provides new smart digital tools to improve workflows. LSAG’s broad and continually strengthening portfolio is well positioned and continues to outperform the industry.

The Agilent CrossLab Group posted revenues of $532 million. This is up a reported 13% and up 10% core. ACG’s growth is also broad- based across end markets and geographies. Growth is strong at both services and consumables. Our digital investments in scale are adding significant value. We continue to drive improved attach rates to Agilent’s large installed base of instruments. Annual service contract renewal rates and growth was strong in the quarter as we continue to build a more resilient and higher growth business. The Diagnostics and Genomics Group revenues are $294 million, up 18% reported and up 15% core. Growth is broad-based led by our NASD oligo business. Our genomics product portfolio grew double-digit aided by COVID-19 related to qPCR demand. We also achieved strong growth in our core NGS sample prep business.

As mentioned earlier, overall company growth is broad based across most of our end markets. The pharmaceutical and food businesses led the way both growing strong double-digits. We also posted 10%r growth in the environmental and forensics market. Chemical and energy grew 2% and we see an increased business activity in the C&E space. The academia end market is down 1% with many university labs still operating in a constrained environment. We’re also continuing our efforts in the battle against COVID-19. We have completed our development and clinical validation for a serology assay to detect COVID-19 antibodies. We plan to submit to for qPCR based test for COVID-19 detection and plan to launch in Europe in the next couple of months and submit for emergency use authorization in the U.S. within the same time frame.

I’m also pleased to share that Barron’s again recently named Agilent one of America’s most sustainable companies. This marks the third year in a row we’ve been included among the Top 3 companies in this ranking. We’ve also been the leader in our industry all four years that Barron’s list has been published. We’re very proud of this honor. Sustainability is a key priority for our company. You know, when I look back on the uncertainty we faced at this time last year, I’m so proud about at what the Agilent team accomplished: all-time high customer satisfaction ratings, building momentum in all our businesses, and delivering excellent results.

Our first quarter results are another compelling proof point that we are building an even stronger company and market position during the pandemic. As we discussed at our December investor event, our diverse, industry-leading product portfolio has never been stronger. Our building and buying growth strategy with a focus on higher growth markets continues to deliver. Our M&A finnel front as robust and remains focused on growth accretive M&A opportunities. We are targeting companies and markets where we see potential for significant long-term growth and Agilent is in a strong position to win.

As we look ahead, we have a sense of realistic optimism. We have solid momentum. We’re winning in the market and we have the right team to continue to succeed. As a result, we are raising our core growth guidance range to 6.5% to 8% for the year. As you may recall, we recently guided to a long-term core growth rate of between 5% and 7%. So we are certainly off to a good start in 2021 and we have no intention of slowing down. We have also raised our earnings guidance for the year. In December, I shared Agilent’s long-range plan of margin expansion at 50 basis points to 100 basis points a year. We are now guiding towards the top end of that range for 2021. Bob will share more details on this in his remarks.

I couldn’t be more pleased with how we have started the year. We have momentum. Our team is strong and energized. We are gaining market share in key areas and we have an even more promising outlook for the full year. Thank you for being on the call today and look forward to your questions. I will now hand the call off to Bob. Bob?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Thanks, Mike, and good afternoon everyone. In my remarks today, I’ll provide some additional details on Q1 revenue and take you through the first quarter income statement and some other key financial metrics. I’ll then finish up with our outlook for 2021 and the second quarter. Unless otherwise noted, my remarks will focus on non-GAAP results. We are very pleased with our first quarter results as we saw strong broad-based growth exceeding our revised expectations. Revenue for the first quarter was $1.55 billion, reflecting reported growth of 14.1%. Core revenue growth was 11.3% while currency contributed 2.8 points of growth. N

Ow before I get into the end markets, Mike’s earlier comments bear repeating. All three business groups delivered double-digit growth, core growth in the quarter. Our superior value proposition continues to resonate with our customers and our team executed well capitalizing on recovering demand in our end markets. Pharma, our largest market was strong across all regions delivering 20% growth. Growth was led by NASD which experienced significant growth in the quarter, albeit against the easiest comp of the year. NASD contributed 4 points to the overall pharma growth rate. We continue to be very pleased about the ramp of the Frederick oligo facility and the recently announced capacity expansion in Frederick is on track.

Small molecule grew mid-teens while biopharma excluding NASD delivered 20% growth driven in part by strong demand for LC and mass spec instrumentation. We saw strong year-end demand from pharma customers and are also seeing increased business related to the characterization of oligo-based therapies and vaccines. The food market also experienced strong double-digit growth during the quarter, posting a 22% increase in revenue. Our business grew in all geographies driven by increased demand for food safety and quality testing. China is leading the way driven by investments in both commercial and government entities. Environmental and forensics grew double-digits coming in at 10% core growth. Broad regional growth reflected strong tech refresh or replacement demand from contract labs.

Our diagnostics and clinical revenue grew 9% during the quarter and has benefited from growth in COVID-related applications, primarily in the Americas and Europe. Our pathology business grew slightly as non-COVID testing continues to improve, but has not yet recovered to pre-pandemic levels globally. While our diagnostics and clinical end market in China is still small, it experienced strong growth due to improvements in non-COVID testing and the uptake of our clinical LC/MS. The chemical and energy end market continued the recovery we saw last quarter and grew 2% in Q1.

We continue to see signs of increased business activity, particularly in specialty chemicals and engineered materials along with encouraging improvements in the macro environment. And while we are optimistic, we are not yet reflecting a change in our forecast for the rest of the year. And as expected, the academia and government market recovery has lagged the other end markets, down 1% year-on-year as research labs are still not operating at full capacity. We continue to expect a slow but steady recovery throughout 2021.

