Agilent Technologies Reports First-Quarter Fiscal Year 2019 Financial Results

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Agilent Technologies Reports First-Quarter Fiscal Year 2019 Financial Results

Strong Start to Year as First-Quarter Revenue and EPS Exceed Guidance; Raising Full Year Guidance

Highlights:

  • Revenue of $1.28 billion, representing reported growth of 6 percent with core revenue growth of 6 percent(1)
  • GAAP net income of $504 million, or $1.57 per share
  • Non-GAAP net income of $244 million, or $0.76 per share(2), an increase of 15 percent compared to 2018
  • Second-quarter fiscal year revenue guidance of $1.255 billion to $1.270 billion, and non-GAAP earnings guidance of $0.70 to $0.72 per share(3)
  • Raising fiscal year 2019 revenue guidance to a range of $5.15 billion to $5.19 billion and non-GAAP earnings guidance to a range of $3.03 to $3.07 per share(3)

SANTA CLARA, Calif.--(BUSINESS WIRE)--Feb. 20, 2019-- Agilent Technologies, Inc. (NYSE: A) today reported revenue of $1.28 billion for the first quarter ended January 31, 2019, up 6 percent year over year (up 6 percent on a core basis(1)).

On a GAAP basis, first-quarter net income was $504 million or $1.57 per share, which included a discrete tax benefit of $299 million. This is compared to last year’s first-quarter net loss of $320 million or $0.99 net loss per share, which included a tax charge of $533 million related to U.S. Tax Reform legislation.

“We are pleased to start the year with a strong performance driving excellent revenue and EPS growth and exceeding our guidance,” said Mike McMullen, Agilent president and CEO. “The Agilent team is delivering on our commitment to drive superior revenue and earnings growth.”

“Our Agilent team continues to do a great job addressing customer needs across our business groups,” continued McMullen. “We kicked off 2019 strengthening our best-in-class portfolio bringing new solutions and services to our customers to help them gain new insights and achieve greater productivity in their labs.”

Financial Highlights

Life Sciences and Applied Markets Group

First-quarter revenue of $607 million from Agilent’s Life Sciences and Applied Markets Group (LSAG) grew 2 percent year over year (up 1 percent on a core basis(1)). Demand in the pharma, environmental and forensics markets led the results. LSAG’s operating margin for the quarter was 26.1 percent.

Agilent CrossLab Group

First-quarter revenue of $442 million from Agilent CrossLab Group (ACG) grew 8 percent year over year (up 10 percent on a core basis(1)). Growth was excellent across services and consumables, regions and end-markets. ACG’s operating margin for the quarter was 23.9 percent.

Diagnostics and Genomics Group

First-quarter revenue of $235 million from Agilent’s Diagnostics and Genomics Group (DGG) grew 13 percent year over year (up 12 percent on a core basis(1)). Strength in the pharma and clinical and diagnostics end-markets led an excellent performance. DGG’s operating margin for the quarter was 14.0 percent.

Second-Quarter and Full-Year Outlook

Agilent expects second-quarter 2019 revenue in the range of $1.255 billion to $1.270 billion. Second-quarter 2019 non-GAAP earnings are expected to be in the range of $0.70 to $0.72 per share(3).

For fiscal year 2019, the company is raising full-year revenue guidance to a range of $5.15 billion to $5.19 billion and non-GAAP earnings guidance to a range of $3.03 to $3.07 per share(3).

Conference Call

Agilent’s management will present more details about its first-quarter fiscal year 2019 financial results on a conference call with investors today at 1:30 p.m. (Pacific Time). This event will be webcast live in listen-only mode. Listeners may log on at www.investor.agilent.com and select “Q1 2019 Agilent Technologies Inc. Earnings Conference Call” in the “News & Events — Calendar of Events” section. The webcast will remain available on the company’s website for 90 days.

Additional information regarding financial results can be found at www.investor.agilent.com by selecting “Financial Results” in the “Financial Information” section.

