Agilent Technologies Inc. (A) Q3 2020 Earnings Call Transcript

Agilent Technologies Inc  (NYSE: A) Q3 2020 earnings call dated Aug. 18, 2020

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

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

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

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

Analysts:

Doug Schenkel — Cowen and Company — Analyst

Vijay Kumar — Evercore ISI — Analyst

Tycho Peterson — JP Morgan — Analyst

Puneet Souda — Leerink Partners — Analyst

Derik de Bruin — Bank of America Merrill Lynch — Analyst

Brandon Couillard — Jefferies & Company — Analyst

Dan Leonard — Wells Fargo — Analyst

Catherine Ramsay — Robert W. Baird — Analyst

Steve Willoughby — Cleveland Research Company — Analyst

Dan Brennan — UBS — Analyst

Patrick Donnelly — Citi — Analyst

Jack Meehan — Nephron Research — Analyst

Presentation:

Operator

Good afternoon and welcome to the Agilent Technologies Third 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] Thank you.

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, Robert, and welcome everyone to Agilent’s conference call for the third quarter of fiscal year 2020. I hope that all of you and your families are safe and healthy.

On the webcast today are Mike McMullen, Agilent’s President and CEO; and Bob McMahon, Agilent’s Senior Vice President and CFO. Joining for 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. You can find the press release, investor presentation and information to supplement today’s discussion 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 revenue growth will be referred to on a core basis. Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months.

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 would like to turn the call over to Mike.

Also read: Agilent Q3 2020 Earnings Highlights 

Mike McMullen — President and Chief Executive Officer

Thanks, Ankur, and thanks everyone for joining us on our call today. The Agilent team delivered excellent results in the third quarter in the midst of a historic global pandemic. Against this backdrop, Agilent’s performance once again highlights the strength and resiliency of our team and our business.

Agilent’s Q3 revenues are $1.26 billion. Our revenues are down just 1% on a reported basis, despite COVID-19 headwinds in what we expect to be the year’s most challenging quarter. On a core basis, revenues are down 3%. These results demonstrate the strong resilience we have built into our business over the past several years.

EPS was $0.78 per share. This is a 3% year-over-year increase. Operating margin improved 90 basis points over last year to 23.7%. Our Q3 results are further evidence of the success of our profitable build-and-buy growth strategy. We continue to build a more resilient growth-oriented business.

Last quarter I talked to you about the four key priorities we’re focused on during the COVID-19 pandemic, protecting our people, being open for business for our customers, taking decisive actions to preserve our P&L and balance sheet, and an unwavering commitment to growth. Staying focused on these priorities has helped us navigate through the COVID-19 effects on our team, customers and business. Our customers continue to respond very favorably to our team’s engagement and our enhanced digital capabilities. In fact, Q3 customer satisfaction rankings are at all-time highs.

In all regions, we’re seeing improvements in lab access for our customers and increased non-COVID-19 testing volumes. There are, however, regional and end market differences in the pacing of improvement. Lab access improved through the quarter, although still not at pre-COVID-19 levels. Globally lab access remained limited in academia, non-COVID-19 research and testing labs. We’re also seeing continued limited access to some private sector research labs in Europe and the United States.

Similarly, non-COVID-19 diagnostic testing volumes improved throughout the quarter, but remained down from prior-year levels. Hospital access in Europe and the US is improving, although disrupted at times by virus flare-ups. While there are indications of improvement in economic growth at varying degrees across the globe, caution remains in customer capital expenditure decisions. Consistent with our thinking coming into the quarter, the pace of recovery varied by region. As expected, China led the way for us and exceeded our expectations with revenues up 11%. China’s growth in the quarter is broad based across all end markets and for all business groups.

While improving, the rate of recovery in Europe and the Americas lags China given the timing when these regions first felt the brunt of the pandemic. European revenues are down 5%. Americas market conditions trailed both China and Europe with revenues declining 10%. However, as we exited the quarter, we are seeing signs of improvement in service activity, consumables and diagnostic testing volumes. On a total Company basis, we exited July with modest growth across all major markets.

Now let’s talk about our performance by business groups. Our Life Sciences and Applied Markets Group grew 2% on a reported basis and declined 4%. Our team is focused and determined to gain market share despite a constrained capital environment. The strength of our portfolio, coupled with an energized and stable sales team is paying dividends. I’m also very proud of the contributions our cell analysis technologies are making in COVID-19 virus research. Our M&A strategy is working and making a difference in the pandemic fight.

Our CrossLab Group revenues grew 1%. Increase in customer activity led to increased sales of consumables and an uptake of on-demand services. The CrossLab team continues to win large multi-year contracts for enterprise laboratory management that will benefit us moving forward. We are continually increasing our competitiveness in this space.

Our Diagnostics and Genomics Group revenues declined 8%. While our overall pathology and genomics businesses are down for the quarter, we did see gradual improvement in diagnostic testing volumes and non-COVID-19 lab openings. Partially offsetting this, our Nucleic Acid Solutions business delivered another strong quarter growing almost 25%. We are very excited about the future of our NASD business.

As we announced earlier today, we plan to more than double oligo manufacturing capacity at our new Frederick, Colorado site. This expansion helps us meet significantly increasing customer demand. We are growing double digit and expect to continue this rate of growth in the coming years.

We continue to invest in our portfolio across all our businesses. Highlights during the quarter include LSAG launching two new LC/MS products, the Agilent 6470B Triple Quad and the Agilent RapidFire 400 systems. Both products are aimed at high-throughput labs driving productivity and superior resolution. We launched our CrossLab Asset Monitoring service, which is a new subscription service, using instrument technologies to provide data-driven usage insights. This helps drive improved customer economics and lab productivity. While early, we are seeing strong interest from customers in this service.

During the quarter, our PD-L1 assay was approved by the FDA for expanded use in non-small cell lung cancer, helping guide physicians in selecting treatments using specific immunotherapies.

Our team is very proud of the role their Company is playing in the global COVID-19 fight. We are supporting COVID-19 research, testing and therapeutic and vaccine development. Our efforts in the global fight against the virus delivered 2 percentage points of reported growth. We are accelerating efforts to make a difference in the battle against COVID-19 and have mobilized a cross Agilent team to maximize customer support.

