Chronicle Journal: Finance

Agilent Reports Fourth-Quarter and Fiscal Year 2020 Financial Results; Initiates Fiscal 2021 Guidance

Agilent Technologies Inc. (NYSE: A) today reported revenue of $1.48 billion for the fourth quarter ended Oct. 31, 2020, up 8% year over year (core(1) growth of 6%).

On a GAAP basis, fourth-quarter net income was $222 million, or 71 cents per share. This compares with $194 million, or 62 cents per share, in the fourth quarter of fiscal year 2019. Non-GAAP(2) net income was $305 million, or 98 cents per share, during the quarter, compared with $277 million or 89 cents per share during the fourth quarter a year ago.

“We delivered excellent fourth-quarter results that are a testament to the Agilent team and our single-minded focus on our customers,” said Mike McMullen, Agilent president and CEO. “We enter fiscal 2021 with solid momentum. While there is still some uncertainty looking forward, we are well-positioned to pursue our successful growth strategy well into the future.”

Financial Highlights

Life Sciences and Applied Markets Group

Fourth-quarter revenue of $671 million from Agilent’s Life Sciences and Applied Markets Group (LSAG) grew a reported 8% year over year (an increase of 4% on a core(1) basis). LSAG’s operating margin for the quarter was 24.8%. Full-year revenue of $2.39 billion increased a reported 4% versus fiscal 2019 (a decline of 2% on a core(1) basis). LSAG’s operating margin for the year was 22.9%.

Agilent CrossLab Group

Agilent CrossLab Group (ACG) posted fourth-quarter revenue of $518 million, representing year-over-year reported growth of 9% (up 7% on a core(1) basis). ACG’s operating margin for the quarter was 27.7%. Full-year revenue of $1.90 billion grew a reported 3% over last year (up 4% on a core(1) basis). ACG’s operating margin for the year was 27.2%.

Diagnostics and Genomics Group

The Diagnostics and Genomics Group (DGG) generated fourth-quarter revenue of $294 million, up a reported 9% year over year (up 7% on a core(1) basis). DGG posted operating margins of 20.3%. Full-year revenue was $1.05 billion, which was up a reported 2% year over year (up 3% on a core(1) basis). DGG’s operating margin for the year was 18.3%.

Fiscal Year 2021 and First-Quarter Outlook

Fiscal year 2021 revenue is expected to be in the range of $5.6 billion to $5.7 billion, representing reported growth of 5% to 7% and core(1) growth of 4% to 6%. Non-GAAP(3) earnings-per-share guidance for fiscal year 2021 is in the range of $3.57 to $3.67 per share.

The outlook for fiscal first-quarter revenue is expected to be in a range of $1.42 billion to $1.43 billion, representing reported growth of 4.5% to 5.5% and core(1) growth of 3.5% to 4.5%. Fiscal first-quarter non-GAAP(3) earnings guidance is in a range of 85 cents to 88 cents per share

The outlook is based on Oct. 31, 2020 currency exchange rates.

Conference Call

Agilent’s management will present additional details regarding the company’s fourth-quarter and fiscal year 2020 financial results on a conference call with investors today at 1:30 p.m. PST. The event will be webcast live in listen-only mode. To listen to the webcast, select the “Q4 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 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 $5.34 billion in fiscal 2020 and employs 16,400 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 revenue and non-GAAP earnings guidance for the first quarter and full fiscal year 2021, future amortization of intangibles and Agilent’s growth prospects, business model and financial results. 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 July 31, 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. Reconciliations between GAAP revenue and core revenue for Q4 FY20 and fiscal 2020 are set forth on pages 6 and 7 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.

(3) Non-GAAP earnings per share as projected for Q1 FY21 and full fiscal year 2021 excludes primarily the impacts of non-cash 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. 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 $44 million per quarter.

