Agilent Technologies Reports Third-Quarter Fiscal Year 2017 Financial Results


Financial Statements Financial Tables (162kb)		Printer Friendly Version

Highlights:

GAAP net income of $175 million, or $0.54 per share
Non-GAAP net income of $191 million, or $0.59 per share⁽¹⁾, $0.09 above midpoint guidance of $0.50 per share
Revenue of $1.11 billion, representing growth of 7 percent (core revenue growth of 7.5 percent⁽²⁾ versus midpoint guidance of 4.0 percent)
Increasing fiscal year 2017 core revenue growth guidance from a midpoint of 5.0 percent to a midpoint of 6.0 percent⁽²⁾. Increasing fiscal year 2017 non-GAAP earnings guidance from a midpoint of $2.18 to a midpoint of $2.30 per share⁽³⁾.
Raising fiscal year 2017 free cash flow guidance by $40 million to $665 million⁽⁴⁾.

Agilent Technologies, Inc. (NYSE: A) today reported revenue of $1.11 billion, up 7 percent year over year (up 7.5 percent on a core basis⁽²⁾) for the third fiscal quarter ended July 31, 2017.

Third-quarter GAAP net income was $175 million, or $0.54 per share. Last year's third-quarter GAAP net income was $124 million, or $0.38 per share.

During the third quarter, Agilent had intangible amortization of $27 million, acquisition and integration costs of $4 million, transformation costs of $3 million, and $1 million in other costs. Excluding these items and a tax benefit of $19 million, Agilent reported third-quarter non-GAAP net income of $191 million, or $0.59 per share⁽¹⁾.

"Our team is executing very well. We had another great quarter delivering above-market revenue growth, expanding operating margins and growing our adjusted EPS," said Mike McMullen, Agilent President and CEO. "We saw strength across all our business groups."

"Our focus remains on driving sustainable above-market growth and providing long-term value to our shareholders," he added. "We launched several new products that raise the bar on new capabilities for our customers. We also closed the acquisition of Cobalt Light Systems, enhancing our customer value proposition and providing us with immediate entry into the attractive, fast-growing Raman spectroscopy market."

Third-quarter revenue of $531 million from Agilent's Life Sciences and Applied Markets Group (LSAG) grew 5 percent year over year (up 7 percent on a core basis⁽²⁾), with strength in chemical and energy, pharma and environmental end markets. LSAG's operating margin for the quarter was 21.3 percent.

Third-quarter revenue of $386 million from Agilent CrossLab Group (ACG) grew 7 percent year over year (up 8 percent on a core basis⁽²⁾). Both services and consumables saw solid growth across all end markets and geographies. ACG's operating margin for the quarter was 23.4 percent.

Third-quarter revenue of $197 million from Agilent's Diagnostics and Genomics Group (DGG) grew 9 percent year over year (up 8 percent on a core basis⁽²⁾) led by pharma and diagnostic and clinical end markets. DGG's operating margin for the quarter was 16.9 percent.

Agilent expects fourth-quarter 2017 revenue in the range of $1.15 billion to $1.17 billion. Fourth-quarter 2017 non-GAAP earnings are expected to be in the range of $0.60 to $0.62 per share⁽³⁾.

For fiscal year 2017, Agilent expects revenue of $4.435 billion to $4.455 billion and non-GAAP earnings of $2.29 to $2.31 per share⁽³⁾. The guidance is based on July 31, 2017, currency exchange rates.

Financial Statements for Second-Quarter Fiscal 2017


AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY


	Three Months Ended
	July 31,						Percent
		2017			2016		Inc/(Dec)

Net revenue	$	1,114		$	1,044		7	%

Costs and expenses:
Cost of products and services		518			502		3	%
Research and development		87			86		1	%
Selling, general and administrative		308			310		(1	%)
Total costs and expenses		913			898		2	%

Income from operations		201			146		38	%

Interest income		6			3		100	%
Interest expense		(19	)		(17	)	12	%
Other income (expense), net		5			2		150	%

Income before taxes		193			134		44	%

Provision for income taxes		18			10		80	%

Net income	$	175		$	124		41	%



Net income per share:
Basic	$	0.55		$	0.38
Diluted	$	0.54		$	0.38

Weighted average shares used in computing net income per share:
Basic		321			325
Diluted		326			328

Cash dividends declared per common share	$	0.132		$	0.115


The preliminary income statement is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY


	Nine Months Ended
	July 31,						Percent
		2017			2016		Inc/(Dec)

Net revenue	$	3,283		$	3,091		6	%

Costs and expenses:
Cost of products and services		1,521			1,482		3	%
Research and development		250			245		2	%
Selling, general and administrative		904			932		(3	%)
Total costs and expenses		2,675			2,659		1	%

Income from operations		608			432		41	%

Interest income		15			8		88	%
Interest expense		(59	)		(53	)	11	%
Other income (expense), net		13			6		117	%

