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Agilent Reports Third-Quarter Fiscal Year 2020 Financial Results

Agilent Technologies Inc. (NYSE: A) today reported revenue of $1.26 billion for the third quarter ended July 31, 2020, a decline of 1% compared to the third quarter of 2019 and down 3.1% on a core(1) basis.

Third-quarter GAAP net income was $199 million, or 64 cents per share. This compares with $191 million, or 60 cents per share, in the third quarter of fiscal year 2019. Non-GAAP(2) net income was $243 million, or 78 cents per share, during the quarter compared with $240 million, or 76 cents per share, during the third quarter a year ago.

“Agilent’s third quarter results once again highlight the strength and resilience of the Agilent team and of our business,” said Mike McMullen, Agilent president and CEO. “Under challenging conditions created by the global COVID-19 pandemic, Agilent again delivered strong results. While the world’s economies are expected to recover at different rates in the fourth quarter, we remain focused on growth and investing for the future, while effectively managing expenses.”

Financial Highlights

Life Sciences and Applied Markets Group

Third-quarter revenue of $557 million from Agilent’s Life Sciences and Applied Markets Group (LSAG) was up 2% year over year (down 4% on a core(1) basis). LSAG’s operating margin was 22.6%.

Agilent CrossLab Group

Third-quarter revenue of $463 million from the Agilent CrossLab Group (ACG) declined 1% year over year (up 1% on a core(1) basis). ACG’s operating margin was 28.4%.

Diagnostics and Genomics Group

Third-quarter revenue of $241 million from Agilent’s Diagnostics and Genomics Group (DGG) declined 8% year over year (down 8% on a core(1) basis). DGG’s operating margin was 17.2%.

Conference Call

Agilent’s management will present additional details regarding the company’s third-quarter 2020 financial results on a conference call with investors today at 1:30 p.m. PST. This event will be webcast live in listen-only mode. To listen to the webcast, select the “Q3 2020 Agilent Technologies Inc. Earnings Conference Call” link in the “News & Events -- Events” portion of the Investor Relations section of the Agilent website. The webcast will remain on the company site for 90 days.

About Agilent Technologies

Agilent Technologies Inc. (NYSE: A) is a global leader in life sciences, diagnostics and applied chemical markets. Now in its 20th year as an independent company delivering insight and innovation toward improving the quality of life, Agilent instruments, software, services, solutions and people provide trusted answers to customers' most challenging questions. The company generated revenue of $5.16 billion in fiscal 2019 and employs 16,300 people worldwide. Information about Agilent is available at www.agilent.com. To receive the latest Agilent news, subscribe to the Agilent Newsroom. Follow Agilent on LinkedIn, Twitter, and Facebook.

Forward-Looking Statements

This news release contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors created therein. The forward-looking statements contained herein include, but are not limited to, information regarding Agilent’s growth prospects, business model and financial results and the impact of COVID-19. These forward-looking statements involve risks and uncertainties that could cause Agilent’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not limited to, unforeseen changes in the strength of Agilent’s customers’ businesses; unforeseen changes in the demand for current and new products, technologies, and services; unforeseen changes in the currency markets; customer purchasing decisions and timing, and the risk that Agilent is not able to realize the savings expected from integration and restructuring activities. In addition, other risks that Agilent faces in running its operations include the ability to execute successfully through business cycles; the ability to meet and achieve the benefits of its cost-reduction goals and otherwise successfully adapt its cost structures to continuing changes in business conditions; ongoing competitive, pricing and gross-margin pressures; the risk that its cost-cutting initiatives will impair its ability to develop products and remain competitive and to operate effectively; the impact of geopolitical uncertainties and global economic conditions on its operations, its markets and its ability to conduct business; the ability to improve asset performance to adapt to changes in demand; the ability of its supply chain to adapt to changes in demand; the ability to successfully introduce new products at the right time, price and mix; the ability of Agilent to successfully integrate recent acquisitions; the ability of Agilent to successfully comply with certain complex regulations; the adverse impacts of and risks posed by the COVID-19 pandemic and other risks detailed in Agilent’s filings with the Securities and Exchange Commission, including its quarterly report on Form 10-Q for the quarter ended April 30, 2020. Forward-looking statements are based on the beliefs and assumptions of Agilent’s management and on currently available information. Agilent undertakes no responsibility to publicly update or revise any forward-looking statement.

(1) Core revenue growth excludes the impact of currency and acquisitions and divestitures within the past 12 months. Core revenue is a non-GAAP measure. A reconciliation between Q3 FY20 GAAP revenue and core revenue is set forth on page 6 of the attached tables along with additional information regarding the use of this non-GAAP measure.