On a geographic basis, all regions grew. China grew 25% leading all geographies led by the food and pharma markets. The Americas delivered a strong double-digit performance during the quarter with 13% growth while Europe was up 6% both also led by pharma and food. Now turning to the rest of the P&L, the first quarter gross margin was 55.8%, up 10 basis points year-on-year. Adjusting for the exchange rates, gross margins improved 50 basis points. Our operating margin for the first quarter came in at 25.5%. This is up an impressive 260 basis points from last year driven by volume and spending discipline and this result includes the impact of increased strategic investments we started last quarter. Our top line growth coupled with our operating leverage helped deliver EPS of $1.06 per share, up 31% versus last year. Our tax rate was 14.75% and our share count was 309 million shares as expected.

Now on to the cash flow and the balance sheet. Our operating cash flow continues to be very strong. In Q1, we had operating cash flow of $238 million, a 43% increase over last year after adjusting for last year’s one-time tax payment. This performance shows the strength of our business model and provides financial flexibility going forward. We continued the balanced capital deployment strategy we highlighted at our Annual Investor Event in December. In the quarter, we invested $41 million in capital expenditures, paid out $59 million in dividends and repurchased 2.9 million shares for $344 million. And as we announced earlier today, our Board of Directors authorized a new $2 billion share repurchase program replacing the current program. We ended the quarter in a strong financial position with $1.3 billion in cash and $2.5 billion in debt.

Now moving on to the outlook. We have had a strong start to the year and while there are still uncertainties in front of us and the business environment remains fluid, we have solid momentum and we see continued recovery in our end markets, albeit at different rates and as a result, we are increasing our full-year projections for both revenue and earnings per share. For revenue, we are increasing our full-year to a range of $5.825 to $5.900 billion, up over $200 million at the midpoint and representing reported growth of 9% to 11% and core growth of 6.5% to 8%. This increase reflects strong Q1 results and some improvement in our outlook for the remainder of the year. The increased guide assumes stronger performance in most of our end markets.

The academia market continues to track as expected in our initial plans and while business activity in the chemical and energy has picked up, we have not yet included any improvement in that market in this updated outlook. In addition, we have not included any revenue associated with either the serology or qPCR COVID assay in the outlook. As Mike mentioned, we also feel very good about expanding our margins. During the investor event in December, we provided long-range plan of annual margin expansion in the range of 50 basis points to 100 basis points.

Given the volatility in results during 2020, our margin expansion profile will vary each quarter. However, we feel confident about our full year margin expansion being towards the top-end of that range, while also investing for future growth. The higher sales and margin expansion coupled with maintaining our tax rate at 14.75% and a lower share count of roughly 307 million shares increases our fiscal 2021 non-GAAP EPS to a range of $3.80 to $3.90 per share. This is growth of 16% to 19% for the year.

Now for the second fiscal quarter, we’re expecting revenue to range from $1.37 billion to $1.39 billion representing reported growth of 11% to 12% and core growth of 7% to 9%. We expect second quarter 2021 non-GAAP earnings to be in the range of $0.78 to $0.80 per share with growth of 10% to 13% as we approach the one-year anniversary of the significant reduction in expenses in Q2 of last year. Now, before opening the call for questions, I want to say I couldn’t be more proud of the Agilent team in driving such strong performance. We’ve gotten off to a great start this year and I’m personally very excited to know what this company is capable of moving forward. We have very strong momentum, the right approach that leads me to believe that we’re on a very solid path for Q2 and the rest of 2021. With that, Ankur, back to you for the Q&A.

Ankur Dhingra — Vice President of Investor Relations

Thanks, Bob. Jason, if you can provide the instructions for Q&A please.

Questions and Answers:

Ankur Dhingra — Vice President of Investor Relations

Absolutely. [Operator Instructions] Your first question comes from the line of Tycho Peterson from JPMorgan. Your line is open.

Tycho Peterson — JPMorgan — Analyst

Hey, thanks, congrats here on the pre-announcement. On that note, Mike actually, I’m wondering if you could talk a little bit about what drove the delta to the pre-announcement and then importantly on sustainability, it sounds like you’re not really calling out any kind of pull forward here. Curious as we think about it and particularly that biopharma strength in the mid-teens growth in LC and MS, how are you thinking about the sustainability there?

Mike McMullen — President and Chief Executive Officer

Well, first of all, Tycho. Thanks for the recognition, really proud of the performance to even top our earlier revised expectations for the quarter and I’d say that as we got into January, business in January was stronger than we had anticipated and I think it was on a geographic perspective, you saw the strength in China. Obviously, that was higher than we’re thinking as long as really good strength in the Americas led by pharma and the food market I’m sure we’ll dial in today on the call about the food market, which had both growth in China as well as the Americas. And then no pull forward. So it was a clean quarter with January being stronger than we had anticipated when we already had announced an increase in our revenue outlook for the quarter. Bob I don’t know if I missed anything on the —

Robert W. McMahon — Senior Vice President, Chief Financial Officer

No, you got it.

Mike McMullen — President and Chief Executive Officer

Okay so thanks for the comments, Tycho.

Tycho Peterson — JPMorgan — Analyst

[Speech Overlap] And then on the LC/MS strength, up mid-teens, certainly better numbers than we’re seeing from a lot of your peers. Can you just talk to that?