Let me close with a few comments on our outlook in the coming quarter. While there is still significant uncertainty regarding the continued pace of recovery, we expect the July trend of gradual improvement in our business to continue into Q4. By region, China will continue to be a positive story for us and lead the return to growth. Europe is starting to trend upward. The Americas are also expected to improve, but at a lower rate than China and Europe. Globally, improved lab access, increasing non-COVID 19 testing and a slowly recovering global economy are all positive signs. I remain absolutely convinced Agilent will emerge from this pandemic with a stronger position in the marketplace.

Our continued focused action on our four priorities, protect the team, support our customers, preserve our P&L and balance sheet and our unwavering investment in growth are delivering.

Entering Q4, we are operating from a position of strength and with momentum. Yes, this pandemic remains unpredictable. However, I am cautiously optimistic about our continued gradual recovery and return to growth.

Before I hand the call over to Bob, I’d like to pause and share my hope that you and your loved ones are staying safe and healthy. Thanks for being on the call. I look forward to taking your questions after Bob’s remarks. And now, Bob, over to you.

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

Thank you, Mike, and good afternoon everyone. Today, I will provide some additional detail on revenue, walk through the third quarter income statement and some other key financial metrics and then I’ll finish up with a framework for thinking about Q4. As with last quarter, there are still too many unknowns. So we’re not going to provide formal forward-looking guidance today. However, we will provide a framework for how we see things potentially playing out in Q4. Unless otherwise noted, my remarks will focus on non-GAAP results.

As Mike mentioned, our revenue for the quarter was $1.26 billion, down 1% on a reported basis. On a core basis, revenue declined 3.1% in the quarter. Currency negatively affected revenue by 1.3 percentage points while acquisitions added 3.4 percentage points to growth.

As Mike talked about the regional performance, I’ll speak to the end-market performance. In terms of our end markets, Pharma grew 2% in Q3, against the very strong comparison of 13% from last year. Both small and large molecule applications grew and biopharma improved throughout the quarter as drug development labs increased production and access. We experienced softness in diagnostics and clinical as anticipated. Revenues declined 10% primarily due to conditions in the US driven by COVID-19 related disruptions to patient visits and diagnostic labs opportunities. Encouragingly, we did see an improvement in routine testing throughout the quarter, especially in China and Europe while the US lagged.

Chemical and Energy was down 10%, consistent with our thinking. Revenues were generally flat sequentially with conditions largely similar to what we saw in Q2. As we’ve talked about previously, we expect this segment to ramp more slowly than others.

The Food segment was a bright spot, up 8%. We are seeing ongoing signals that the market in China has stabilized with the transition of more testing by commercial labs. The food market was just one of several bright spots that contributed to double-digit growth in China, including growth in the low teens for our pharma business.

Our Environmental and Forensics business declined mid-single digits against a double-digit compare. And the Academic and Government segment declined mid-single digits while improving on a sequential basis in Q3. Strength in cell analysis and liquid handling for viral research partially offset the widespread impact of the ongoing academic lab closures.

Now let’s turn to the rest of the P&L. I’m extremely proud of how the Agilent team has responded to the challenging environment. During the quarter we continued our focus on managing expenses, while ensuring we continue to invest in our key growth opportunities. These expense management actions we initiated last quarter were on full display in Q3. In addition, our customer engagement model using digital tools continued to gain traction, while also delivering savings in SG&A.

As a result, operating margins of 23.7% improved 90 basis points over last year on declining revenue. Gross margin, at 55.1%, was down 130 basis points versus the prior year, largely due to mix and higher logistics costs. However, strong cost management in operating expenses more than offset the decline in gross margin. This combination of factors resulted in non-GAAP EPS for the quarter coming in at $0.78 per share, up nearly 3% from the number we posted a year ago.

Now from a balance sheet perspective, we generated $290 million in operating cash flow during the quarter, which is $48 million improvement over last year. In terms of capital spending, we spent $25 million, lower than last year and in line with our revised look in Q2. We ended the quarter in a strong position with $2.3 billion in available liquidity, including $1.36 billion in cash.

Also during the quarter, we took advantage of low interest rates and refinanced $0.5 billion in short term debt with a 10-year bond with a 2.1% coupon, the lowest coupon in our portfolio. As you know, we paused share buybacks in Q2 pending improvement in business conditions. In Q3, our visibility into business trends and cash flow improved and we resumed anti-dilutive share repurchases late in the quarter.

In the quarter in total, we repurchased 360,000 shares for $33 million. Going forward, we intend to resume our normal pattern of regular anti-dilutive repurchases along with additional opportunistic buying. Our overall capital deployment approach remains balanced with the primary focus on growth M&A opportunities, while also returning cash to shareholders via dividends and buybacks.

As we look to Q4, business and trends have gradually improved, but significant uncertainty remains around the evolution of this pandemic. However, let me provide a framework for how we see a range of possible revenue growth scenarios in the coming quarter.

We generally expect the trajectory of gradual improvement in business results to continue across all regions. Areas where we see a broader range of scenarios include research spending, both in academia and other markets, non-COVID diagnostic testing, especially in the US, and the general capex environment. A combination of these factors could result in scenarios where our revenue performance could range from a 4% decline to 1% core growth. Also as a reminder, the BioTek acquisition closed mid-way through Q4 of last year, so the M&A impact in Q4 will be smaller than in previous quarters, roughly 1 point of growth and currency is forecasted to be positive in the quarter.

The low end of this range envisions COVID-19 flare-ups occurring in the fall in various geographies, limiting and in some cases, reversing the recovery gains we have seen in the period of time. In this scenario one might expect to see slower or stalled improvements in research, academia and other markets as continued tight cash-management leading to lower capex spending in the US and Europe. We hope this bottom end of the range is overly conservative, but we wanted to let you know we have plans in place in case this happens.

The higher end of the range assumes the continued recovery by region building on what we have seen in July, with the biggest impact coming from the US. This would include a continual increase in elective medical procedures, such as cancer screenings as well as continued lab openings. This view would include continued China momentum, along with the continued improvement in Europe and other areas in the Americas. Again, this is not guidance, but should provide a sense for some of the variables we see for Q4.

Overall, I feel we are very well positioned to deal with this challenging environment, accelerate market share gains and come out even stronger as the global economy continues its path to recovery.

And with that, I will turn over things to Ankur to direct the Q&A. Ankur?

Ankur Dhingra — Vice President of Investor Relations

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

Questions and Answers:

Operator

Certainly. [Operator Instructions] Your first question comes from the line of Doug Schenkel with Cowen. Your line is open.