(2) Non-GAAP net income and non-GAAP earnings per share primarily exclude the impacts of non-cash asset impairments, intangibles amortization, transformational initiatives and acquisition and integration costs. Agilent also excludes any tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or are not expected to occur again with any regularity or predictability. A reconciliation between non-GAAP net income and GAAP net income is set forth on page 4 of the attached tables along with additional information regarding the use of this non-GAAP measure.

 
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
 
 
Three Months EndedNine Months Ended
July 31,July 31,

2020

2019

2020

2019

 
Net revenue

$

1,261

$

1,274

$

3,856

$

3,796

 
Costs and expenses:
Cost of products and services

592

582

1,807

1,728

Research and development

92

101

393

302

Selling, general and administrative

347

366

1,109

1,075

Total costs and expenses

1,031

1,049

3,309

3,105

 
Income from operations

230

225

547

691

 
Interest income

1

10

7

30

Interest expense

(19

)

(18

)

(59

)

(53

)

Other income (expense), net

7

5

64

20

 
Income before taxes

219

222

559

688

 
Provision (benefit) for income taxes

20

31

62

(189

)

 
Net income

$

199

$

191

$

497

$

877

 
 
Net income per share:
Basic

$

0.64

$

0.61

$

1.61

$

2.78

Diluted

$

0.64

$

0.60

$

1.59

$

2.74

 
Weighted average shares used in computing net income per share:
Basic

309

312

309

316

Diluted

312

316

312

320

 
 
The preliminary income statement is estimated based on our current information.
 
 
Page 1
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY
 
 
July 31,October 31,

2020

2019

ASSETS
 
Current assets:
Cash and cash equivalents

$

1,358

$

1,382

Accounts receivable, net

930

930

Inventory

746

679

Other current assets

211

198

Total current assets

3,245

3,189

 
Property, plant and equipment, net

846

850

Goodwill and other intangible assets, net

4,482

4,700

Long-term investments

148

102

Other assets

825

611

Total assets

$

9,546

$

9,452

 
LIABILITIES AND EQUITY
 
Current liabilities:
Accounts payable

$

311

$

354

Employee compensation and benefits

306

334

Deferred revenue

397

336

Short-term debt

40

616

Other accrued liabilities

260

440

Total current liabilities

1,314

2,080

 
Long-term debt

2,283

1,791

Retirement and post-retirement benefits

355

360

Other long-term liabilities

613

473

Total liabilities

4,565

4,704

 
Total Equity:
Stockholders' equity:
Preferred stock; $0.01 par value; 125 million shares authorized; none issued and outstanding

Common stock; $0.01 par value, 2 billion shares authorized; 309 million shares at July 31, 2020 and 309 million shares at October 31, 2019, issued

3

3

Additional paid-in-capital

5,324

5,277

Retained earnings (accumulated deficit)

130

(18

)

Accumulated other comprehensive loss

(476

)

(514

)

Total stockholders' equity

4,981

4,748

Total liabilities and equity

$

9,546

$

9,452

 
 
The preliminary balance sheet is estimated based on our current information.
 
 
Page 2
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
   
   
  Nine Months Ended
  July 31,July 31,
  

2020

2019

Cash flows from operating activities:
 Net income

$

497

$

877

   
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 Depreciation and amortization

232

162

 Share-based compensation

63

57

 Excess and obsolete inventory related charges

18

12

 Asset impairment charges

99

 Unrealized gain on equity securities

(26

)

(1

)

 Other non-cash (income) expenses, net

6

5

 Changes in assets and liabilities:
  Accounts receivable, net

1

(58

)

  Inventory

(86

)

(31

)

  Accounts payable

(35

)

  Employee compensation and benefits

(32

)

(35

)

  Other assets and liabilities

(193

)

(281

)

Net cash provided by operating activities (a)

544

707

   
Cash flows from investing activities:
 Investments in property, plant and equipment

(92

)

(125

)

 Proceeds from sale of property, plant and equipment

1

 Payment to acquire fair value investments

(20

)

(21

)

 Payment in exchange for convertible note

(9

)

(2

)

 Payment to acquire intangible assets

(1

)

 Acquisition of businesses and intangible assets, net of cash acquired

(248

)

Net cash used in investing activities

(120

)

(397

)

   
Cash flows from financing activities:
 Issuance of common stock under employee stock plans

56

52

 Payment of taxes related to net share settlement of equity awards

(34

)

(15

)

 Payment of dividends

(167

)

(155

)