Mike McMullen — President and Chief Executive Officer

I think that it’s a continuation of the story that’s been underway for several quarters. You know we’ve continued to innovate and provide value to the customers really see in our offerings coupled with our approach to our field engagement and really maintaining our field force when our customers needed us most. We’re getting the business and it’s very clear that not only is it a whether we saw — particularly in some of the pharma and non-COVID areas where they were basically making sure that they spent the capital they had allocated for 2020. We got all that business, but it’s more than that. It is a market share gain story as well for us. So I think it’s a combination of backdrop of investment by the pharma world, but also our ability to gain share and Bob, I know you’ve taken a close look at this and —

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, I think Tycho to Mike’s point I think one of the things we feel really good about is just our portfolio and our offerings to our customers and I think one of the things that we’ve seen is our responsiveness continues to improve and that’s been evidenced by the increased customer satisfaction that we’ve seen and as Mike said, as the year-end capex spending happened, we were there and I think we took more than our fair share and we do think that this is an area that we continue to invest behind. Mike talked about the investment in the MassHunter software, which I think is going to really help continue this momentum that we have going forward from a compliance standpoint and it’s an area of focus and we’re very excited about the biopharma business going forward.

Mike McMullen — President and Chief Executive Officer

Yeah and there’s a real holistic story here as well. You know the story already Tycho with our ACG business complementing — on the services and consumables complementing what we can do on leading innovative instrument solutions.

Tycho Peterson — JPMorgan — Analyst

And before I hop off, just one on ACG, you grew mid-20s in China off of low teens comp. So I thought like the bar was low. Are you do anything there structurally to kind of drive that acceleration?

Mike McMullen — President and Chief Executive Officer

You know what, I’m going to let Padraig talk a little about that. Padraig, why don’t you share your thoughts on that?

Padraig McDonnell — Senior Vice President, Agilent President, Agilent CrossLab Group

Yeah, thanks, Mike. I think it’s a combination of our scale on our service business in China and our connection with customers and also we’ve been investing in a number of years in our digital capabilities in China, which is really seeing a lot of pull through from the customers in all markets. So really driving the business forward and we see it sustaining over the next period.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Tycho, just to build on what Padraig is saying, I mean this is an area we’ve also increased our investments in people on the street and as we think about, Mike mentioned this in his script, actually our focus on actually turning ongoing revenue into service contracts. This is an area where we’ve had a specific focus in China there and it’s really helped us and so we’re — that productivity aspect continues to play out in China.

Tycho Peterson — JPMorgan — Analyst

Thanks guys.

Operator

Your next question comes from the line of Brandon Couillard from Jefferies. Your line is open.

Brandon Couillard — Jefferies — Analyst

Hey, thanks, good afternoon.

Mike McMullen — President and Chief Executive Officer

Hey, Brandon.

Brandon Couillard — Jefferies — Analyst

Maybe Mike, could you elaborate on your comment as far as beginning to see some improved activity in the C&E market and maybe Bob, could you give some color on instruments versus aftermarket growth in the first quarter.

Mike McMullen — President and Chief Executive Officer

We’re really talking about order activity, right. So we’re seeing a lot of discussion with our field teams, particularly in the area what I would call high value chemical, specialty chemicals. So there’s a lot more discussion going on with our field teams right now and I think our customers are feeling more confident about the economic outlook and the end market demand that they can anticipate in the coming quarters and as you know this is against a backdrop of a lot of pent-up demand where investments have been deferred and we’re seeing — continue to see strong PMIs, but as you heard me before — I shared the story before, Brandon, I’m always reluctant to call the turn until we actually see a couple of quarters. So while we’re optimistic about what we’re seeing so far, we’re not ready yet to put it into the formal guide for the year.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah and just on the second part of your question, Brandon. Our instrumentation was roughly flat and ACG was up mid-single digits.

Brandon Couillard — Jefferies — Analyst

Thanks, Bob. Then one follow-up for you, Bob. Gross margins in the first quarter were a little better than we expected. Are you still thinking that the full year is still relatively flat to down and any chance you could quantify the impact of the NASD capacity build on gross margin in the first quarter?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, it was a little lower than — we would expect that to be higher in the back half of the year as we continue to ramp up, so it didn’t really have a material impact on the first quarter. If you recall, we talked about that being roughly about 20 basis points for the full year. And that really didn’t have an impact in the first quarter. And in terms of the overall year, I would say we’re slightly more optimistic kind of given where certainly the first quarter came in and that’s part of the increasing our top end I would say of the margin expansion. It’s a combination of a little more in gross margin, but most of it actually will be in the operating expenses.

Brandon Couillard — Jefferies — Analyst

Great, thank you.

Mike McMullen — President and Chief Executive Officer

You’re quite welcome.

Operator

Your next question comes from the line Vijay Kumar from Evercore ISI. Your line is open.

Vijay Kumar — Evercore ISI — Analyst

Hey guys, congrats on a really solid start to the year and thanks for taking my question. I guess for my first one, Mike. The guidance here, I guess, Q2, your comps are pretty easy. You just did 11% in Q1. Could you perhaps comment on the Q2 and why that should step down and when you look at the annual from an end market perspective, if C&E didn’t change I guess is this biopharma that’s changing for the annual outlook?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Let me take a shot at it and then I’ll turn it over to Mike. Vijay, thanks for the acknowledgement. Yeah, I’ll take the second question first and then go back to the first — second quarter. If we think about where the full year is, it’s mainly in that pharma and food markets across all of the regions that we see the uptake and we are optimistic about chemical and energy, but we’re not yet putting it into the forecast. It’s still the end of the quarter. As Mike said, we’re seeing a lot of business activity. We’re seeing the order funnel build and so forth, but we want to actually see those translate into orders and then ultimately into revenue. So everything there is moving in the right direction and we would expect that to continue to play out throughout the course of the year.

If I look at Q2, we did have a higher than expected budget, year-end budget dynamic that helped obviously the 11%. That doesn’t repeat itself in Q2, but if you looked at — we feel very confident about the continued momentum of the business going forward.

Mike McMullen — President and Chief Executive Officer

And that was probably a couple of points of growth, maybe.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, it’s hard to estimate, but that’s the best guess that we have, yeah.