A telephone replay of the conference call will be available at approximately February 20, 2019 at 4:30 PM (Pacific Time) after the call and through February 27 by dialing +1 855-859-2056 (or +1 404-537-3406 from outside the United States) and entering pass code 6738126.

About Agilent Technologies

Agilent Technologies Inc. (NYSE: A) is a global leader in life sciences, diagnostics and applied chemical markets. With more than 50 years of insight and innovation, Agilent instruments, software, services, solutions and people provide trusted answers to customers' most challenging questions. The company generated revenues of $4.91 billion in fiscal 2018 and employs 15,300 people worldwide. Information about Agilent is available at www.agilent.com. To receive the latest Agilent news, subscribe to our 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 revenue and non-GAAP earnings guidance for the second quarter and full fiscal year 2019 and future amortization of intangibles. 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 our 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 we are 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 our cost-cutting initiatives will impair our ability to develop products and remain competitive and to operate effectively; the impact of geopolitical uncertainties and global economic conditions on our operations, our markets and our ability to conduct business; the ability to improve asset performance to adapt to changes in demand; the ability of our 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; and other risks detailed in Agilent’s filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended October 31, 2018. 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 Q1 FY19 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. Core revenue growth rate as projected for Q2 FY19 and full fiscal year 2019 excludes the impact of currency and acquisitions and divestitures within the past 12 months. Most of the excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy and could differ materially. Therefore, no reconciliation to GAAP amounts has been provided for the projection.

(2) Non-GAAP net income and non-GAAP earnings per share primarily exclude the impacts of non-cash intangibles amortization, transformational initiatives, acquisition and integration costs, pension settlement gain, Nucleic Acid Solutions Division (“NASD”) site costs and special compliance costs. We also exclude 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 including the impact of Tax Reform. 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.

(3) Non-GAAP earnings per share as projected for Q2 FY19 and full fiscal year 2019 excludes primarily the impacts of non-cash intangibles amortization, transformational initiatives, acquisition and integration costs, pension settlement gain, Nucleic Acid Solutions Division (“NASD”) site costs and special compliance costs. We also exclude 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. Most of these excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy and could differ materially. Therefore, no reconciliation to GAAP amounts has been provided. Future amortization of intangibles is expected to be approximately $26 million per quarter.

NOTE TO EDITORS: Further technology, corporate citizenship and executive news is available on the Agilent news site at www.agilent.com/go/news.

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
       
       
  Three Months Ended
  January 31,
  2019  

2018 (a)

       
Net revenue $ 1,284     $ 1,211  
       
Costs and expenses:      
Cost of products and services   577       541  
Research and development   102       94  
Selling, general and administrative   355       347  

Total costs and expenses

  1,034       982  
       
Income from operations   250       229  
       
Interest income   10       9  
Interest expense   (18 )     (20 )
Other income (expense), net   6       15  
       
Income before taxes   248       233  
       
Provision for (benefit from) income taxes   (256 )     553  
       
Net income (loss) $ 504     $ (320 )
       
       
       
Net income (loss) per share:      
Basic $ 1.58     $ (0.99 )
Diluted $ 1.57     $ (0.99 )
       
Weighted average shares used in computing net income (loss) per share:      
Basic   318       323  
Diluted   322       323  
       
Cash dividends declared per common share $ 0.164     $ 0.149  
       
       
       
(a) Adjusted to include the impact of the adoption of ASU 2017-07 (pension expense reclassification) as of 11/1/2018. There is no impact to net loss or net loss per share.
       