Doug Schenkel — Cowen and Company — Analyst

Hey. Good afternoon, guys. And —

Mike McMullen — President and Chief Executive Officer

Hey, Doug. How are you doing?

Doug Schenkel — Cowen and Company — Analyst

I am doing well. Nice work in a tough environment.

Mike McMullen — President and Chief Executive Officer

Thank you.

Doug Schenkel — Cowen and Company — Analyst

Can you just start with a clean-up question right off the bat and I [Technical Issues] remarks prepared remarks. I don’t think you quantified COVID-19 tailwinds in the quarter. Again, I may have missed that, but it just would be helpful to get that so we could try to normalize [Technical Issues].

Mike McMullen — President and Chief Executive Officer

Yeah. Sure, Dough. I touched on it briefly in my comments, but it was 2 points of reported growth in Q3.

Doug Schenkel — Cowen and Company — Analyst

Okay. That’s great. And then on China just a couple, I’m just curious if you would share the exit rate. And as we look ahead, I know you’re not guiding, I’m just wondering if you think based on what you’re seeing, if you think that double-digit growth can be sustained from here, at least near term? And then specific on Food, it’s great to see that return to solid [Technical Issues] seeing some stabilization last quarter. Can the high single-digit growth rate you saw this quarter be sustained moving forward given favorable multi-year comparisons? Thank you.

Mike McMullen — President and Chief Executive Officer

Hey, Doug. Thanks. Thanks for those questions. So just to make sure it came through the audience. The question was about our view on the growth rate of China for the rest of the year as well as can that high single-digit growth rate in food be sustained. We think the answer is yes on both. We’re really pleased with our performance in China. It was broad based. I tried to really accentuate that in my comments. We saw basically double-digit growth across all end markets in China. And we think that a double-digit growth rate is within the realm of possibility for Q4 in China. And I have to say, Doug, it’s wonderful to be talking about the China food from a different vector. We’ve been talking about it probably the last 18 to 24 months of when that would return to growth. We saw some early indications in Q2. We saw a strong Q3. And we think that that are all numbers probably sustainable for the rest of this year. Wouldn’t you say so, Bob?

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

Yeah, I would just say that — Doug, to add, I mean one of the things that was very — very positive about China was it was pretty consistent across the quarter and in fact exited slightly higher than that overall 11%. But we saw solid growth all three months.

Doug Schenkel — Cowen and Company — Analyst

Great. Thank you again.

Operator

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

Mike McMullen — President and Chief Executive Officer

Hi, Vijay.

Vijay Kumar — Evercore ISI — Analyst

Hey, guys. Thanks — hey, guys. Thanks for taking the question. Mike or Bob, just maybe on the guidance here. If I step back, the third quarter guidance, we’re down mid-single to down mid-teens. This down low-single was up. Came in well above expectations, I would say, perhaps not surprising than peers [Phonetic] but nonetheless solid execution. The Q4 down 4% to plus 1% implies declines. What could cause the declines just given — in light of pretty good [Phonetic] performance? Is that the minus 4% at the low end? Is that assuming that July tend to just sustain in this new improvement on display and how you are thinking of Q4?

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

Yeah. Vijay, this is Bob. I’ll take that. And as I mentioned in the prepared remarks, we hope that that is overly conservative. What that would imply is actually a retrenchment and — when COVID-19 flare ups here in the US as we go back, as we move into the fall and you start seeing some elements of shutdown. So we certainly would hope that we would do better than that. But we wanted to provide, hey, that’s within the realm of kind of how we’re thinking about our spending and so forth.

Our July results or our exit rate of the quarter was much higher than that. And so we’re aiming to do better. But there is still uncertainty in the world with the pandemic, people going back to school and so forth. So —

Mike McMullen — President and Chief Executive Officer

Yeah. And, Bob, I think it’s probably fair to say the wildcard is the United States, right?

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

Yeah. Absolutely.

Mike McMullen — President and Chief Executive Officer

And we were encouraged by the movement in PMI. You probably noticed that, but let’s see how that translates into business in the upcoming quarter. And again we have to keep in mind ourselves, as pleased as we are with the results we just delivered, there is still a lot of uncertainty out there because the virus is unpredictable at times.

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

Yeah. That’s right, Mike. I mean if you looked at our each one of the major markets, each one of the major markets got better in Q3 versus Q2 with the exception of the US, which we expected given kind of the state of the — state of affairs with the pandemic.

Vijay Kumar — Evercore ISI — Analyst

That’s a helpful perspective. So the minus 4% implies that things get worse. Was July up, flattish or positive? And I’m curious, Mike you mentioned NASD doubling up oligo. I know if you turn back to page we were doubling capacity. So is this now versus six months of a quadrupling capacity versus where we were last year? Is that the right way to think about revenues going from $100 million, $200 million to perhaps $400 million? Is that’s the math here?

Mike McMullen — President and Chief Executive Officer

No, slightly different math. I think we’ve been — I think we’ve been consistent with our view of needing to double our capacity. What we ended up doing was actually triggering the decision to initiate the expansion earlier than we had thought, just given the robust nature of the end market and as well as we have worked our way to be able to — in the same space, we challenged ourselves to find ways to drive as much revenue in the same physical space. So we are investing a little bit more in capital than we initially thought, but we’re also building something slightly different than our first train, which is going to give us actually more volume than our current train — train A. So it’s a really — we thought it was a really positive signal and that’s why we sent out the press release this morning, because we’re super excited about our prospects here.

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

Yeah. Vijay, let me kind of frame in the — kind of the numbers. What we were talking about is the Frederick site has the potential of roughly $100 million worth of revenue and we added capacity that more than doubles that $100 million to give you a frame of the numbers. So it’s not $100 million, $200 million, $400 million, it’s $100 million, $200 million and more than $300 million to kind of give you a sense. And in terms of July, we actually came in with growth across all three groups in exiting July.

Vijay Kumar — Evercore ISI — Analyst

That’s helpful, guys. Thank you.

Operator

Your next question comes from the line of Tycho Peterson with JP Morgan. Your line is open.

Tycho Peterson — JP Morgan — Analyst

Hey. Thanks.

Mike McMullen — President and Chief Executive Officer

Hi, Tycho.

