Agilent Technologies Inc. (A) Q3 2022 Earnings Call Transcript

Agilent Technologies Inc.  (NYSE: A) Q3 2022 earnings call dated Aug. 16, 2022

Corporate Participants:

Parmeet Ahuja — Vice President of Investor Relations

Mike McMullen — President and Chief Executive Officer

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

Padraig McDonnell — Senior Vice President, Agilent President and Chief Commercial Officer, Agilent CrossLab Group

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

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

Analysts:

Matthew Sykes — Goldman Sachs — Analyst

Brandon Couillard — Jefferies — Analyst

Vijay Kumar — Evercore ISI — Analyst

Puneet Souda — SVB Leerink Partners — Analyst

Rachel Vatnsdal — JPMorgan — Analyst

Michael Ryskin — Bank of America — Analyst

Josh Waldman — Cleveland Research — Analyst

Jack Meehan — Nephron Research — Analyst

Elizabeth Garcia — UBS — Analyst

Patrick Donnelly — Citi — Analyst

Timothy Daley — Wells Fargo — Analyst

Presentation:

Operator

Good afternoon. Thank you for attending today’s Agilent Technologies Q3 ’22 Earnings Call. My name is Hannah, and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions]

I would now like to pass the conference over to our host, Parmeet Ahuja with Agilent. Please go ahead.

Parmeet Ahuja — Vice President of Investor Relations

Thank you, Hannah, and welcome everyone to Agilent’s conference call for the third quarter of fiscal year 2022. With me are Mike McMullen, Agilent President and CEO; and Bob McMahon, Agilent Senior Vice President and CFO. Joining in the Q&A after Mike and Bob’s comments will be Jacob Thaysen, President of the Agilent Life Science and Applied Markets Group; Sam Raha, President of the Agilent Diagnostics and Genomics Group; and Padraig McDonnell, President of the Agilent CrossLab Group. This presentation is being webcast live. The news release for our third quarter financial results, investor presentation and information to supplement today’s discussion along with a recording of this webcast are available on our website at www.investor.agilent.com.

Today’s comments by Mike and Bob will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in financial metrics are year-over-year and references to revenue growth are on a core basis. Core revenue growth excludes the impact of currency and any acquisitions and divestitures completed within the past 12 months. Guidance is based on exchange rates as of July 31.

As previously announced, beginning in the first quarter of fiscal 2022, we implemented certain changes to our segment reporting structure. We have recast our historical segment information to reflect these changes. These changes have no impact on our Company’s consolidated financial statements. We will also make forward-looking statements about the financial performance of the Company. These statements are subject to risks and uncertainties and are only valid as of today. The Company assumes no obligation to update them. Please look at the Company’s recent SEC filings for a more complete picture of our risks and other factors.

And now I’d like to turn the call over to Mike.

Mike McMullen — President and Chief Executive Officer

Thanks, Parmeet, and thanks everyone for joining our call today. In the third quarter, we once again demonstrated the strength of our diversified business and the unstoppable One Agilent team. We delivered an excellent quarter, significantly exceeding our revenue and earnings expectations. Revenues of $1.72 billion are up 13% core. This is on top of 21% core growth in Q3 of 2021.

Third quarter operating margins are 27.5%. Operating margins continue to expand and are up 150 basis points from last year. Earnings per share of $1.34, up 22%. Our strong results in Q3, coupled with orders continue to outpace revenues highlight the ongoing strength of our diversified business. The momentum in our business continues, and we are once again raising our outlook for the year.

Let’s take a close look at our Q3 results. From an end market perspective, our results were once again led by strength in our two largest markets; Pharma and Chemical & Energy. Our largest market, Pharma grew 16% versus 27% a year ago. Within Pharma, both the Biopharma and Small Molecule segments grew double-digits. The momentum in our C&E market segment continues with Q3 growth of 22%. This is on top of 23% growth a year ago. The C&E market is being fueled by demand in chemicals along with strong secular demand and ongoing investment within the Advanced Materials space.

We’re also very pleased to achieve double-digit growth in the Food and Environmental and Forensic markets, with both markets growing 11%. In our last call, I shared I believe that the business impact for the Shanghai COVID-19 lockdown would be transitory. I also expressed that we remain confident about the ongoing strength of our business in China, in Q3, that China can deliver 29% growth. These stellar results were driven by continued strong end-market demand, coupled with the fast and expect recovery production and shipment activity following the end of the Shanghai area lockdown.