Vijay Kumar — Evercore ISI — Analyst

Understood. And then I guess just for my follow-up, is the guide assuming those COVID elements that you mentioned, 200 basis points in Q1, is that going to sustain and I’m curious what is driving the margin strength here I guess relative to your prior guide.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yes so I’ll take the first one. So we’re still in that 2% kind of a revenue range for COVID. So that’s a good number to lock into.

Mike McMullen — President and Chief Executive Officer

Yeah and I think the growth on the margin expansion has been just really the strength in our volume and I think that that when we have that strong growth, you actually see it go into the bottom line. When you look at last year, our spending profile changed pretty dramatically quarter-on-quarter as we more reflecting the pandemic and so forth that we think about Q1 to Q2 this year, our spending, think about it as roughly flat sequentially.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah and Vijay, I’m sure you had a chance to look at Jacob’s margins for the first quarter, but the LSAG had very strong margins and that’s when you have double-digit growth in LC, the strength in the cell analysis business. We had indicated when we acquired BioTek to be normally high growth but also a high margin company and I think you’re seeing it in the numbers.

Vijay Kumar — Evercore ISI — Analyst

Absolutely. Thanks, Mike.

Mike McMullen — President and Chief Executive Officer

You’re welcome.

Operator

Your next question comes from the line of Puneet Souda from SVBL. Your line is open.

Puneet Souda — SVBL — Analyst

All right, great, thanks. Mike, Bob, congrats on the quarter really strong here. So my first question is on China, which you alluded to a little bit before. Obviously, a strong quarter, but just walk us through where do we stand today in China food and where the products are resonating. What’s your outlook here? Obviously, this has been a market that has been improving for you after some disruptions a while ago and I just want to get a sense of where it stands and how should we think about it going forward?

Mike McMullen — President and Chief Executive Officer

Yeah, Puneet. First of all, thanks for your kind comments and I’ll make some initial introductory comments here about China food and I’ll invite Jacob in this conversation as his solutions are a big part of the story here. So this is a quick reminder to the audience. You may recall that we saw a slowdown for the better part of over two years in the China food market as a result of the reorganization of the China food ministries and we always had been pointing to the fact that there had been really deferred investment at the national level and now that situation has completely changed, which are there is reinvestment going into new technologies at the national level. In addition to the testing volumes continuing to grow for the contract testing lab side picking up the volume and Jacob I think we’ve got a pretty good position here in the marketplace with our mass spec portfolio.

Jacob Thaysen — Senior Vice President, Agilent President, Life Sciences and Applied Markets Group

Yeah, absolutely Mike. So you’re right that we are seeing a broad based interest from our portfolio but particularly what stands out is our Triple Quad both the LC/MS and the GC/MS, which is sought after fespecially for pesticide testing where both technologies are used and what we have developed here is one workflow, one sample prep that could be used for both technologies. So that is that very much better performance versus many other where you have to have two different kinds of setup. So we see a lot of interest in that and so the Triple Quad is really paving the way right now.

Mike McMullen — President and Chief Executive Officer

And Jacob invested in a China solution center as well. So we actually again, based on these leading technology platforms, able to tailor our solutions for that China food market. So we’re really excited about the change in the business volume there as you can imagine.

Puneet Souda — SVBL — Analyst

That’s great. And if I could also ask in terms of pharma in China. Could you maybe just elaborate your positioning there. You had really strong growth here in terms of the both small molecules and bio molecules as well. Maybe just if you could characterize that. Is the bio molecule growth largely coming from NASD. is that what’s driving that part of component and the small molecules, you had really strong growth too. So maybe if you can parse that out.

Mike McMullen — President and Chief Executive Officer

Yeah. Specific to China, there’s no NASD volume at all. It’s zero in China. So that’s purely on the — on what we call the LSS side, which is ACG and LSAG business.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah and I was going to say, Puneet, as we said in the call, our — if you stripped out NASD, biopharma in total, so this would be our ACG and LSAG businesses together along with some contribution at DGG, grew 20% and that was really broad-based across all regions. Actually, it was faster than that in China but if you look across, they were all kind of neck and neck in terms of the performance across the regions.

Mike McMullen — President and Chief Executive Officer

Hey, Bob, I’d just add one thing. Although we don’t have direct NASD business in China, as Bob highlighted in his script, we’re seeing a lot of demand for LC/MS-based solutions, for oligo-based R&D research and the fact

That we’re in this business ourselves with our own API business and that we have a state-of-the-art facility in our Frederick, Colorado site really helps us be able to sell solutions to our customers doing research in this area

As well. So I do think there’s a linkage of the oligo business into China, albeit on what we’re seen on the research side.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah and that small molecule in China was very strong.

Mike McMullen — President and Chief Executive Officer

Oh, yes, sorry about that. I missed that one. Yes, how could I miss that one?

Puneet Souda — SVBL — Analyst

That’s great. All right, thanks guys.

Operator

Your next question comes from the line of Dan Leonard from Wells Fargo. Your line is open.

Dan Leonard — Wells Fargo — Analyst

Thank you. So first question, still trying to think of how to interpret your chemical and energy comments. The comps get pretty easy for that end market. And it doesn’t sound like the 2% you reported in the quarter reflects what you’re currently seeing on the order side. Are you still expecting kind of flattish chemical and energy performance through the balance of the year or could you help me with that?

Mike McMullen — President and Chief Executive Officer

I think the headline here is potential upside to our guide. And then, Bob, maybe you can answer the —

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, Mike mentioned the headline quite well and as we think about the chemical and energy, we’ve built in some slight improvement in Q1 and Q2, but have not made any changes to the back half.

Mike McMullen — President and Chief Executive Officer

And by the way, Dan, I’m not trying to be coy here or cute. We’ve just seen this market can easily can turn on the dime and I’ve had experience where I’ve called it too soon. So once we feel confident about the book of business we have inside Agilent, we will be sure to give you an updated view of the outlook for the year.