Tycho Peterson — JP Morgan — Analyst

I’ll start with the COVID — hi. I’ll start with the COVID commentary. I guess if I go back to last quarter, there was some talk about launching the serology test. You guys obviously have an installed base of real-time PCR instruments. We’ve gotten questions of why you have to launch a PCR test. So can you talk a little bit about how you think about those tailwinds going forward and how you think about your capabilities on the diagnostics side?

Mike McMullen — President and Chief Executive Officer

Yeah, Tycho, I’ll make some initial comments and then the Group President has been kind of quiet today. So I’ll pull Sam in here as well to provide his perspective. But we think that there is still tailwinds in front of us. And now 2 points of growth and we think we can sustain that at a minimum, that’s why I try to put fairly bullish comments about our stepped-up efforts across the Company. Some of these things are going to take a little bit longer. We think there’s still room for our own test, a quality test with some different features. But I think maybe a few comments there, Sam, from your perspective.

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

Yes, sure, Mike. Hi Tycho. As you — I think you’d have seen a good pickup in terms of our qPCR instruments, which are RF systems as well as our bioreagents related to qPCR, both reverse transcriptase and master mixes. On the antibody side, we’ve definitely also seen an increase in IgA, IgG and those antibodies.

In terms of our own tests, we are very actively exploring the possibilities of developing those. So more to share in due course.

Mike McMullen — President and Chief Executive Officer

Yeah. And, Tycho, I guess what I disclose off here is the broad-based nature of our portfolio is allowing us to play in multiple aspects of this COVID-19. Some of these things may take a little bit longer to actually turn into revenue, right? So if you’re working with, say, a pharma partner on something in the therapeutic area, it may take a while for that to come to market. So we think these tailwinds are here to stay for some time and we’re stepping up our efforts here because it plays right into the broad nature of our portfolio.

Tycho Peterson — JP Morgan — Analyst

I guess that’s a good segue on the NASD expansion. Can you maybe talk to what degree that’s tied to the COVID vaccine? And any update from your end on capabilities on APIs for mRNA or siRNA vaccines?

Mike McMullen — President and Chief Executive Officer

Do you want to take that one, Sam?

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

Yeah. Sure. Sure, no problem. Tycho, I’d start by reiterating a little bit of what Mike and Bob were talking about. It’s interesting that it was just last June that we did a ribbon cutting and starting of the new Frederick, Colorado facility and quite frankly we’ve seen demand that exceeded our expectation just 12 months ago. So the building really — sorry, the new manufacturing line that we’re building, you can consider it, as we call it, train A on steroids. [Indecipherable] But it is very differentiated both in throughput and the molecules that it can do, which is a segue to your — a little bit of your question that we are — we are able to do multiple iterations or types of siRNA or RNA. We’re also actively looking at other different versions of molecules that are oligo based. Though I can’t reveal the details we have had a lot of interest related to COVID-19. All of those used for either COVID-19 related therapeutics or even for vaccines. So I can say that we have started to work on some of those programs now.

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

Yeah. And maybe Sam to add, that being said, the capacity expansion isn’t tied to COVID-19. We have plenty of demand outside of COVID-19 therapeutics and vaccines and — so this is a broad based capacity expansion.

Tycho Peterson — JP Morgan — Analyst

Thank you, Bob. Okay and then — and then just last one, I know we don’t have official guidance but there is a framework for the quarter, for the fourth quarter. As we think about C&A and then also pharma biotech, should we expect any kind of material change in either of those end markets for the coming quarter? I know you talked about reshoring activities for C&E. I wasn’t sure if that would maybe cause an improvement in trajectory there. Thanks.

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

Yeah, probably — C&E is probably the one that’s — I would expect it to be pretty stable in that down 10%-ish, 8% to 10% in the range. We do expect pharma to continue to improve. So that 2% certainly even in the low scenario would stay there and then on the high scenario would accelerate, which is consistent with the trends we’ve seen throughout the quarter of Q3.

Mike McMullen — President and Chief Executive Officer

Yeah. And, Tycho, the supply chain considerations and discussions still happen. I think it added a level of stability, albeit down to this — into this space. And again as you look ahead for the future, this is an area where eventually it will come back. And again too early to call. And — but I’d say we’re pretty confident about the improvement rate in pharma.

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

Yeah, the way to think about those reassuring is those are opportunities and discussions that could happen through the order book and then will happen actually in ’21 and beyond in terms of as the investments are being made. So this is — that’s more future looking.

Mike McMullen — President and Chief Executive Officer

Yeah. Thanks, Bob.

Tycho Peterson — JP Morgan — Analyst

Okay. Thank you.

Operator

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

Puneet Souda — Leerink Partners — Analyst

Yeah. Hi, Mike, Bob.

Mike McMullen — President and Chief Executive Officer

Hi, Puneet.

Puneet Souda — Leerink Partners — Analyst

Thanks for — thanks, Mike. So first question is on just NASD, obviously strong in the quarter. But that would imply Dako and clinical business. Obviously you pointed that out. It was down in the quarter, but that’s a significant decline. Maybe just could you parse that out for us? What is — it’s a COVID impact for sure, but is there anything beyond that in terms of the way market is fundamentally potentially shifting here to NGS maybe? And if you could just maybe elaborate a little bit of that and clarify. Thanks.

Mike McMullen — President and Chief Executive Officer

Yeah, happy to do so. It’s all market. It’s all access to labs and patients going for their diagnostic test. So it’s really all market. I think we’re seeing different pace of — pacing throughout the quarter. All of our geographies on the diagnostic testing front ended up with positive growth in July, but it was down sharply in May — in June, particularly in the US. And keep in mind also, we — part of our business in our genomics front is SureSelect into NGS based diagnostic labs. And for genetic disorders, for example, those tests aren’t getting done either. So it’s really all market.

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

Yeah, I was going to say, Puneet, actually if you bifurcate those two and look at our performance actually pathology performed better than NGS testing for volumes given what Mike was just talking about, as well as some of the academic institutions.

Mike McMullen — President and Chief Executive Officer

Yeah. That’s a good point, Bob. Thanks.

Puneet Souda — Leerink Partners — Analyst

Okay. Thanks for that. And if you could — I know you quantified last quarter Bravo contribution. I’m wondering if you can provide that for Bravo/Magnis Liquid Handling Systems sort of how much of that contribution happen in the quarter?

Mike McMullen — President and Chief Executive Officer

Yeah, that’s part of the story for our COVID-19 tailwinds. And I think probably the biggest contribution this quarter actually came from biotech, Bob, if I remember correctly.