We’re also very pleased with these results, which highlights the customer focus, drive, and outstanding execution of the Agilent China team. Strength in Americas continued as we posted another quarter of double-digit growth on top of 32% growth last year. Our European business grew 6% against the 23% last year, despite a two-point headwind for the curtailment of our operations in Russia. In terms of business unit performance, the Life Sciences and Applied Markets revenues of $1.02 billion, up 18% on a core basis.

Growth was broad-based, with continued strong demand for our LC & LC/MS offerings, where we posted high-20s growth. Our Spectroscopy business grew low-30s, driven by strength in Advanced Materials market. Chemistries and Consumables, Cell Analysis and our GC business, each delivered double-digit growth in the quarter. LSAG’s end market growth is broad-based with particular strength in the Pharma and Chemical & Energy markets. Our Pharma results were driven by strength in the Biopharma segment, which grew more than 20%. We had an excellent show in the recent ASMS Conference introducing several important LC/MS and GC/MS Instruments and Biopharma Workflow Solutions.

These innovative and intelligent LC/MS and GC/MS systems have been designed to make the lives of our customers easier. The build in instrument intelligence and a higher level instrument diagnostics helped maximize system up-time and improve lab productivity by allowing operators to focus on their analysis rather than on their instruments. In addition, we introduced an industry-first hydro-inert source for GC-Single Quad and GC-Triple Quad instruments, enabling customers to seamlessly migrate from helium as a supplier gas to lower cost hydrogen.

And rounding up the list of new products announced at ASMS, we introduced the MassHunter BioConfirm 12.0 software, an integrated compliant workflow targeted at the fast-growing oligo-based therapies development market. These new products have already been well received by customers and represent the latest addition to Agilent history of leadership and mass spectrometry. Our LSAG business also won some important awards during the quarter, included the 6560C Ion Mobility LC/Q-TOF System winning the Scientist Choice Award for Best New Spectroscopy Product. Earlier this month, we also strengthened and broadened our Advanced Materials and Biopharma portfolio with the acquisition of PSS, Polymer Standards Service, a leader in polymer characterization.

We’re extremely pleased to welcome the PSS Team and their technology to the Agilent family. The Agilent CrossLab Group posted services revenue of $359 million. This is up 10% core. We do a 10% core even as lab activity continues to ramp in China. Growth in services was again broad-based across services contracts, preventive maintenance, compliance, education and informatic enterprise services. Strong instrument placement and increased connect rate continue to be a driver of service business as customers continue to see value in our ACG offerings. Another critical important factor on our results is the scale and execution capability of Agilent’s world-class global service delivery organization and sort of our customers meet their needs. Agilent seen as the trusted Company to work with among our global customers.

The Diagnostics and Genomics Group delivered revenue of $340 million, up 3% core. This is versus I compare a 37% growth last year. The solid results in our clinical cancer testing and NGS businesses were partially offset by COVID testing headwinds in a qPCR portfolio. In addition, the DGG business in China continues to ramp from the COVID-related shutdowns there. NASD revenues were up modestly in line with expectations. As we noted last quarter, Q3 included the impact of planned shutdown of our oligo manufacturing line in Frederick, Colorado. The shutdown of Frederick was for both routine maintenance and development of key elements of our Train B. Our new manufacturing line have increased our capacity, $150 million plus when fully ramped.

While we continue to make good progress on the construction of Train B, we have seen some supply chain related delays and are now targeting mid-year 2023 go-live, a slight delay. We see continued strong demand for oligo-based therapies as the number of approved drugs continues to increase and the pipeline of drugs in development are targeting these states with larger patient populations. We are more confident than ever in the long-term trajectory of the market and our business.

In addition to these highlights, I’d like to also point the recent release of Agilent’s 2021 ESG Report. While we’ve always published our progress and sustainability and addressing societal needs, this year we’ve taken our approach to the next level. We address these issues in a new format that for the first time that looks specifically at our progress in the areas of environmental, social and governance issues. We hope you have a chance to review our progress in ESG by checking out the report on the Agilent website learning more about how we’re executing our mission to advance the quality of life.

Agilent’s Q3 results again point to the strength of our diversified business and the outstanding execution ability of the Agilent team. We continue to bring innovative differentiated new offerings in the marketplace. Acceleration in digital orders growth continues as well as new customer acquisition. In addition, as we started 2022, we undertook a bold move to create a One Agilent Commercial Organization to further drive customer focus and growth. The strength in our portfolio and the continued strong execution by our One Agilent Commercial Organization make a powerful combination, and you see in the results we’re delivering.