Padraig McDonnell — Senior Vice President, Agilent President, Agilent CrossLab Group

Mike, I think it’s worth mentioning again that our competitive positioning is very strong here. And as you know, we have invested very heavily into our portfolio both from an instrumentation, but also from an informatics point of view. So when the market comes back, we will certainly see a lion’s share of that.

Mike McMullen — President and Chief Executive Officer

Yes, that should have been part two of my headline, when the business is there, we’re going to get it.

Dan Leonard — Wells Fargo — Analyst

Okay and I appreciate that. And Mike, you’ve seen a lot of budget cycles. Could you maybe put what we just saw in the quarter in context, you had a strong quarter, and I know share gain is part of that. All your peers had a really strong quarter. Are we going to look back at this period a couple of years from [Technical Issues] particularly in pharma? Was this one for the history books or was this just a good flush? Like how would you characterize that?

Mike McMullen — President and Chief Executive Officer

I sure hope that it’s for the history books because it had a backdrop of a pandemic and what we saw was some deferred capital investment that had been — normally would have maybe been invested in the — our Q2, Q3 because of COVID-19 concerns and just the fact that customers weren’t working, deferred the capital, but again, I would have to say there’s more to the story in our Q1 than just that budget flush.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, I was going to say, I would say it certainly was bigger than the last several years. I don’t know but I think as we think about the momentum that we’ve seen, when you look at where we were in Q4 as well, we started seeing the turnaround and we saw it continue through Q1 and we’re expecting that to continue into the rest of this year as well. So it’s not just a one quarter phenomenon. Certainly, it was stronger than we anticipated, but we have higher expectations going forward for growth in pharma.

Dan Leonard — Wells Fargo — Analyst

Okay, thanks for the context.

Mike McMullen — President and Chief Executive Officer

You’re quite welcome.

Operator

Your next question comes from the line of Doug Schenkel from Cowen. Your line is open.

Doug Schenkel — Cowen — Analyst

Hey guys. Thank you for taking my questions. So my first question is on share gains. In your prepared remarks, and actually, I think even in the press release, you highlighted market share several times in the context of the strong revenue growth you delivered in the fiscal first quarter. I’m curious if you could opine on where you think you’re taking the most share and how sustainable this is? So that’s the first topic. The second is on M&A. And the balance sheet is clean. You’re re-upping on the share buybacks. I’m just wondering how you’re thinking about M&A, and more specifically, the parameters that you are using to evaluate potential acquisitions moving forward? Thanks guys.

Mike McMullen — President and Chief Executive Officer

Hey, Doug, thanks a lot for that. Happy to opine on both questions. So we really wanted to make sure the story came through that we had this a great start to 2021 and it wasn’t just about a year-end budget flush. There’s some really good things that have been going for several quarters and this continued in the first quarter and we very specifically chose the language in key areas. So we’re gaining share in some of our biggest product line areas. I would point to liquid chromatography. I would point to mass spectrometry, both gas phase, liquid phase and the inorganic side. I’d point to our services business and Bob what else might you add to that? I mean, I think it’s pretty much broad-based.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah and in our oligos business.

Mike McMullen — President and Chief Executive Officer

Yes, oligos because it always comes in three, the oligos, I mean we had outstanding growth in Q1. So we’re getting market share gains in the product lines where they really are collectively needle movers for the entire company. And then relative to the M&A, yes, we were in the market repurchasing shares this quarter, this past quarter, I should say, we’re gone anti-dilutive but our priority remains, as we communicated in our December Investor and Analyst Day, which is we want to invest in the business, not only in terms of capital expansion building down NASD, for example, but also growth accretive M&A and that remains our priority.

You may have picked up in my comments, prepared comments that the discussions with potential targets, the deal activity is picking up and I think — and we’ve seen a number of other deals announced in our space, but I’d say the volume of discussion has much increased over the last quarter or two. So nothing to announce, but that remains our area of focus for utilization of our strong balance sheet. And Bob, anything else you want to add?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, the only thing I would say is, Doug, as we think about the markets that we compete in, our framework really hasn’t changed. We’re looking at markets that are faster-growing than the markets that we are in or sub-segments of those markets. We think the last couple of acquisitions have really borne that out with ACEA as well as BioTek in the cell analysis space and it’s really helped continue that shift to higher growth markets, and that’s the area that I would think — and there’s really opportunities across all of our — both in instrumentation as well as in kind of consumables area or that recurring revenue stream as well. So that’s the way I would think about it.

Mike McMullen — President and Chief Executive Officer

Yeah and Doug, we continue to look for companies also not only to meet that criteria, but also we think are a strong cultural fit that really would be part — could really be a key part of the overall Agilent family so to speak, and also a business where we think we can make that business even better.

Doug Schenkel — Cowen — Analyst

Thank you, again.

Mike McMullen — President and Chief Executive Officer

You’re welcome.

Operator

Your next question comes from the line of Matt Sykes from Goldman Sachs. Your line is open.

Matt Sykes — Goldman Sachs — Analyst

Great, thanks for taking my questions. Nice solid quarter, guys. Mike, I just wanted to focus on, if you — when you look at the DGG operating margin in the fourth quarter, it was obviously very strong. Just in terms of sustainability for that, what was driving that and what should we expect as we go forward in ’21?

Mike McMullen — President and Chief Executive Officer

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

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yes, I’ll start and then turn it over to Sam. I mean you see the strength really was volume-driven here and when we look at it and as we ramp up that NASD facility, that’s generated a very nice incremental growth on the bottom line. As we mentioned in an earlier call, we haven’t had the start-up costs really start showing up yet there but I think that — and then some of the qPCR activities and related have really helped drive this. Sam?