       
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
             
             
        January 31,   October 31,
        2019   2018
ASSETS          
             
Current assets:      
  Cash and cash equivalents $ 2,057     $ 2,247  
  Accounts receivable, net   833       776  
  Inventory     653       638  
  Other current assets   169       187  
    Total current assets   3,712       3,848  
             
Property, plant and equipment, net   829       822  
Goodwill and other intangible assets, net   3,699       3,464  
Long-term investments   77       68  
Other assets     635       339  
    Total assets $ 8,952     $ 8,541  
             
LIABILITIES AND EQUITY      
             
Current liabilities:      
  Accounts payable $ 315     $ 340  
  Employee compensation and benefits   237       304  
  Deferred revenue   346       324  
  Other accrued liabilities   197       203  
    Total current liabilities   1,095       1,171  
             
Long-term debt   1,798       1,799  
Retirement and post-retirement benefits   238       239  
Other long-term liabilities   785       761  
    Total liabilities   3,916       3,970  
             
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; 318 million shares at January 31, 2019      
    and 318 million shares at October 31, 2018, issued   3       3  
  Additional paid-in-capital   5,324       5,308  
  Retained earnings (accumulated deficit)   90       (336 )
  Accumulated other comprehensive loss   (381 )     (408 )
    Total stockholders' equity   5,036       4,567  
  Non-controlling interest         4  
    Total equity   5,036       4,571  
      Total liabilities and equity $ 8,952     $ 8,541  
             
             
             
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
               
               
          Three Months Ended
          January 31,   January 31,
          2019   2018
Cash flows from operating activities:        
  Net income (loss)   $ 504     $ (320 )
               
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
  Depreciation and amortization     54       51  
  Share-based compensation     24       31  
  Excess and obsolete inventory related charges     4       5  
  Other non-cash expenses, net     3       1  
  Changes in assets and liabilities:        
    Accounts receivable, net     (22 )     (5 )
    Inventory     (12 )     (34 )
    Accounts payable     (16 )     (3 )
    Employee compensation and benefits     (71 )     (62 )
    Change in assets and liabilities due to Tax Act           533  
    Other assets and liabilities     (255 )     18  
Net cash provided by operating activities (a)     213       215  
               
Cash flows from investing activities:        
  Investments in property, plant and equipment     (39 )     (60 )
  Payment to acquire fair value investments     (2 )     (1 )
  Payment in exchange for convertible note     (1 )      
  Acquisition of businesses and intangible assets, net of cash acquired     (248 )     (6 )
Net cash used in investing activities     (290 )     (67 )
               
Cash flows from financing activities:        
  Issuance of common stock under employee stock plans     22       25  
  Payment of taxes related to net share settlement of equity awards     (13 )     (28 )
  Payment of dividends     (52 )     (48 )
  Proceeds from revolving credit facility           274  
  Repayment of debt and revolving credit facility           (139 )
  Purchase of non-controlling interest     (4 )      
  Treasury stock repurchases     (75 )     (47 )
Net cash provided by (used in) financing activities     (122 )     37  
               
Effect of exchange rate movements     9       25  
               
Net increase (decrease) in cash, cash equivalents and restricted cash     (190 )     210  
               
Cash, cash equivalents and restricted cash at beginning of period     2,254       2,686  
               
Cash, cash equivalents and restricted cash at end of period   $ 2,064     $ 2,896  
               
               
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet:    
               
  Cash and cash equivalents   $ 2,057     $ 2,887  
  Restricted cash, included in other assets     7       9  
  Total cash, cash equivalents and restricted cash   $ 2,064     $ 2,896  
               
               
(a) Cash payments included in operating activities:        
               
  Income tax payments (refunds), net   $ 21     $ 32  
  Interest payments   $ 25     $ 29  
               
               
               
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 Ended
        January 31,
          2019  

Diluted
EPS

    2018  

Diluted
EPS

                 
GAAP net income (loss)   $ 504   $ 1.57     $ (320 ) $ (0.99

(b)

  Non-GAAP adjustments:            
    Intangible amortization     28     0.09       25     0.08  
    Transformational initiatives     5     0.02       4     0.01  
    Acquisition and integration costs     10     0.03       3     0.01  
    Pension settlement gain               (5 )   (0.01 )
    NASD site costs     2     0.01       2     0.01  
    Special compliance costs               1      
    Other     1           1      
    Adjustment for Tax Reform               533     1.63  
    Tax benefit on intra-entity asset transfer     (299 )   (0.93 )          
    Adjustment for taxes (a)     (7 )   (0.03 )     (28 )   (0.08 )
Non-GAAP net income   $ 244   $ 0.76     $ 216   $

0.66

(c)

                 
                 
(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 months ended January 31, 2019 and 2018, management used a non-GAAP effective tax rate of 17% and 18%, respectively.
 