Customer satisfaction hit another all-time high this quarter. We continue to outgrow the market. As a result of our strong Q3 performance and continuing momentum, we’re once again raising our full-year revenue and EPS guidance. Bob will share more of the specifics. It’s an exciting time in Agilent with the best yet to come.

Thank you for being on the call today. And now I will hand the call off to Bob. Bob?

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

Thanks, Mike, and good afternoon, everyone. In my remarks today, I’ll provide some additional details on revenue in the quarter and take you through the income statement and other key financial metrics. I’ll then finish up with our guidance for the fourth quarter and fiscal year. Unless otherwise noted, my remarks will focus on non-GAAP results. We are extremely pleased with our Q3 performance. Results were above expectations and we expect that strength to continue in the fourth quarter.

Q3 revenues were $1.72 billion, up 8.4% on a reported basis and up 13.2% core. FX was a 4.8 point headwind to growth were $76 million. Pricing for the quarter contributed over three points of growth year-on-year and improved sequentially. The performance was broad-based as all end markets and regions grew during the quarter. As we mentioned last quarter, the COVID-related lockdowns in China deferred an estimated $50 million to $55 million in revenue from Q2. And we forecasted that revenue would be recovered during the rest of the calendar year. Our team in China did a fantastic job ramping production and shipments faster than expected following the shutdowns. We estimate over half of that deferred total was delivered in Q3, exceeding our expectations.

Given the strong performance, we now expect the remainder will be delivered in Q4, which is an acceleration from our thinking from last quarter. The acceleration of the COVID-related shutdown recovery in China contributed to an already strong Q3 for the Company. For perspective, we estimate the total business grew double-digits excluding the accelerated recovery. As Mike mentioned, earnings per share of $1.34 were up 22% from a year ago, representing strong incremental flow-through of the better than expected revenue growth. This performance is against our most difficult comparison of the year as EPS grew 41% in Q3 of last year.

Now let me dive a little deeper into the end markets. Our largest market, Pharma was up 16%, exceeding our expectations. Biopharma grew 18% and Small Molecule was up 14%. Biopharma is a focus area for us and now represents 38% of our overall Pharma business. We expect that ratio to continue to climb over time. In addition, all three business groups grew double-digits in the Pharma segment. And our LC portfolio continues to perform very well, growing 25% in this important market for us. Chemical & Energy continued to show strength growing 22% during the quarter, driven by the Chemicals and Advanced Materials segments of this market. We saw strengths in plastics and packaging for Chemicals and ongoing demand in Advanced Materials coming from the markets for semiconductors and batteries.

In the Food segment, we achieved growth of 11% on top of 12% growth a year ago. Strength in the Food market was led by the Americas and China. Our Environmental and Forensics market also grew 11% during the quarter, driven by the Americas and China. In the Americas, we saw increased funding to support PFAS testing, while China experienced faster than expected recovery post the Shanghai shutdowns for GCs and GC/MS. The Academia & Government market grew 5% on top of the 12% comparison last year, in line with expectations. And rounding out the review of our end markets, our business in the Diagnostics and Clinical market grew 2% against a very strong 28% compare versus last year. While not material at the Agilent level, this market did experience some headwinds associated with COVID-related revenues being lower than last year. Excluding this, the growth would have been mid-single-digits in this quarter.

On a geographic basis, China led the way with 29% growth, driven by underlying demand and a faster than expected recovery following the COVID-related lockdowns. And looking forward, demand in China continues to be very strong. The Americas grew 11%, another strong showing, and Europe grew 6%, which exceeded expectations. Now turning to the rest of the P&L. Our team continues to execute at a very high level. Third quarter gross margin was 56.4%, up 50 basis points from a year ago as pricing actions, volume and productivity helped offset inflationary pressures tied to ongoing supply chain challenges and higher logistics costs.

Operating expense leverage driven by the strong top-line and continued attention to cost management helped to deliver very healthy margin improvements. Our operating margin was 27.5%, up 150 basis points from last year. Below the line, our tax rate was 14% for the quarter as expected, and we had 299 million diluted shares outstanding. Looking at cash flow on our balance sheet, we generated operating cash flow of $326 million in the quarter while investing $82 million in capital expenditures during Q3, driven by our NASD expansion.