Sam Raha — Senior Vice President, Agilent President, Diagnostics and Genomics Group

Yes, Bob, great lead-in. I’ll just add, as you said, NASD, that business, we are in a place where we are using more and more our capacity and that’s a good thing as it relates to margin. On the genomics and pathology side as well, we have high-value products such as our SureSelect NGS target enrichment platform, which had a good quarter and we anticipate that continuing to grow. That’s high margin. We have leadership in NGS quality control and it’s not just instruments there, there’s ongoing consumables that go along with standards. So we expect our leadership position for that to grow. And we haven’t talked about in a little while, but this past quarter, we also announced our seventh indication for PD-L1 to go along with KEYTRUDA for triple-negative breast cancer and that’s another place where we have leadership and drives good margin for us.

Matt Sykes — Goldman Sachs — Analyst

Great. And just one quick follow-up. Just more of a high level. As you continue to grow your ACG franchise, could you just talk about how that impacts some of the divisions? And as you expand your reach, does that really help drive the LSG division and other types of segments that you have just given that it just continues your reach within the market and deeper customer penetration?

Mike McMullen — President and Chief Executive Officer

Yes, Matt, you’re on the right theme here. So in fact, when I talked about this most recently inside Agilent, I talked about this is where our LSAG and ACG businesses come together and there really is a very symbiotic relationship here, which is both businesses help one another, right? So I pointed earlier to some of the strength we saw in the pharmaceutical industry in LC, LC/MS in Q1, but it also was tied to the enterprise services story we’ve been talking about for a number of years. And when you start to get yourself into a different relationship with customers, they truly see you as that valued partner.

And for example, when they’ve had several years of an enterprise service arrangement with you and you show them collectively — or I should say, actually objectively, what’s been going on the lab with various different vendors in terms of equipment, it will point to, for our case, a decision to let’s move more of our business to Agilent instrument side. Also, I think as Bob mentioned, we were there on a responsiveness standpoint. On our services, digital capabilities, we were able to respond to customers even in the midst of the pandemic and they remembered that, that we were there for them and that translates into instrument business when they’re doing their next round of capital purchase. So I think there really is a very close symbiotic relationship and although we run them as we show the outside world two separate business group results, they work very, very closely together, not only inside the company, but most importantly, with customers.

Operator

Your next question comes from the line of Mike Ryskin from Bank of America. Your line is open.

Mike Ryskin — Bank of America — Analyst

Hey, thanks. Thanks for taking the question, guyts. This is Mike on [Speech Overlap]. I want to follow-up on one thing you touched on earlier. I mean, we’ve already hit on LC and just broader pharma markets a little bit. You had a comment of higher growth and pharma expected going forward. I just wanted to go a little deeper and try to get a sense for what are the key drivers here because there’s so many moving pieces. You’ve got the end of your flush and maybe some catch-up in COVID early in the year. NASD obviously doing very well. Selling out is becoming a bigger part of the picture. You’ve got the share gains. So I’m just wondering, as you strip some of those out, are we seeing broader, higher levels of spend in pharma? Are we at the start of another LC replacement cycle? If you pay off some of those individual drivers, are we just seeing a better environment in pharma going forward for the next couple of years that would give you confidence that that’s a little more sustainable? I got a follow-up to that.

Mike McMullen — President and Chief Executive Officer

Yeah, so maybe just kind of parse out a couple of thoughts here and then Bob we welcome your commentary here as well. So some of the things that you mentioned are clearly areas of higher growth today and expected to be higher growth for years to come. And that was part of our story back at the December Analyst Day where we talked about, hey, we think RNA-based therapeutics are an area of very, very strong growth for years to come. And that’s why you’re seeing this growth in NASD happening right now as well as our continued investments to capture more of that future growth. Immuno-oncology is an area of major investment right now and that’s why we went after the cell analysis business several years ago.

So we expect those segments of the market to be really strong double-digit growers for many years to come. So I think that’s part of the story there, which is to really have focused our investments and our portfolio towards those segments of the marketplace, which we expect to have even higher growth in the overall pharma market space. I think in general, we expect the biopharma R&D investments to continue the move to large molecule. When I get the question around LC replacements, the replacement cycle is always going on but what I do think is going to happen is, it’s going to be stable, strong funding environment for pharma. So we’re very optimistic about the long-term outlook for pharma and I think it’s a market I know we’re betting on right now at Agilent.

Mike Ryskin — Bank of America — Analyst

Okay, that’s really helpful, appreciate that. And then my follow-up on that is, by our math, if you take the magnitude of the 1Q beat and then also the stronger FX tailwind for the rest of the year, that accounts for roughly $175 million of the raised fiscal year guide. And maybe you have these other items coming in. You mentioned the COVID test. You’ve got all your comments on the strength in the current market. So where exactly is the downside risk? I mean, especially given the comps over the next couple of quarters, what are the areas we should be keeping an eye on that would keep you from doing something closer to 10%-plus quarterly?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, it’s a great question and I think one of the things, we still are in the midst of the pandemic, right? There’s still the variance out there. We haven’t seen any impact of that to date, but those are some things that we’re watching. And we haven’t built any of the COVID testing that you just talked about into the numbers. So that would definitely be something that when we get those approved, that would be upside to this. And that’s not all within our control. The development and those timings are within our control, but ultimately, that’s a bet that both on the serology side as well as the qPCR side that we feel confident about and that would be on top of these. And then as we talked about before, the variability potentially in the C&E market is more biased towards the upside as we think about the forecast going forward. And so we feel good about where we are. We’re early in the year and —

Mike McMullen — President and Chief Executive Officer

We’re just one quarter in.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

But we don’t expect the momentum to abate.

Mike Ryskin — Bank of America — Analyst

Okay, thanks so much.

Mike McMullen — President and Chief Executive Officer

You’re quite welcome.

Operator

Your next question comes from the line of Daniel Brennan from UBS. Your line is open.