Income before taxes		577			393		47	%

Provision for income taxes		70			57		23	%

Net income	$	507		$	336		51	%



Net income per share:
Basic	$	1.57		$	1.03
Diluted	$	1.56		$	1.02

Weighted average shares used in computing net income per share:
Basic		322			326
Diluted		325			329

Cash dividends declared per common share	$	0.396		$	0.345


The preliminary income statement is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
PRELIMINARY


	Three Months Ended						Nine Months Ended
	July 31,						July 31,
		2017			2016			2017			2016

Net income	$	175		$	124		$	507		$	336

Other comprehensive income (loss), net of tax:

Unrealized loss on derivative instruments		(3	)		(5	)		(3	)		(11	)
Amounts reclassified into earnings related to derivative instruments		(1	)		1			(2	)		—
Foreign currency translation		57			(48	)		61			41
Net defined benefit pension cost and post retirement plan costs:
Change in actuarial net loss		8			8			34			29
Change in net prior service benefit		(1	)		(2	)		(4	)		(13	)
Other comprehensive income (loss)		60			(46	)		86			46

Total comprehensive income	$	235		$	78		$	593		$	382


The preliminary statement of comprehensive income is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY


	July 31,			October 31,
	2017			2016^(a)
ASSETS

Current assets:
Cash and cash equivalents	$	2,563		$	2,289
Accounts receivable, net		678			631
Inventory		566			533
Other current assets		189			182
Total current assets		3,996			3,635

Property, plant and equipment, net		716			639
Goodwill		2,612			2,517
Other intangible assets, net		375			408
Long-term investments		137			135
Other assets		425			460
Total assets	$	8,261		$	7,794

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	289		$	257
Employee compensation and benefits		230			235
Deferred revenue		301			269
Short-term debt		280			—
Other accrued liabilities		141			184
Total current liabilities		1,241			945

Long-term debt		1,801			1,904
Retirement and post-retirement benefits		323			360
Other long-term liabilities		285			339
Total liabilities		3,650			3,548

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; 322 million shares at July 31, 2017 and 614 million shares at October 31, 2016, issued		3			6
Treasury stock at cost; zero shares at July 31, 2017 and 290 million shares at October 31, 2016		—			(10,508	)
Additional paid-in-capital		5,282			9,159
(Accumulated deficit) retained earnings		(260	)		6,089
Accumulated other comprehensive loss		(417	)		(503	)
Total stockholders' equity		4,608			4,243
Non-controlling interest		3			3
Total equity		4,611			4,246
Total liabilities and equity	$	8,261		$	7,794

^(a) Includes the impact of the adoption of ASU 2015-15.

The preliminary balance sheet is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY


			Three Months			Three Months			Nine Months			Nine Months
			Ended			Ended			Ended			Ended
			July 31,			July 31,			July 31,			July 31,
				2017			2016			2017			2016
Cash flows from operating activities:
	Net income		$	175		$	124		$	507		$	336

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation and amortization			51			60			160			190
	Share-based compensation			13			11			48			47
	Excess and obsolete inventory related charges			4			4			19			16
	Other non-cash expenses, net			3			8			5			16
	Changes in assets and liabilities:
		Accounts receivable		19			—			(29	)		19
		Inventory		(17	)		2			(46	)		(11	)
		Accounts payable		5			26			11			(27	)
		Employee compensation and benefits		(18	)		(1	)		(11	)		(14	)
		Other assets and liabilities		(7	)		(40	)		(63	)		(13	)
Net cash provided by operating activities ^(a)				228			194			601			559

Cash flows from investing activities:
	Investments in property, plant and equipment			(43	)		(24	)		(118	)		(87	)
	Proceeds from divestitures			—			—			1			—
	Proceeds from sale of investment securities			—			—			—			1
	Payment to acquire cost method investment			—			—			—			(80	)
	Loan to equity method investment			—			—			—			(3	)
	Change in restricted cash and cash equivalents, net			—			—			—			245
	Payment in exchange for convertible note			(1	)		—			(1	)		(1	)
	Acquisition of businesses and intangible assets, net of cash acquired			(57	)		—			(127	)		(235	)
Net cash used in investing activities				(101	)		(24	)		(245	)		(160	)

Cash flows from financing activities:
	Issuance of common stock under employee stock plans			32			27			58			59
	Payment of taxes related to net share settlement of equity awards			—			(1	)		(13	)		(6	)
	Payment of dividends			(42	)		(37	)		(127	)		(112	)
	Proceeds from revolving credit facility			115			—			343			255
	Repayment of revolving credit facility			(76	)		—			(163	)		(20	)
	Treasury stock repurchases			—			(94	)		(194	)		(388	)
Net cash provided by (used in) financing activities				29			(105	)		(96	)		(212	)

Effect of exchange rate movements				18			(5	)		14			9

Net increase in cash and cash equivalents				174			60			274			196

Cash and cash equivalents at beginning of period				2,389			2,139			2,289			2,003

Cash and cash equivalents at end of period			$	2,563		$	2,199		$	2,563		$	2,199

	^(a) Cash payments included in operating activities:
		Income tax payments (refunds), net	$	15		$	33		$	56		$	54
		Interest payments	$	29		$	29		$	69		$	66



The preliminary cash flow is estimated based on our current information.