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

Three Months Ended

Years Ended

October 31,

October 31,

2020

2019

2020

2019

 
Net revenue

$

1,483

$

1,367

$

5,339

$

5,163

 
Costs and expenses:
Cost of products and services

695

630

2,502

2,358

Research and development

102

102

495

404

Selling, general and administrative

387

385

1,496

1,460

Total costs and expenses

1,184

1,117

4,493

4,222

 
Income from operations

299

250

846

941

 
Interest income

1

6

8

36

Interest expense

(19

)

(21

)

(78

)

(74

)

Other income (expense), net

2

(4

)

66

16

 
Income before taxes

283

231

842

919

 
Provision (benefit) for income taxes

61

37

123

(152

)

 
Net income

$

222

$

194

$

719

$

1,071

 
 
Net income per share:
Basic

$

0.72

$

0.63

$

2.33

$

3.41

Diluted

$

0.71

$

0.62

$

2.30

$

3.37

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

308

309

309

314

Diluted

311

313

312

318

 
 
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
 
 

October 31,

October 31,

2020

2019

ASSETS
 
Current assets:
Cash and cash equivalents

$

1,441

$

1,382

Accounts receivable, net

1,038

930

Inventory

720

679

Other current assets

216

198

Total current assets

3,415

3,189

 
Property, plant and equipment, net

845

850

Goodwill and other intangible assets, net

4,433

4,700

Long-term investments

158

102

Other assets

776

611

Total assets

$

9,627

$

9,452

 
LIABILITIES AND EQUITY
 
Current liabilities:
Accounts payable

$

354

$

354

Employee compensation and benefits

367

334

Deferred revenue

386

336

Short-term debt

75

616

Other accrued liabilities

285

440

Total current liabilities

1,467

2,080

 
Long-term debt

2,284

1,791

Retirement and post-retirement benefits

389

360

Other long-term liabilities

614

473

Total liabilities

4,754

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; 306 million shares at October 31, 2020
and 309 million shares at October 31, 2019, issued and outstanding

3

3

Additional paid-in-capital

5,311

5,277

Retained earnings (accumulated deficit)

81

(18

)

Accumulated other comprehensive loss

(522

)

(514

)

Total stockholders' equity

4,873

4,748

Total liabilities and equity

$

9,627

$

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
 
 

Years Ended

October 31,

October 31,

2020

2019

Cash flows from operating activities:
Net income

$

719

$

1,071

 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

308

238

Share-based compensation

83

72

Excess and obsolete inventory related charges

28

19

Asset impairment charges

99

Unrealized gain on equity securities, net

(28

)

(1

)

Loss on extinguishment of debt

9

Other non-cash expense, net

8

7

Changes in assets and liabilities:
Accounts receivable, net

(107

)

(106

)

Inventory

(68

)

(36

)

Accounts payable

2

29

Employee compensation and benefits

29

23

Treasury lock agreement payment

(6

)

Other assets and liabilities

(152

)

(298

)

Net cash provided by operating activities (a)

921

1,021

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

(119

)

(155

)

Proceeds from the sale of property, plant and equipment

1

Payment to acquire fair value investments

(20

)

(23

)

Payment in exchange for convertible note

(9

)

(3

)

Payment to acquire intangible assets

(1

)

Acquisition of businesses and intangible assets, net of cash acquired

(1,408

)

Net cash used in investing activities

(147

)

(1,590

)

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

60

54

Payment of taxes related to net share settlement of equity awards

(37

)

(16

)

Payment of dividends

(222

)

(206

)

Issuance of senior notes

499

497

Debt issuance costs

(4

)

(4

)

Proceeds from revolving credit facility and short-term loan

798

805

Repayment of debt and credit facility

(1,413

)

(702

)

Proceeds from commercial paper

420

Repayment of commercial paper

(345

)

Repayment of finance lease

(4

)

Purchase of non-controlling interest

(4

)

Treasury stock repurchases

(469

)

(723

)

Net cash used in financing activities

(717

)

(299

)