Daniel Brennan — UBS — Analyst

Great, thank you. Thanks for taking the questions guys.

Mike McMullen — President and Chief Executive Officer

Hey, Dan.

Daniel Brennan — UBS — Analyst

Hey Mike, maybe on China first, just I don’t know if I missed it. Did you give what number or what growth rate you’re assuming for the full year? And then within that, could you just discuss a bit more detail on the components of that, in particular, food, obviously, very strong this quarter, but how much more catch up potential is there in food given how weak that business has been?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, let me take — I’ll take the first one, and then we can jump on and we can tag team, Mike, on the second one.

Mike McMullen — President and Chief Executive Officer

Yes, absolutely.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

In China, we had forecasted roughly high-single digits at the beginning of the year. It certainly started much stronger than that. So we’re expecting it to be double-digits for the full year, really driven by both pharma and food. Those would be the two — the upside drivers to our initial guide. And then I think on food, we saw stabilization really in the first half of 2020, saw an improvement in Q4 and that improvement continued here into Q1. And we would expect that to continue given kind of the overall environment and sensitivity around food testing and so forth but we’re not quantifying how long or how much is left to catch up, so to speak.

Mike McMullen — President and Chief Executive Officer

Yeah, I think also with food, I’m not sure I would really would use catch up describe this because, clearly, where you had some of the pharma companies just weren’t having the research in and didn’t work, had deferred investment, I think this has been part of the coming together of the new five-year plan for China, and that’s what’s really driving this. So we would expect to see sustained investments, albeit not at this double-digit level. I think it’s hard to know, Dan — we’ve always felt this thing was not a market that was shrinking, wouldn’t shrink long-term, which it had been for a few years, but it’s more like a high-single digit longer term and I think that’s probably where we’d land, on your question, although I think we’ll do double-digit for sure this year in ’21.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah Mike, to your point, in our initial guide, we assume kind of a mid-single digit as the recovery, and it’s probably high-single digit to double-digit for the range for the full year.

Daniel Brennan — UBS — Analyst

Great. And then maybe just one follow-up on the NASD? What was the dollar contribution this quarter? What’s kind of assumed in the full year? I don’t know if you’ve changed that at all. And I know you’ve touched upon this, but in terms of other modalities besides interference, I guess, is that still — it sounds like it’s something that could possibly come, but we’re still going to wait to hear from you guys on that. Thank you.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, what I would say, Dan, is we’re at our full run rate capacity, which is, as we’ve talked in the past, $200 million a year. We hit that kind of where we expected to in Q1.

Mike McMullen — President and Chief Executive Officer

We’re really happy with how that business is ramping.

Robert W. McMahon — Senior Vice President, Chief Financial Officer

And we’re not done yet.

Jacob Thaysen — Senior Vice President, Agilent President, Life Sciences and Applied Markets Group

Hey, Bob, I would just add to that, that as I mentioned before, RNAi interference is our primary focus, but we are doing programs on Guide RNA for CRISPR, and we are at full tilt with that, but we are always looking to be in tune with new modalities and if they’re relevant, if they’re sufficiently meaningful, we’re definitely apprised of that as well.

Daniel Brennan — UBS — Analyst

Great, thank you.

Operator

Your next question comes from the line of Patrick Donnelly from Citi. Your line is open.

Patrick Donnelly — Citi — Analyst

Hey guys, thanks for taking the questions. Mike, maybe one for you just on the chemical and energy side, certainly appreciate the conservatism baked in here. Can you just talk a little bit — I know in the past, you’ve talked about kind of the shift from insourcing to outsourcing from customers and how that should play nicely into your strengths. Can you just talk about, I guess, where we are in that process and how big of an opportunity that is for you guys?

Mike McMullen — President and Chief Executive Officer

Yes, I think we’re still early days on that. I think it’s — that’s part of the discussion. I think the investments that are going to happen this year, if they drop, are going to be more tied to deferred tech refresh but I think it’s probably more of a 2023 kind of — excuse me, ’22 event from the onshore and insourcing that we’ve been talking about and I think this probably points to us being able to be able to sustain a mid-single digit kind of end market. So I mean, it points to the fact that chemical and energy with these kind of longer-term outlooks coming from our customers will not be a drag on the overall growth rate, any material extended off. So I think it’s an adder to the thesis that there is growth in the C&E market as well albeit it can be a little bit — it can move a little bit, depending on what’s happening in the overall economy.

Patrick Donnelly — Citi — Analyst

Okay. Now it’s going to be the year of durability at least. And then maybe just one —

Mike McMullen — President and Chief Executive Officer

I like what you said, I should have used durability. That was a short way to answer your question.

Patrick Donnelly — Citi — Analyst

All good. I appreciate that and then maybe just one on the academic side. Obviously, that’s been lingering a little bit on the soft side, not only for you guys, but for much of the industry. I guess, where do you think we are there in terms of whatever metrics you guys look at, whether it’s customers in the labs or whatever it may be? Maybe just kind of dive in that a little bit.

Mike McMullen — President and Chief Executive Officer

Yes. Great question. So when we’re talking to our team and our customers, here’s our view of it right now. We think about — if you think about 30% of the research labs are fully operational now, we think about 60% are working at reduced capacity. We think about 10% are closed. And we really think it’s going to be — all this is really tied to ability to get the infection rates down, to get the vaccinations out. I think until that changes significantly, we’re expecting kind of more of the same, I’d say, Bob, for the — until we actually see a change in the overall —

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yes, I think the real catalyst for us, Patrick, to Mike’s point, is what’s going to happen in the fall semester for classes. Are people — are students going to be back full or is it still going to be at kind of reduced rates and so forth. So we’re expecting continued recovery, albeit slow, really, and that’s what we’re looking at in addition to some of the kind of the macro levels.