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

Yeah.

Mike McMullen — President and Chief Executive Officer

Between biotech and the liquid handling — Bravo. So it’s kind of now we have like a one, two-punch kind of going there on the core instrumentation. And that also reminds me with the platform comes an ongoing revenue stream associated with the tips that go with those liquid handlers.

Puneet Souda — Leerink Partners — Analyst

Okay. And last one on just ACG. I mean could you just elaborate on in these times you mentioned there are some larger contracts that — service contracts and lights that you’re getting into. Sort of what — are those sort of COVID driven, what is — what’s behind those and maybe if you can elaborate on the geography there?

Mike McMullen — President and Chief Executive Officer

Yeah, Puneet, happy to have Padraig jump in on here and provide his perspective on that. So Padraig, in the call script I talk a bit about the large enterprise deals you guys won. So why don’t you talk about that, a little more detail.

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

Yeah. So thanks, Mike. We launched our CrossLab asset monitoring service which has seen a big uptick and what we’re seeing from customers is a large demand for sourcing from one vendor and because of our capabilities in terms of the asset monitoring capability, relocation services and our core delivery services which are extremely in strong demand, we’re seeing a big uptake from large customers in that. We expect that to continue as we go through the quarter — next quarter.

Mike McMullen — President and Chief Executive Officer

Yeah, now, I was going to say in the geography, Puneet, is largely in the US, but there are some global opportunities as well. It’s really non-COVID-19 related. I mean this is part of the core growth strategy for Padraig’s business to continue to expand our market share on the enterprise service front and we’re really delighted winning some big pharma deals.

Puneet Souda — Leerink Partners — Analyst

That’s great. Thanks. Very helpful.

Operator

Your next question comes from the line of Derik de Bruin with Bank of America. Your line is open.

Derik de Bruin — Bank of America Merrill Lynch — Analyst

Hi. Good afternoon.

Mike McMullen — President and Chief Executive Officer

Hey, Derik.

Derik de Bruin — Bank of America Merrill Lynch — Analyst

Hey. So a couple of questions. Very impressive margin expansion in the third quarter. How should we think about the operating margin into Q4? And then I guess how much of these costs are permanent removals versus what has to come back in ’21?

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

Yeah, let me just — let me take that, Derik. Great questions. And certainly are very pleased with how the team has responded, as I mentioned before. As we’ve talked about a large amount of the cost, we have not done things like furloughs. We stabilized the team. We have not reduced base pay and things like that. So these are discretionary expenses that a lot of them we think have the opportunity to stay away. It would be travel and things like that, which our digital tools have enabled us to really continue to support our customers. And so there aren’t any kind of one-time things that happened in the quarter.

In terms of going forward to Q4, we are looking at probably less of a margin — incremental margin improvement because we are looking for ways to continue to invest to drive growth as the economy recovers. We also have some started some start-up costs in the NASD new facility as well. So it’s probably less than what you — what we’ve had historically had, which is call it 32% incrementals, but it’s really to drive growth.

Mike McMullen — President and Chief Executive Officer

Hey, Bob, I could just maybe add a comment on your — on the first remark. So this is really, Derik, all about a new way of working in Agilent. So I am preparing for a managers call later this week and what we’re talking to our team about is more digital, less travel. And we’re really going to make sure that when we get on the other side of this COVID-19 pandemic that we don’t revert to our always of traveling. And we know from our customer satisfaction scores they love the responses that we have now with our digital platforms.

Derik de Bruin — Bank of America Merrill Lynch — Analyst

Great. And two questions on LASG. [Phonetic] I guess the first question is if you look at your numbers in China versus some of your major peers in that area, I mean you’ve really outshown in China. Can you just talk about just share dynamics there that are going on? I mean as I said, there was a pretty stark comparison between you and your main LC competitor there. And I guess also along those lines, can you talk about potentially any sign of a budget — any sign of a budget flush and just sort of thinking about four key trends, what are you hearing in terms of people with budgets? And are they going to be allowed to roll things over and to — or are they going to have to use it or lose it?

Just some dynamics in terms of growth on the fourth quarter and just sort of your general thoughts on where customer spending habits are.

Mike McMullen — President and Chief Executive Officer

Yeah. Thanks, Derik. I’m going to have Jacob handle the first question then, Jacob, you can pass it back to Bob and I for the second question. And I know Jacob would be just delighted to talk about the share dynamics in China, which we think are very positive for Agilent.

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

Yeah, absolutely. Thanks for that and the numbers speak for itself. It’s clear that both in China but I think actually globally that we are in right now will be taking care. And this doesn’t come by coincidence. I think we have been executing our strategy between deals and over the past years. And the customers are really buying into our value proposition. We are playing a game where we are leveraging our whole portfolio, not going after one product line versus each other and the customer really likes to be outcome-based. So that’s what is happening right now. And we see here in the crisis that not only are they excited about what the investments we have done into our portfolio over the past year but also, as Mike talked about, in the digital world, in the remote world, we have been — our team has just been super responsive. They have taken up the digital. We take talent very very good and the customers have responded very, very positive to it. They know that when they work with Agilent that we are there for them in this crisis. So thank you, Mike.

Mike McMullen — President and Chief Executive Officer

And then, on the other question, Derik, what we’re hearing from our customers, particularly in the public sector and we’re seeing it in our order book, and Bob I’ll offer my perspective here, and feel free to build on my comments here. But, there’s a real sense of making sure they commit to their budgets. So, we’re seeing it both in our order book as well as order activity, where there is a lot of uncertainty what’s going to happen post elections as we go into 2021. So, they want to commit those funds. And it’s actually quite amazing the amount of deal activity that’s going to occur without visiting a customer face-to-face. So Bob, I don’t know what you’re hearing from field [Speech Overlap].

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

The only thing I would add is just reiterate what Jacob was saying, because it’s not just China. I think, when you look at our LSAG portfolio, I think what people don’t fully appreciate is, is how we’ve actually changed the portfolio to technology platforms, they’re probably the best — in the best shape they have been in probably five years in terms of new products and so forth. And I think you’re seeing that across the globe. And when we think about where we ended up in Q3, LSAG was certainly the standout relative to where we thought they were going to be. In a capital constrained environment only down 4% on a core basis really speaks to our — I think, our responsiveness to customers.

Derik de Bruin — Bank of America Merrill Lynch — Analyst

Great. Thanks.