During the quarter, we also repurchased $323 million worth of shares. We paid out $62 million in dividends in Q3, returning a combined total of $385 million to shareholders in the quarter. Year-to-date, we have purchased over $1 billion of shares. Given the ongoing strength of the business, we believe this is a very good investment. Our balance sheet continues to remain healthy with a net leverage ratio of 1 [Phonetic].

Now let’s move to our outlook for the full year and the fourth quarter. We now expect revenues for the full year to be in the range of $6.75 billion to $6.775 billion. This takes into account our Q3 results and an improved outlook in Q4, partially offset by an additional $40 million headwind associated with the strengthening of the dollar. This represents core revenue growth of between 9.9% and 10.3%. We are also raising our EPS guidance for the year to a range of $5.06 to $5.08, representing 17% growth year-on-year. This translates to Q4 revenue in the range of $1.75 billion to $1.775 billion. Core growth is expected to be in the range of 10.3% to 11.8%, while exchange rates will be a five-point headwind and M&A will contribute 0.1 points.

In closing out our Q4 guidance, non-GAAP EPS is expected to be in the range of $1.38 to $1.40, up 14% to 16% versus the prior year. This is based on a 14% tax rate and 299 million diluted shares outstanding. The Agilent team once again performed extremely well in Q3, delivering strong results, driving excellent execution and building a strong foundation for the future. Our diversified business and most importantly, our team have put us in an excellent position to again deliver strong results in Q4.

And now back to Parmeet as we take your questions. Parmeet?

Parmeet Ahuja — Vice President of Investor Relations

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

Questions and Answers:

Operator

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

Matthew Sykes — Goldman Sachs — Analyst

Hey, good afternoon, Mike and Bob, congrats on the quarter, and thanks for taking my questions.

Mike McMullen — President and Chief Executive Officer

Good afternoon, Matt. Good afternoon, Matt. Sure.

Matthew Sykes — Goldman Sachs — Analyst

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

Mike McMullen — President and Chief Executive Officer

Yeah. So I’ll take the first part of that and we’ll jump in and have Bob and Jacob add their thoughts here as well. So I think relative to the strength and why the operating margin was so high is one, I think we’ve been — we’ve greatly benefited from the leverage impact of having those higher than expected revenues. But more importantly, we’ve been working on the pricing side and really ensuring that we are receiving the value for our offerings. And Bob, I think we are well over three points of price appreciation [Phonetic] overall for the portfolio in LSAG at least.

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

That’s correct. That’s correct.

Mike McMullen — President and Chief Executive Officer

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

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

Yeah, I think as we know, we continue to do really well in the LC, LC/MS space, but this quarter, it’s really, Spectroscopy that was standing out. We have especially in our Atomic Spectroscopy field, we have really seen a lot of momentum based, of course, on the dynamics in the markets, but also the innovations that has been created over the past years, and I think we really see the impact on that this time.

Mike McMullen — President and Chief Executive Officer

Yeah, I think it was all race to see who have the highest growth rate, Spectroscopy or LC and LC/MS, they both did extremely well in the quarter. Anything else, Matt?

Matthew Sykes — Goldman Sachs — Analyst

Great. And then maybe just for a follow-up, I know Europe…

Mike McMullen — President and Chief Executive Officer

Sure.

Matthew Sykes — Goldman Sachs — Analyst

Yeah. Actually, just say for a follow-up — can you hear me?

Mike McMullen — President and Chief Executive Officer

Yes, yes, yes.

Matthew Sykes — Goldman Sachs — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

Yeah, I think, Matt, to build on what Mike is saying, I think in particular, we continue to see very strong growth in our Pharma business, and that really is a global phenomenon. And — but we also saw very nice growth in our Chemical & Energy businesses as well. And so as Mike mentioned it is a watch area, but the demand from what we’re seeing in the health of the order funnel continues to be there.

Matthew Sykes — Goldman Sachs — Analyst

Great. Thanks very much.

Operator

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

Brandon Couillard — Jefferies — Analyst

Hey, thanks. Good afternoon.

Mike McMullen — President and Chief Executive Officer

Hey, Brandon.

Brandon Couillard — Jefferies — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

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

Brandon Couillard — Jefferies — Analyst

Okay, that’s helpful. And then on the NASD Train B line, Mike, that’s pushed out a little bit in terms of the launch timeline, is that like one month or two months, I thought the plan was already mid next year?