(b) GAAP diluted net loss per share was computed using 323 million weighted average diluted shares which excludes from consideration the anti-dilutive effects of all potential common shares outstanding.
 
(c) Non-GAAP diluted net income per share was computed using 327 million weighted average diluted shares which includes the dilutive effects of potential common shares outstanding.
                 
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 amortization of intangibles, transformational initiatives, acquisition and integration costs, pension settlement gain, NASD site costs, special compliance costs, adjustment for Tax Reform, and tax benefit on intra-entity asset transfer.
 
  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.
   
  Pension settlement gain resulted from transfer of the substitutional portion of our Japanese pension plan to the government.
   
  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 the EU's General Data Protection Regulation (GDPR), revenue recognition and certain tax reporting requirements.
   
  Other includes certain legal costs and settlements in addition to other miscellaneous adjustments.
   
  Adjustment for Tax Reform primarily consists of an estimated provision of $480 million for U.S. transition tax and correlative items on deemed repatriated earnings of non-U.S. subsidiaries and an estimated provision of $53 million associated with the decrease in the U.S. corporate tax rate from 35% to 21% and its impact on our U.S. deferred tax assets and liabilities. The taxes payable associated with the transition tax, net of tax attributes, on deemed repatriation of foreign earnings is approximately $440 million, payable over 8 years.
   
  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        
    Q1'19   Q1'18
Revenue   $ 607     $ 596  
Gross Margin, %     62.1 %     62.1 %
Income from Operations   $ 159     $ 154  
Operating margin, %     26.1 %     25.9 %
         
         
Diagnostics and Genomics Group        
    Q1'19   Q1'18
Revenue   $ 235     $ 207  
Gross Margin, %     54.0 %     54.2 %
Income from Operations   $ 33     $ 24  
Operating margin, %     14.0 %     11.7 %
         
         
Agilent CrossLab Group        
    Q1'19   Q1'18
Revenue   $ 442     $ 408  
Gross Margin, %     51.3 %     50.4 %
Income from Operations   $ 105     $ 87  
Operating margin, %     23.9 %     21.2 %
         
         
         
         
         
         
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, pension settlement gain, NASD site costs, and special compliance costs.
         
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

Q1'19 Q1'18 % Change          
                 
Life Sciences and Applied Markets Group $ 607 $ 596 2 %          
                 
Diagnostics and Genomics Group   235   207 13 %          
                 
Agilent CrossLab Group   442   408 8 %          
                 
Agilent $ 1,284 $ 1,211 6 %          
                 
                 
                 
                 
  Non-GAAP

(excluding Acquisitions & Divestitures)

  Year-over-Year

at Constant Currency (a)

   

Non GAAP Revenue by Segment

Q1'19 Q1'18

Year-over-Year

% Change

 

Year-over-Year

% Change

Percentage Point
Impact from
Currency

 

Current Quarter
Currency Impact (b)

                 
Life Sciences and Applied Markets Group $ 593 $ 596     1 % -1 ppt   $ (11 )
                 
Diagnostics and Genomics Group   229   207 10 %   12 % -2 ppts     (4 )
                 
Agilent CrossLab Group   436   408 7 %   10 % -3 ppts     (12 )
                 
Agilent (Core) $ 1,258 $ 1,211 4 %   6 % -2 ppts   $ (27 )
                 
                 
                 
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
                 

 

Source: Agilent Technologies, Inc.

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

EDITORIAL CONTACT:
Stefanie Notaney
+1 408 345 8955
stefanie.notaney@agilent.com