Operator

Your next question comes from the line of Brandon Couillard with Jefferies. Please go ahead.

Brandon Couillard — Jefferies & Company — Analyst

Hey. Good afternoon.

Mike McMullen — President and Chief Executive Officer

Good afternoon, Brandon.

Brandon Couillard — Jefferies & Company — Analyst

Bob, on the gross margin line, you mentioned higher logistics cost in the third quarter. Is that a new trend? And then, could you help us just think through some of the puts and takes, whether it’s logistics costs or mix and how those puts and takes might evolve in the fourth quarter?

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

Yeah. Sure. We’re hoping that’s not a trend that’s going to be around for a while, but it certainly was exacerbated in the Q3. That being said, I would say three quarters of that was probably mix, when you look at the various businesses across each one of the groups. But, where we saw logistics, challenges are, just lower capacity in freight — in air capacity. But we would expect that — and we actually saw that through the quarter to kind of relax. And I think as you’re starting to see more intercontinental travel, both from a passenger standpoint as well as freight standpoint we would expect that to kind of relax over time.

Brandon Couillard — Jefferies & Company — Analyst

Okay. And then, Bob or Mike, you’re not quite giving formal forward-looking guidance yet, but you do feel comfortable enough to restart the buyback program. Just what are your latest thoughts just around comfort as far as capital deployment goes and maybe your appetite for M&A right now and what the funnel might look like there? Thank you.

Mike McMullen — President and Chief Executive Officer

Yeah. Sure, Brandon. And I’ll start off here, and Bob, feel free to jump in. But, we felt quite comfortable resuming our share repurchase program on the non-dilutive perspective, and we’ll be looking at opportunistic as well. And cash flow remains strong. We felt for some time that the third quarter of this year would be the toughest quarter for us for the year. We’re through that now. And the third quarter actually was significantly better than we had thought. And we saw positive growth across all of our businesses in July. So, we think, okay, barring some kind of major flare-up, we should be able to continue to see this gradual improvement of growth into the fourth quarter, sort of our message. So, we have the comp. We also narrowed the framework that we provided, it’s more narrower than it was in Q3. But again, I think we need to keep reminding ourselves that we still — there’s still a lot of uncertainty associated with the pandemic.

I think, our capital deployment approach remains unchanged, which is, we certainly wanted a balanced approach to capital deployment across dividends, cash, share repos and with the prioritization of investment in business, we just made a significant commitment in capital with our new NASD expansion. And we’re still on the hunt for deals that make sense for Agilent. So, our approach to capital deployment really fundamentally remains unchanged. We paused a bit in the second quarter just because — on the share repo because of the — in the early part of the third quarter, given what was going on in the environment outside of Agilent. So, we feel pretty good about where we are right now and have a reasonable level of confidence and there is decent level of stability about the business.

Bob anything —

Brandon Couillard — Jefferies & Company — Analyst

Great. Thanks.

Operator

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

Dan Leonard — Wells Fargo — Analyst

Thank you.

Mike McMullen — President and Chief Executive Officer

Hey, Dan.

Dan Leonard — Wells Fargo — Analyst

So, maybe just to circle back — Hi Mike. So, maybe this is a question for Bob, talking again about the Q4 framework.

Mike McMullen — President and Chief Executive Officer

[Speech Overlap]

Dan Leonard — Wells Fargo — Analyst

So, if your business grew in July and the world improves month to month through October, what does that imply then the high end should be above that 1% organic growth number?

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

It could be. I’ll just leave it at that. There’s still a lot of uncertainty and so forth. But certainly, we wouldn’t complain if it was better than that.

Dan Leonard — Wells Fargo — Analyst

Okay. And then, my follow-up, whoever wants to take it, on the NASD business. Can you elaborate on, what’s the lead time for that announced expansion? Is it something that would take a year or multiple years to put in the new line, or is it a quicker turn? And can you comment on your willingness to commit capital inorganically in that business in addition to your organic commitments? Thank you.

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

I’ll take the first one just real quick and then, Mike, if you want to add something on the second one. We announced that we would make that $150 million investment and we would expect it to go live towards the end of 2022. So, it’s taking a little longer than just a regular train. Sam mentioned train A on steroids. So, it’s bigger, and probably take a little more capital. And obviously with COVID-19 there’s some activity there in terms of a little long lead time. But, we feel like we have the capacity to be able to manage us through that time, and then that will come online at the end of 2020.

Mike McMullen — President and Chief Executive Officer

Yeah. I think, it’s probably end of ’22. And don’t specifically talk about specific targets or areas of focus necessarily, but it’s not out of the realm of reason that I would say, why wouldn’t we want to further expand this business inorganically as well? So, that’s not out of the realm. I’m not singling anything near-term happening. But we think we’re operating from a position of strength here in this business. We had a first — get our new factory up and running and build for that. So, we now think we have a, if you will, a beachhead to build from both, organically and inorganically.

Dan Leonard — Wells Fargo — Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Catherine Schulte with Baird. Your line is open.

Catherine Ramsay — Robert W. Baird — Analyst

Hi, guys. Thanks for the question.

Mike McMullen — President and Chief Executive Officer

[Speech Overlap]

Catherine Ramsay — Robert W. Baird — Analyst

I guess, first, despite the relatively good LSAG results in the quarter, it sounds like the outlook on the capital equipment side is still a bit uncertain. Can you just talk to how the services and consumable side of the business trended in July and what your expectations are for instrumentation trends in the coming quarters?

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

Yeah. I think — yes, Catherine, this is Bob, all three of our businesses actually performed better in July than they did in May and June, which was very positive. The ACG business actually led the charge in terms of that, as you would expect, given the resumption of activities. There’s some catch up there, in terms of — we saw that kind of phenomenon actually in China, in April. But ultimately ACG was there.

I think, LSAG capital is going to continue to be constrained. But I think what we’ve seen in our business is we’ve talked about this in the past kind of this flight to quality. And with our instrumentation and the reputation that we have, I think in a capital constrained environment, those dollars are precious. And we think our positioning is very good vis-a-vis the market.

Mike McMullen — President and Chief Executive Officer

Yeah. I tried to hit that in my remarks, which as I really say, hey listen, we know we’re picking up share in a tight market. And I think you saw that on C&E, right, which is if a C&E capital purchase is going down, it’s coming Agilent’s way. And that’s why — and the overall market is still cautious, but you see PMI starting to creep up a bit. So Yeah, Catherine, just one last thing, to give you maybe a little more color. If we look across the groups, we would expect LSAG to still be negative in Q4. I mean, it’s probably going to lag, given the [Speech Overlap] fourth quarter last year as well.