 Issuance of senior notes

499

 Debt issuance costs

(4

)

 Proceeds from revolving credit facility

798

 Repayment of revolving credit facility and short-term loan

(1,413

)

 Proceeds from commercial paper

240

 Repayment of commercial paper

(200

)

 Repayment of finance lease

(4

)

 Purchase of non-controlling interest

(4

)

 Treasury stock repurchases

(219

)

(674

)

Net cash used in financing activities

(448

)

(796

)

   
Effect of exchange rate movements

3

   
Net decrease in cash, cash equivalents and restricted cash

(24

)

(483

)

   
Cash, cash equivalents and restricted cash at beginning of period

1,388

2,254

   
Cash, cash equivalents and restricted cash at end of period

$

1,364

$

1,771

   
   
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet:
   
 Cash and cash equivalents

$

1,358

$

1,765

 Restricted cash, included in other assets

6

6

 Total cash, cash equivalents and restricted cash

$

1,364

$

1,771

   
   
(a) Cash payments included in operating activities:
   
 Income tax payments (refunds), net

$

325

$

108

 Interest payments

$

53

$

61

   
   
The preliminary cash flow is estimated based on our current information.
   
   
Page 3
AGILENT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
   
  Three Months EndedNine Months Ended
  July 31,July 31,
  

2020

Diluted EPS

2019

Diluted EPS

2020

Diluted EPS

2019

Diluted EPS

   
GAAP net income

$

199

$

0.64

$

191

$

0.60

$

497

$

1.59

$

877

$

2.74

 Non-GAAP adjustments:
  Asset impairments

99

0.32

  Intangible amortization

45

0.15

25

0.08

139

0.45

79

0.25

  Transformational initiatives

13

0.04

11

0.03

41

0.13

25

0.08

  Acquisition and integration costs

9

0.03

12

0.04

33

0.11

32

0.10

  NASD site costs

6

0.02

12

0.04

  Special compliance costs

1

2

0.01

  Acceleration of share-based compensation expense

1

1

  Other

1

11

0.03

(22

)

(0.07

)

17

0.05

  Tax benefit on intra-entity asset transfer

(299

)

(0.93

)

  Adjustment for taxes (a)

(25

)

(0.08

)

(17

)

(0.04

)

(70

)

(0.23

)

(33

)

(0.11

)

Non-GAAP net income

$

243

$

0.78

$

240

$

0.76

$

718

$

2.30

$

712

$

2.23

   
   
(a) The adjustment for taxes excludes tax benefits that management believes are not directly related to on-going operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. For the three and nine months ended July 31, 2020, management used a non-GAAP effective tax rate of 15.50%. For the three and nine months ended July 31, 2019, management used a non-GAAP effective tax rate of 16.67% and 16.75%, respectively.
 
We provide non-GAAP net income and non-GAAP net income per share amounts in order to provide meaningful supplemental information regarding our operational performance and our prospects for the future. These supplemental measures exclude, among other things, charges related to asset impairments, amortization of intangibles, transformational initiatives, acquisition and integration costs, NASD site costs, special compliance costs, acceleration of shared-based compensation expense and tax benefit on intra-entity asset transfer.
 
 Asset impairments include assets that have been written down to their fair value.
  
 Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers including costs to move manufacturing due to new tariffs and tariff remediation actions, small site consolidations, legal entity and other business reorganizations, insourcing or outsourcing of activities. Such costs may include move and relocation costs, one-time termination benefits and other one-time reorganization costs. Included in this category are also expenses associated with company programs to transform our product lifecycle management (PLM) system, human resources and financial systems.
  
 Acquisition and Integration costs include all incremental expenses incurred to effect a business combination. Such acquisition costs may include advisory, legal, accounting, valuation, and other professional or consulting fees. Such integration costs may include expenses directly related to integration of business and facility operations, the transfer of assets and intellectual property, information technology systems and infrastructure and other employee-related costs.
  
 NASD site costs include all the costs related to the expansion of our manufacturing of nucleic acid active pharmaceutical ingredients incurred prior to the commencement of commercial manufacturing.
  
 Special compliance costs include costs associated with transforming our processes to implement new regulations such as data privacy regulations, revenue recognition, lease accounting and certain tax reporting requirements.
  
 Acceleration of share-based compensation expense represents stock-based compensation expense that was accelerated upon employees’ involuntary termination from the company.
  
 Other includes certain legal costs and settlements in addition to other miscellaneous adjustments.
  
 Tax benefit on intra-entity asset transfer relates to our operations in Singapore along with our application of the new accounting rules for income tax consequences of intra-entity transfer of assets as adopted on November 1, 2018.
   