Mike McMullen — President and Chief Executive Officer

Yeah.

Brandon Couillard — Jefferies — Analyst

Could you elaborate a little more specifically on kind of where the supply chain issues exactly what those are that are pushing the delay?

Mike McMullen — President and Chief Executive Officer

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

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

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

Brandon Couillard — Jefferies — Analyst

Great. Thank you.

Operator

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

Mike McMullen — President and Chief Executive Officer

Hey, Vijay.

Vijay Kumar — Evercore ISI — Analyst

Hey, guys, congrats on a really strong quarter here. Hi, Mike.

Mike McMullen — President and Chief Executive Officer

Thank you.

Vijay Kumar — Evercore ISI — Analyst

Congrats on the print, and one, maybe on the guidance here. In Q4, at the midpoint of, say, 11% organic, you guys are just at 15% [Phonetic]. The comps do get easier for Q4. I’m curious sequentially when you think about it, is the change just because of the cadence of how the China deferred revenues were recognized more in 3Q versus Q4? Maybe just talk about the sequential assumptions here for the 4Q guidance?

Mike McMullen — President and Chief Executive Officer

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

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

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

Vijay Kumar — Evercore ISI — Analyst

I love that word prudent. Maybe one now, some of the moving parts for ’23, Mike, and I’m not asking for a guidance, but if I look at pricing contribution, I think we started the year at 100 [Phonetic] basis points, we’re running at 300 basis points. I think that pricing should continue until it annualizes until mid of — mid of next year. You did mention orders coming in above revenues. What is the backlog conversion? Is that a three-month or six-month or 12-month visibility that you have from backlog? Any impact from NASD, and sorry on C&E, very strong, but obviously with the macro should be perhaps be prudent for ’23?

Mike McMullen — President and Chief Executive Officer

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

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

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

Vijay Kumar — Evercore ISI — Analyst

Understood. Thank you, guys.

Mike McMullen — President and Chief Executive Officer

Thanks, Vijay.

Operator

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

Puneet Souda — SVB Leerink Partners — Analyst

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

Mike McMullen — President and Chief Executive Officer

Puneet, you packed in a lot in that one question, but we will try to address it.

Puneet Souda — SVB Leerink Partners — Analyst

Sorry, Mike.

Mike McMullen — President and Chief Executive Officer

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

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

That’s right. That’s right, Mike.

Mike McMullen — President and Chief Executive Officer

It was across the board, I think — but I think it’s the same story hold geographically as well. So really is a nice global story, but I think it’s more than just Pharma. I know you’re getting some good C&E growth, right for — in the Advanced Materials for LC, LC/MS. We posted some really good numbers in Food and the Environmental mark, which also are big users of LC and LC/MS. So I think it was really a broad-based story there, if I remember correctly, Jacob

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

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

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

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

Puneet Souda — SVB Leerink Partners — Analyst

Got it. Thanks for that. And then just — I’ll keep it simple from that follow-up.

Mike McMullen — President and Chief Executive Officer

Sure.

Puneet Souda — SVB Leerink Partners — Analyst

Polymer Standards acquisition, can you characterize sort of what’s the contribution this year and how does that enhance your offering for columns and sort of biomolecules? And should — how should we think about that overall acquisition overall fitting into LSAG Group?

Mike McMullen — President and Chief Executive Officer

Do you want to take the first piece of that?

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

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

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

Yeah, thanks for that. And we have a longstanding relationship the PSS. So we knew exactly their strength, and we’ve been very impressed with what they’ve done in the polymer business for the — for a long period of time. And particularly, our interest was intrigued when we also see Polymer Standards growing from Advanced Material into Biopharma where we see a lot of opportunities.

And PSS have done a wonderful job using our instrumentation together with their columns and also an informatics pack they have built to really go after a segment of the market and also the expertise in the field. They have more than 500 application nodes within this field. So we can really leverage that with a strong presence we have across the globe to really accelerate the — that business opportunity that they have built up over the past decades really.

Puneet Souda — SVB Leerink Partners — Analyst

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

Mike McMullen — President and Chief Executive Officer

Thank you. Appreciate it.

Operator

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

Rachel Vatnsdal — JPMorgan — Analyst

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

Mike McMullen — President and Chief Executive Officer

Hi, Rachel. Thank you. Thank you.