Catherine Ramsay — Robert W. Baird — Analyst

Okay. Very helpful. And then, Mike, you mentioned seeing growth in all regions for the non-COVID diagnostics business exiting the quarter. Can you just give us a sense of where those activity levels are in the US versus China and where they bottomed out across the different regions?

Mike McMullen — President and Chief Executive Officer

Yeah. Sure. So, I think, I’d say China is in lead position in terms of if you will, almost full recovery. Europe is second and the US is trailing. So for the first — throughout the quarter, if I look at Sam’s business in the US, for example, the first two months were negative and — of diagnostic testing volumes in pathology. But we saw actually improvement to growth in July. So, I think that’s sort of the pattern — almost the pattern of how the pandemic has flowed around the world. China is back. Europe is on its way. And I’d say, US is still in the early stages of recovery.

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

Yeah. And I would say, in the US it’s probably — and keep me honest, Sam it’s — we’re probably still at about 80% pre-COVID levels from a diagnostics perspective, but improving where it was. It was below that at the beginning of the quarter, so. Does that sound, Sam?

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

It does.

Catherine Ramsay — Robert W. Baird — Analyst

Great. Thank you.

Operator

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

Steve Willoughby — Cleveland Research Company — Analyst

Hi. Good afternoon.

Mike McMullen — President and Chief Executive Officer

Hi, [Phonetic] Steve.

Steve Willoughby — Cleveland Research Company — Analyst

A lot of my — hi there Mike. Just one question for you. A lot of my other questions have already been answered. 90 days ago you made a brief comment about potential onshoring back in the US. Just was wondering if there’s any update on that at all? Thank you.

Mike McMullen — President and Chief Executive Officer

Thanks, Steve. Happy to comment on that. I think that’s still going to happen. And these things take time. But, there’s active discussion. And, by the way, I wouldn’t say it’s just confined in the United States. I mean, many geographies are now looking at the security of their supply chain, both in the pharma side as well as in the chemical marketplace where they’re providing precursors into the APIs for the pharma chains. So, there’s nothing significant to announce relative to the impact on business, but there does seem to be an overall trend in this regard. And I can say also from an Agilent perspective, we’re working hard to make sure that our supply chain is secure as well. So, I think that the COVID-19 pandemic is a real wake up call to really some vulnerabilities in some aspects of supply chain. So, we’re kind of working both sides of it, which are to ensure our own ability to deliver product under multiple scenarios, as well as we do see some market trends underway. Bob, I know you’ve taken a look at this pretty [Speech Overlap].

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

Yeah. Just to build on that, we talked a little bit about earlier in the call. We would expect that to see some of that opportunity show in our order book. And that’s probably more a ’21 time frame for revenue. I wouldn’t expect any of that to happen in Q4, just given the kind of timing. But you’re seeing it in multiple end markets in multiple regions. We think this is a trend that will continue.

Steve Willoughby — Cleveland Research Company — Analyst

Thanks for that color. Appreciate it.

Mike McMullen — President and Chief Executive Officer

You are welcome.

Operator

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

Dan Brennan — UBS — Analyst

Great. Thanks. Hey, guys. Hope you guys are doing well.

Mike McMullen — President and Chief Executive Officer

Hi, Dan.

Dan Brennan — UBS — Analyst

Mike and Bob. Sure. Maybe first question just on chemical and energy, obviously, you’ve already highlighted a few comments throughout the call. But just wondering if you can kind of walk through a little more color separate trends within that segment by customer in chemical. I don’t know if it’s worth seeing if there’s been a big divergence all between chemical and A&P and R&M? And then secondarily, maybe just remind us of how much of that business is tied towards like QA/QC versus R&D and kind of what are we looking for to determine whether or not this down 10% begins to improve more reliably, or if it’s going to save the slow steady progress that you believe?

Mike McMullen — President and Chief Executive Officer

Hey, Bob, why don’t I make some initial comments, and then we can check our notes to see if I missed anything. But, I think unlike the last quarter, the mix here — and I think both the chemical and the energy later side had about the same dynamics where both were down about the same, primarily on the instrument side. And on one hand, the chemical side of the business was really benefiting — continues benefit from the low oil prices. But, some of their end markets are weak, whether be automotive or some of the other markets that they service are weak. Some of them are getting a little bit of help on COVID-19 related products. But overall, I’d say both, the chemical side, as well as the energy side of that are down about the same, but stable. And I have to say that Bob and I had talked to at some length about this in our last call. And our prediction at the time was we thought we were going to be in a kind of a stable situation relative to this. That wasn’t going to get any worse. That was sort of the question we were getting last call. So, I think we’re really pleased to see that that came through this quarter. And we expect that eventually this thing will start to move back to grow.

I think it’s probably a 70-30 mix, where most of it’s in QA/QC. And that’s why these facilities are running, albeit maybe not at full volume. So, QA/QC equipment will be needed as well as consumer services that go with it. So, they can only hold off the depots on that side for so long. There is an element of research. But I think in the chemical and energy space, the biggest driver for that is the QA/QC side of the business.

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

Yeah. And I think, Mike — the only thing I’d add, Dan is we would expect this, as you said, kind of steady slow progress going forward.

Mike McMullen — President and Chief Executive Officer

Yeah.

Dan Brennan — UBS — Analyst

Okay. And then, maybe one different follow-up, I know — a couple of questions on China. But maybe could you just go a little bit more into detail on what you saw in food and generics? Obviously COVID is impacting the globe and the recovery. But, you’ve got some pretty unique issues with food and generics that are maybe a little different. So, dependent upon the improvement or lack thereof, that could drive notable changes in China. So, what did you see there? And what’s the outlook as we look forward to those two segments? Thank you.

Mike McMullen — President and Chief Executive Officer

Do you want to take that one?

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

Yeah. I was going to say, Dan, one of the things we were incredibly proud of in China was all three of the business groups grew and all of our end markets grew, really led by food, which was up over 20%. It’s been a while since we’ve been able to say that. And so, we think that — we talked about kind of the moves away from the government labs or the central labs into the commercial labs, and we think that that’s stabilized, and team has really been able to garner share, or our view of capacity in that space.