Our management uses non-GAAP measures to evaluate the performance of our core businesses, to estimate future core performance and to compensate employees. Since management finds this measure to be useful, we believe that our investors benefit from seeing our results “through the eyes” of management in addition to seeing our GAAP results. This information facilitates our management’s internal comparisons to our historical operating results as well as to the operating results of our competitors.
   
Our management recognizes that items such as amortization of intangibles can have a material impact on our cash flows and/or our net income. Our GAAP financial statements including our statement of cash flows portray those effects. Although we believe it is useful for investors to see core performance free of special items, investors should understand that the excluded items are actual expenses that may impact the cash available to us for other uses. To gain a complete picture of all effects on the company’s profit and loss from any and all events, management does (and investors should) rely upon the GAAP income statement. The non-GAAP numbers focus instead upon the core business of the company, which is only a subset, albeit a critical one, of the company’s performance.
   
Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
   
The preliminary non-GAAP net income and diluted EPS reconciliation is estimated based on our current information.
   
Page 4
AGILENT TECHNOLOGIES, INC.
SEGMENT INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY
 
Life Sciences and Applied Markets Group
Q3'20Q3'19
Revenue

$

557

$

544

Gross Margin, %

59.3

%

60.5

%

Income from Operations

$

126

$

118

Operating margin, %

22.6

%

21.7

%

 
 
Diagnostics and Genomics Group
Q3'20Q3'19
Revenue

$

241

$

263

Gross Margin, %

49.8

%

55.7

%

Income from Operations

$

41

$

50

Operating margin, %

17.2

%

19.1

%

 
 
Agilent CrossLab Group
Q3'20Q3'19
Revenue

$

463

$

467

Gross Margin, %

52.6

%

52.1

%

Income from Operations

$

132

$

122

Operating margin, %

28.4

%

26.2

%

 
 
Income from operations reflect the results of our reportable segments under Agilent's management reporting system which are not necessarily in conformity with GAAP financial measures. Income from operations of our reporting segments exclude, among other things, charges related to amortization of intangibles, transformational initiatives, acquisition and integration costs, NASD site costs, special compliance costs and acceleration of stock-based compensation expense.
 
Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
 
The preliminary segment information is estimated based on our current information.
 
 
Page 5
AGILENT TECHNOLOGIES, INC.
RECONCILIATIONS OF REVENUE BY SEGMENT EXCLUDING
ACQUISITIONS, DIVESTITURES AND THE IMPACT OF CURRENCY ADJUSTMENTS (CORE)
(in millions)
(Unaudited)
PRELIMINARY
 
Year-over-Year
 
GAAP

Year-over-Year

GAAP Revenue by Segment

Q3'20

Q3'19

% Change

 
Life Sciences and Applied Markets Group

$

557

$

544

2

%

Diagnostics and Genomics Group

241

263

(8

%)

Agilent CrossLab Group

463

467

(1

%)

Agilent

$

1,261

$

1,274

(1

%)

 
 
 
 
Non-GAAP
(excluding Acquisitions & Divestitures)
Year-over-Year
at Constant Currency (a)
Year-over-YearYear-over-YearPercentage
Point Impact
from Currency
Current
Quarter
Currency
Impact (b)
Non GAAP Revenue by SegmentQ3'20Q3'19% Change% Change
 
Life Sciences and Applied Markets Group

$

513

$

544

(6

%)

(4

%)

-2 ppts

$

(6

)

Diagnostics and Genomics Group

241

263

(8

%)

(8

%)

(2

)

Agilent CrossLab Group

463

467

(1

%)

1

%

-2 ppts

(8

)

Agilent (Core)

$

1,217

$

1,274

(4

%)

(3

%)

-1 ppt

$

(16

)

 
 
 
We compare the year-over-year change in revenue excluding the effect of recent acquisitions and divestitures and foreign currency rate fluctuations to assess the performance of our underlying business.
 
(a) The constant currency year-over-year growth percentage is calculated by recalculating all periods in the comparison period at the foreign currency exchange rates used for accounting during the last month of the current quarter, and then using those revised values to calculate the year-over-year percentage change.
 
(b) The dollar impact from the current quarter currency impact is equal to the total year-over-year dollar change less the constant currency year-over-year change.
 
The preliminary reconciliation of GAAP revenue adjusted for recent acquisitions and divestitures and impact of currency is estimated based on our current information.
 
 
Page 6

Contacts:

INVESTOR CONTACT:
Ankur Dhingra
+1 408-345-8948
ankur_dhingra@agilent.com

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