Mike McMullen — President and Chief Executive Officer

I would say, though, that the conversation with customers is very robust right now. So it’s just a matter of things opening up.

Patrick Donnelly — Citi — Analyst

Great. thanks mike, appreciate it.

Mike McMullen — President and Chief Executive Officer

You’re quite welcome.

Operator

Your next question comes from the line of Steve Willoughby from Cleveland Research. Your line is open.

Steve Willoughby — Cleveland Research — Analyst

Hi, good afternoon. I had a follow-up question to Mike Ryskin’s question as it relates to guidance, Bob. Maybe trying to ask it a different way. Have you really changed your organic or core growth assumptions over the remainder of the year? Because even in the first quarter here, you back out a couple of hundred basis points from sort of end-of-year budget spending, the first quarter still did basically twice what you were initially expecting for growth in the first quarter. And just looking to your guidance and doing some math, it looks like you really haven’t made too much of a change for the organic growth over the remainder of the year. Is that fair to assume?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, I would say we took Q1. We also upgraded Q2 and made some modest changes to the back half of the year, but most of that would be in the areas — once we get further into the year, that would be an opportunity to revisit the forecast going forward. So I think bottom line, you’re in the ballpark.

Steve Willoughby — Cleveland Research — Analyst

Okay and then just a follow-up question on diagnostics. So I guess two things to it. One, do you think we return to 2019 or normal levels in your non-COVID diagnostics business this year? And then also, could you just provide a reminder on where you see your PCR test potentially fitting once it does come to market?

Mike McMullen — President and Chief Executive Officer

You want to take the first one and Sam the second one?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yeah, the short answer is yes, we expect it to get back, but again, latter half of this year. We’re starting to see improvement. If you look at it by region, China is back. Certain pockets in Europe are back and certain places in the U.S. are back as well, but I think overall, it’s probably going to be a few more months at least before it gets back to pre-COVID levels.

Steve Willoughby — Cleveland Research — Analyst

Very good, thanks.

Sam Raha — Senior Vice President, Agilent President, Diagnostics and Genomics Group

Yeah, with regards to your second question on qPCR, for COVID-19, our master mixes, our instruments are already being leveraged as part of other testing systems by customers around the world. When our own test comes to market, we see the opportunity. There’s still a dearth of robust testing solutions that are available. So we’ll have the right performance going after the right fragments or looking at the right elements of COVID-19. And it’s really about our broad ability to distribute, make it available and also something that could be automatable on multiple platforms. So we think we’ll have a play.

Steve Willoughby — Cleveland Research — Analyst

Perfect, thank you. Thanks, Sam.

Operator

Our final question today comes from the line of Paul Knight from KeyBanc. Your line is open.

Paul Knight — KeyBanc — Analyst

Hey, Mike. How are you?

Mike McMullen — President and Chief Executive Officer

All right. Long time no talk. How have you been?

Paul Knight — KeyBanc — Analyst

Good, so obviously, you’ve got a full array of products in the analytical instrument marketplace. And it goes back to, I think, Doug’s question in terms of M&A opportunity. Where do you think you are in the full solution in cell analysis? Is there a lot to build? Is there a lot to buy in that particular market?

Mike McMullen — President and Chief Executive Officer

We think so. In fact, thanks for the question, Paul. You may recall and Jacob, feel free to jump in on this question as well. We teed up a fairly large — although we’re fully really proud of the business we’ve built so far, we think we have scale at a $300 million-plus business. We’re playing in a much larger SAM and we think there’s both opportunities to further build out but also buy here as well. Jacob, your thoughts there?

Jacob Thaysen — Senior Vice President, Agilent President, Life Sciences and Applied Markets Group

Yes, certainly. We’ve been very intentional about how we build out our portfolio. Firstly, it’s with instrument platforms that we ensure we can get some footprint and a scale in the market. And the next thing that would be the logic next step is to look at content, how do we actually get content on our instrument portfolio. So that’s clearly an area we’re looking into, but I actually think with the footprint, there’s also opportunity to add other technique modalities into that. So we have open eyes. We follow what we call the tale of strains — string of pearls [Phonetic] and we wait to put another firm on that strain. And so we keep our eyes open and then see what happens.

Paul Knight — KeyBanc — Analyst

And then the last question would be you had mentioned your cost-cutting program that had started in the second quarter of last year, where you are — where are you in that process? And what happens to cost-cutting when travel and entertainment might come back kind of post-COVID?

Robert W. McMahon — Senior Vice President, Chief Financial Officer

Yes, we’re seeing some of that. And some of that is lapping this quarter because we saw a significant drop and so you’re not seeing the year-over-year changes. We’re not seeing it go back and our goal is to not have it go back. So we think we’re at a new watermark here in terms of spending, particularly in travel and some of these other areas. Now we are increasing investments in places like digital and some of these other places that are driving demand as well as some of the capacity that we talked about before, but certainly, in those types of things, travel and so forth, we’re not looking for that to go back. It will go back some, but certainly not back to the way we have been doing business before. Customers don’t want it and we are not going to let it happen.

Mike McMullen — President and Chief Executive Officer

Absolutely. To Bob’s point, as I spoke the other day to our global field team and we were talking about embracing our new ways of working. And of course, a lot of people drove and love to be back on the road, but not everybody feels that way and the customers certainly don’t feel that way because we’re much more responsive and attentive to their needs by using digital platforms, there is a place for face-to-face, but it has to be based on the customer need, not because we want to be in the road to be out there doing things in a very traditional way. So we’re keenly aware of the question you posed, Paul, really challenge ourselves to make sure that we really continue forward with these new ways of working and this allows us to put money into areas that really do matter to customers. So I’d rather invest there rather than travel and entertainment.

Paul Knight — KeyBanc — Analyst

Thank you.

Operator

[Operator Closing Remarks]