And then, in pharma, it continues to perform very well. Actually, pharma was up roughly 10% in China, and that’s a combination of both, large and small molecule. And I think that our thesis around that continues to play out, which is that the winners of the 4% [Phonetic] plus 7% [Phonetic] or the tendering process are — customers that where we are over indexed, and we continue to see that positive momentum, we actually saw acceleration from Q2 to Q3 in both, food and pharma, and the rest of the businesses were positive as well. So, I think, it’s broad-based.

Dan Brennan — UBS — Analyst

Great. Thank you guys.

Mike McMullen — President and Chief Executive Officer

Yeah, quite welcome.

Operator

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

Patrick Donnelly — Citi — Analyst

Hey. Thanks, guys.

Mike McMullen — President and Chief Executive Officer

Hey, Patrick.

Patrick Donnelly — Citi — Analyst

Mike — Hey, Mike. Maybe just one for you on — I know, there’s been a few questions in July obviously. But with all the businesses returning to growth, I guess, is it safe to assume you guys didn’t see too much of a pullback around the second wave here in the US, even the first few weeks of August? It sounds like you’re a little more cautious on Americas versus other geographies. But, just wondering, any surprises on an end market basis in the US, as you went through July and even early August, given the reoccurrence of virus?

Mike McMullen — President and Chief Executive Officer

No, I’ll jump in on this. But from our perspective, I don’t know real surprises. Maybe we’re — like all of us are watching what was happening with the pandemic as it worked its way across throughout the US and we saw the case numbers go up and lab access was down for the early really sharply April, May, June and we started seeing some recovery. So, I think no real surprises versus what we thought.

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

Yes. I would agree. I mean, Patrick, this is Bob. The Americas, as Mike said earlier, is in fact the biggest variable because it’s further along in its recovery than both Europe and China. And I think, the thing that we’re watching is those COVID flare-ups and the potential impact on elective procedures, which would impact our diagnostics business. That’s probably got the biggest variability going into Q4 relative to LSAG and ACG. But, to Mike’s point, we did not see any significant change with these flare-ups in August — or excuse me in July and early August.

Patrick Donnelly — Citi — Analyst

Okay. No, that’s helpful. And then a bunch of that good commentary on the chemical and energy and industrial side. Just want to, I guess clarify, I mean it certainly seems like the industrial sentiment feels like it might have bottomed. It seems like your tone is little bit better from three months ago. Even though, again, chemical and energy is probably going to be down similar this quarter and again next quarter. But, I guess what you’re hearing from customers there on spend plans? Again, it sounds like you’re a little more optimistic and talking a little more bullishly about ’21. So, I’m just wondering, I guess, as we enter into the end of this fiscal year into ’21, are you seeing things improve a little bit? Obviously, you’ll come up against very easy comps, but it does seem like the tone is a little more positive. So, are you hearing from customers, things that are trending a little bit better into ’21?

Mike McMullen — President and Chief Executive Officer

Yeah. I think that’s a fair assessment of what I was trying to communicate today. First of all, the fact that we do think it’s bottomed. And that was our thesis when the things started going directly down and the pandemic hit. So, we do see that. Again, I don’t want to get too far ahead and describe some big dramatic increase in growth in this space. But, customers are working on the plans. Chevron actually is making some big investments in Iraq. So capital — these are ongoing concerns, and they can hold back their capital for a while, but they’re going to want to maintain their operations at the highest capability. So, we’re hopeful that the budget environment will be a little bit different in ’21. I think once we get a little bit more clarity, once our customers feeling more clarity in their view of where the economy is going, then they can make their decisions with a lot more confidence. So, the PMIs are a good view of how sentiment may be changing. So, again, don’t over interpret this for fourth quarter, but it does point to ’21 being perhaps a better environment.

Patrick Donnelly — Citi — Analyst

Okay. Great. Thanks, Mike.

Operator

And your last question comes from the line of Jack Meehan with Nephron Research. Your line is open.

Jack Meehan — Nephron Research — Analyst

Thanks. Good afternoon, guys.

Mike McMullen — President and Chief Executive Officer

Hey, Jack.

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

Hey, Jack.

Jack Meehan — Nephron Research — Analyst

So, I wanted to go back to the NASD business and just get a little bit more color. Are you working on any of the mRNA-based COVID-19 vaccine? I guess, curious because the trials are going so quickly. I was curious to get your take if one [indecipherable] and into commercial within the next six months, how would you manage the business to deliver on the capacity that customer might need for that?

Mike McMullen — President and Chief Executive Officer

Hey, Sam, I’m going to pass that to you.

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

Yeah. no problem, Mike. So, I can’t comment specifically on the molecule or the molecule of the projects that we’re doing related to COVID-19. But, two things I will point out. As Bob indicated earlier, this is business separate for or different than the business we’re already doing or it’s not taking the place of business, if you will. And we believe, we have the capacity and that’s — if the demand is there related to certain things playing out related to COVID-19 and the molecule that we happen to be working on, we believe we will be in a position to be able to supply that material as the volume required.

Jack Meehan — Nephron Research — Analyst

Great. And then, one more follow-up on LSAG. I’m just curious, as you’re looking at the research labs around the globe, kind of in this conversation around deferral versus cancellation, what are customers telling you? Is it still mostly deferrals versus cancellations? And on the deferral side, when do you expect these, how far out is it getting pushed something that you think it hits before the end of the year or probably more likely in calendar ’21?

Mike McMullen — President and Chief Executive Officer

Hey Jack. Happy to answer this question. This is something we’ve been monitoring pretty closely, deferrals versus cancellations. And we’ve really been pleased, our cancellations are actually lower than last year. And our thesis is they’re being pushed and actually funds will be deployed this calendar year.

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

Yeah. That’s what we actually — we saw that — Jack, some of that actually happen in Q3. And as people are going back into the labs physically there, then they can install the instrumentation. But to Mike’s point, we’ve seen no cancellation — or lower cancellations than what we would have last year. There’s always some level of it. I would say that we’ve been extraordinarily pleased. And I would expect it to happen this calendar year.

Jack Meehan — Nephron Research — Analyst

Great. Thank you.

Operator

This concludes the allotted time for our question-and-answer session. I’d now like to turn the call back over to Ankur for any closing remarks.

Ankur Dhingra — Vice President of Investor Relations

Yeah. So, that concludes the call for today. Thanks, everyone for joining us.

Operator

[Operator Closing Remarks]