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AGILENT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY

			Three Months Ended												Nine Months Ended
			July 31,												July 31,
				2017		Diluted EPS				2016		Diluted EPS				2017		Diluted EPS				2016		Diluted EPS

GAAP Net income			$	175		$	0.54		$	124		$	0.38		$	507		$	1.56		$	336		$	1.02
	Non-GAAP adjustments:
		Asset impairments		—			—			4			0.01			—			—			4			0.01
		Intangible amortization		27			0.08			37			0.11			89			0.27			120			0.36
		Business exit and divestiture costs		—			—			1			—			—			—			6			0.02
		Transformational initiatives		3			0.01			11			0.03			5			0.02			32			0.10
		Acquisition and integration costs		4			0.01			11			0.03			27			0.08			28			0.09
		Pension curtailment gain		—			—			—			—			—			—			(15	)		(0.05	)
		Pension settlement gain		—			—			—			—			(32	)		(0.10	)		(1	)		—
		Other		1			—			2			0.01			5			0.02			5			0.02
		Adjustment for taxes ^(a)		(19	)		(0.05	)		(30	)		(0.08	)		(51	)		(0.16	)		(57	)		(0.18	)
Non-GAAP Net income			$	191		$	0.59		$	160		$	0.49		$	550		$	1.69		$	458		$	1.39


^(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, 2017, management uses a non-GAAP effective tax rate of 16.2% and 18.0%, respectively. In the same periods last year, management used a non-GAAP effective tax rate of 20.0%.

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, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, pension curtailment gain and pension settlement gain.

	Asset impairments include assets that have been written down to their fair value.

	Business exit and divestiture costs include costs associated with the exit of the NMR business and other business divestitures.

	Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers, 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 the post-separation resizing of the IT infrastructure and streamlining of IT system as well as company programs to transform our product lifecycle management (PLM) system 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.

	Pension curtailment gain resulted from certain retirement plans benefit reductions.

	Pension settlement gain resulted from transfer of the substitutional portion of our Japanese pension plan to the government.

	Other includes certain legal costs and settlements in addition to other miscellaneous adjustments.

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.


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AGILENT TECHNOLOGIES, INC.
SEGMENT INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY

Life Sciences and Applied Markets Group
	Q3'17			Q3'16
Revenue	$	531		$	504
Gross Margin, %		59.7	%		57.8	%
Income from Operations	$	113		$	96
Operating margin, %		21.3	%		19.1	%


Diagnostics and Genomics Group
	Q3'17			Q3'16
Revenue	$	197		$	180
Gross Margin, %		52.7	%		55.8	%
Income from Operations	$	33		$	34
Operating margin, %		16.9	%		18.8	%


Agilent CrossLab Group
	Q3'17			Q3'16
Revenue	$	386		$	360
Gross Margin, %		49.9	%		48.7	%
Income from Operations	$	90		$	82
Operating margin, %		23.4	%		22.7	%


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 asset impairments, amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, pension curtailment gain and pension settlement gain.

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 7


AGILENT TECHNOLOGIES, INC.
RECONCILIATIONS OF REVENUE BY SEGMENT EXCLUDING THE NMR BUSINESS,
ACQUISITIONS, DIVESTITURES AND THE IMPACT OF CURRENCY ADJUSTMENTS (CORE)
(in millions)
(Unaudited)
PRELIMINARY

	Year-over-Year

	GAAP
					Year-over-Year
GAAP Revenue by Segment	Q3'17		Q3'16		% Change

Life Sciences and Applied Markets Group	$	531	$	504	5	%

Diagnostics and Genomics Group		197		180	9	%

Agilent CrossLab Group		386		360	7	%

Agilent	$	1,114	$	1,044	7	%


	Non-GAAP (excluding NMR and Acquisitions)						Currency Adjustments			Currency-Adjusted ^(a)
					Year-over-Year									Year-over-Year
Non GAAP Revenue by Segment	Q3'17		Q3'16		% Change		Q3'17			Q3'17		Q3'16		% Change

Life Sciences and Applied Markets Group	$	531	$	500	6	%	$	(4	)	$	535	$	500	7	%

Diagnostics and Genomics Group		194		180	8	%		(1	)		195		180	8	%

Agilent CrossLab Group		384		360	7	%		(3	)		387		360	8	%

Agilent (Core)	$	1,109	$	1,040	7	%	$	(8	)	$	1,117	$	1,040	7	%



^(a) We compare the year-over-year change in revenue excluding the effect of the NMR business, recent acquisitions and divestitures and foreign currency rate fluctuations to assess the performance of our underlying business. To determine the impact of currency fluctuations, current period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the actual exchange rate in effect during the respective prior periods.


The preliminary reconciliation of GAAP revenue adjusted for the NMR business, recent acquisitions and divestitures and impact of currency is estimated based on our current information.


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