Rachel Vatnsdal — JPMorgan — Analyst

So first off on China — yeah, great to hear that some of the catch-up in China was pulled forward there and then you also committed to double-digit growth in the region where that acceleration recovery. And so first off, can you just walk us through specifically what drove that pull forward on the catch-up from lockdown? And are you seeing an acceleration or demand catch-up in China? And then second, how are you thinking about that longer-term growth within China and could that be a source of upside for the year?

Mike McMullen — President and Chief Executive Officer

Great. So I’ll start Bob here. So I’d have to say, it was an extraordinary effort of our team in China. I mean people sacrificed and worked tremendously hard. We had people coming into our factories and living at the factories. They slept and worked at the factories for entire period of when before you couldn’t really get out beyond back to your local community. So they did that for several weeks both in our logistics operations as well as our factories, and that allowed us to get our global GC production going as well as the import-export of our products as well.

So I have to say really it was extraordinary effort of the team that made that happen. And we’re very optimistic about our ability to continue to grow well in China. In Q2, I think we talked about a greater than 20% order rate. We posted a number of 29% growth in Q3. Yet we still build backlog in the third quarter in China.

So I think we’re well positioned for the fourth quarter. And Bob, I’d say, it probably does represent a level of upside potentially with things continue to develop as we hope. The wildcard from my perspective are how much money could come into this segment from government stimulus. I know they are talking about some of the things, we haven’t seen any specifics. So that would be something that would be there on a positive. But again our demand really is coming from the core private sector, commercial sector around Pharma and the C&E, we think those things are sustainable.

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

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

Rachel Vatnsdal — JPMorgan — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

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

Mike McMullen — President and Chief Executive Officer

I might use the word undisputed leader in the space.

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

I won’t disagree.

Mike McMullen — President and Chief Executive Officer

Thanks for the question, Rachel.

Rachel Vatnsdal — JPMorgan — Analyst

Great. Thank you.

Operator

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

Michael Ryskin — Bank of America — Analyst

Great. Thanks for taking the question. This is Mike Ryskin on for Derik.

Mike McMullen — President and Chief Executive Officer

Hi, Mike.

Michael Ryskin — Bank of America — Analyst

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

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

Yeah, hey, Mike, this is Bob. I’ll take that near, it’s the former. And so when we take price, it takes some time to get through the backlog. And so we’re seeing the price realization from the orders that — the price increase that we took — that we took back in the beginning of the calendar year. And really, what we’re trying to do is cover our costs. And we’re seeing increased logistics costs and increased material costs. And so we’ve taken it across the board, but also recognizing where the costs are higher, we’ve taken those prices up higher.

We haven’t really heard any pushback, I think as evidenced by our strong order growth, and then also we look very closely at cancellations or — within our order book, and that continues to be very low. And so I think our customers understand why we’re having to raise prices because of the inflationary environment. And I think to-date, we’ve been able to actually generate more price than I think we anticipated at the beginning of the year.

Michael Ryskin — Bank of America — Analyst

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

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

Yeah. I think we’ve been public about being willing to take on bigger deals than what we have had historically. I think we’re still — we have the benefit of having a very strong balance sheet. We’re going to first invest in our business. We think that that’s the greatest opportunity, but we’re always out on the lookout for M&A. And as you said, I would say the pipeline continues to be healthy. The dynamic has certainly changed in the last nine months, particularly on the public market side, and I think there’s some good assets out there. It’s probably taken a little longer on the private market side which is where we tend to focus our efforts.

But I can tell you that we have the — the beauty of our model is that we have organic growth first and M&A as kind of an adder on top of that. And so it is something that we’re continuing to look at and would be not uncomfortable levering up a little higher than where we are today for the right deal and if the economics work.

Mike McMullen — President and Chief Executive Officer

Absolutely, Bob.

Michael Ryskin — Bank of America — Analyst

Is that like 3 times to 4 times lever or…

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

That’s pretty rich. But I think it all depends on what the right asset and what it looks like.

Michael Ryskin — Bank of America — Analyst

Got it. Thanks.

Operator

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

Mike McMullen — President and Chief Executive Officer

Hey, Josh.

Josh Waldman — Cleveland Research — Analyst

Hey, thanks for my — hey, hey. Thanks for taking my questions. Just two for you guys.

Mike McMullen — President and Chief Executive Officer

Sure.

Josh Waldman — Cleveland Research — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

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

Josh Waldman — Cleveland Research — Analyst

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

Mike McMullen — President and Chief Executive Officer

Yeah, Josh, I’m going to pass this call over to Padraig. He’s the closest to what’s going on. As you know, he heads up our One Commercialization in addition to running our ACG Services business. So, Padraig, what’s your thoughts on that?

Padraig McDonnell — Senior Vice President, Agilent President and Chief Commercial Officer, Agilent CrossLab Group

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

Josh Waldman — Cleveland Research — Analyst

Got it. Appreciate it.

Mike McMullen — President and Chief Executive Officer

All right. Welcome.

Operator

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

Jack Meehan — Nephron Research — Analyst

Thank you. Good afternoon.

Mike McMullen — President and Chief Executive Officer

Good afternoon, Jack.

Jack Meehan — Nephron Research — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

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

Jack Meehan — Nephron Research — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

Yeah, I think, I mean, actually, even though Spectroscopy and GC are the big winners in the — related to the CHIPS Act, we actually see across the board. It’s both the MassSpec business, also the LC and LC/MS that Mike was mentioning and then, of course, a lot of our consumables also. And so we see a lot of opportunities here. I think both the CHIP Act, but also the other bill, the — what’s called the Infrastructure Bill and the Inflation Bill here, all of them are driving some of our technologies. So we see a lot of opportunities in that. Now it all comes down to timing here.

Mike McMullen — President and Chief Executive Officer

Yeah.

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

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

Jack Meehan — Nephron Research — Analyst

Thanks. Okay, super. Thank you, guys.

Mike McMullen — President and Chief Executive Officer

You’re welcome, Jack.

Operator

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

Elizabeth Garcia — UBS — Analyst

Hey, guys, thanks so much for taking the question. Congrats on the quarter.

Mike McMullen — President and Chief Executive Officer

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

Elizabeth Garcia — UBS — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

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

Elizabeth Garcia — UBS — Analyst

Okay, great.

Mike McMullen — President and Chief Executive Officer

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

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

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

Mike McMullen — President and Chief Executive Officer

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

Elizabeth Garcia — UBS — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

Yeah, thanks for that, Mike. And we are very interesting in the bioprocessing space, especially from the analytical instruments perspective, where we truly believe that the — that instruments will start to move into the manufacturing. Historically, we have had in the Small Molecule space, the QC/Q — QA/QC sitting in a different lab. And now we see the opportunity to bring Agilent online LC and LC/MS technologies into the bioprocessing space itself or manufacturing space itself.

And hence we have decided and we have made collaborations with leaders in that space, Merck being one of them, where we’re developing, of course, based on our individual strength new solutions to address that. But we’re looking at the multiple partnerships in this space here, and we’re really bullish around that.

Elizabeth Garcia — UBS — Analyst

Great. Thanks so much.

Mike McMullen — President and Chief Executive Officer

You’re quite welcome.

Operator

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

Patrick Donnelly — Citi — Analyst

Hey guys, thanks for taking the questions.

Mike McMullen — President and Chief Executive Officer

Hey, Patrick. Sure.

Patrick Donnelly — Citi — Analyst

Mike, maybe one for you — hey, how are you?

Mike McMullen — President and Chief Executive Officer

Sure.

Patrick Donnelly — Citi — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

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

Mike McMullen — President and Chief Executive Officer

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

Patrick Donnelly — Citi — Analyst

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

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

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

Patrick Donnelly — Citi — Analyst

Helpful. Thank you, guys.

Mike McMullen — President and Chief Executive Officer

You’re welcome.

Operator

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

Timothy Daley — Wells Fargo — Analyst

Hey, everyone, thanks for the time.

Mike McMullen — President and Chief Executive Officer

Sure, Tim.

Timothy Daley — Wells Fargo — Analyst

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

Mike McMullen — President and Chief Executive Officer

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

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

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

Mike McMullen — President and Chief Executive Officer

We’ve got the Company average right?

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

Yes.

Mike McMullen — President and Chief Executive Officer

Yeah.

Timothy Daley — Wells Fargo — Analyst

All right. I can work with that.

Mike McMullen — President and Chief Executive Officer

Okay.

Timothy Daley — Wells Fargo — Analyst

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

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

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

Timothy Daley — Wells Fargo — Analyst

All right, great. That’s it from my end. Thank you.

Mike McMullen — President and Chief Executive Officer

You’re quite welcome.

Operator

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

Parmeet Ahuja — Vice President of Investor Relations

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

Operator

[Operator Closing Remarks]