 
Effect of exchange rate movements

2

2

 
Net increase (decrease) in cash, cash equivalents and restricted cash

59

(866

)

 
Cash, cash equivalents and restricted cash at beginning of period

1,388

2,254

 
Cash, cash equivalents and restricted cash at end of period

$

1,447

$

1,388

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

$

1,441

$

1,382

Restricted cash, included in other assets

6

6

Total cash, cash equivalents and restricted cash

$

1,447

$

1,388

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

$

361

$

159

Interest payments

$

71

$

80

 
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

Years Ended

October 31,

October 31,

2020

Diluted
EPS

2019

Diluted
EPS

2020

Diluted
EPS

2019

Diluted
EPS

 
GAAP net income

$

222

$

0.71

$

194

$

0.62

$

719

$

2.30

$

1,071

$

3.37

Non-GAAP adjustments:
Asset impairments

99

0.32

Intangible amortization

45

0.14

46

0.15

184

0.59

125

0.39

Transformational initiatives

12

0.04

19

0.06

53

0.17

44

0.14

Business exit and divestitures

2

0.01

2

0.01

Acquisition and integration costs

8

0.03

16

0.05

41

0.13

48

0.15

Pension settlement loss

4

0.01

4

0.01

Loss on extinguishment of debt

9

0.03

9

0.03

NASD site costs

12

0.04

Special compliance costs

2

0.01

Acceleration of share-based compensation expense

1

2

0.01

Other

2

0.01

12

0.04

(20

)

(0.06

)

29

0.09

Tax benefit on intra-entity asset transfer

(299

)

(0.94

)

Adjustment for taxes (a)

9

0.03

(19

)

(0.06

)

(61

)

(0.20

)

(52

)

(0.17

)

Non-GAAP net income

$

305

$

0.98

$

277

$

0.89

$

1,023

$

3.28

$

989

$

3.11

(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 and year ended October 31, 2020, management used a non-GAAP effective tax rate of 14.65% and 15.25%, respectively. For the three months and year ended October 31, 2019, management used a non-GAAP effective tax rate of 16.82% 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, business exit and divestiture costs, acquisition and integration costs, pension settlement loss, loss on extinguishment of debt, NASD site costs, special compliance costs, acceleration of share-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.
Business exit and divestiture costs include costs associated with business divestitures.
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 loss relates to the relief of the US Retirement Plan pension obligation due to increased lump sum payouts over a specified accounting threshold.
Loss on extinguishment of debt relates to the net loss recorded on full redemption of $500 million of outstanding 5.00% senior notes due July 2020, called on August 16, 2019 and settled on September 17, 2019.
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 and unrealized gains related to our equity securities 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
 
Quarter-over-Quarter
 
Life Sciences and Applied Markets Group
Q4'20Q4'19
Revenue

$

671

$

622

Gross Margin, %

59.2%

60.7%

Income from Operations

$

166

$

158

Operating margin, %

24.8%

25.3%

 
Diagnostics and Genomics Group
Q4'20Q4'19
Revenue

$

294

$

269

Gross Margin, %

50.9%

54.0%

Income from Operations

$

60

$

53

Operating margin, %

20.3%

19.7%

 
Agilent CrossLab Group
Q4'20Q4'19
Revenue

$

518

$

476

Gross Margin, %

51.8%

52.6%

Income from Operations

$

143

$

133

Operating margin, %

27.7%

28.0%

 
Year-over-Year
 
Life Sciences and Applied Markets Group
FY20FY19
Revenue

$

2,392

$

2,302

Gross Margin, %

59.2%

61.0%

Income from Operations

$

548

$

542

Operating margin, %

22.9%

23.5%

 
Diagnostics and Genomics Group
FY20FY19
Revenue

$

1,047

$

1,021

Gross Margin, %

51.9%

54.7%

Income from Operations

$

192

$

185

Operating margin, %

18.3%

18.2%

 
Agilent CrossLab Group
FY20FY19
Revenue

$

1,900

$

1,840

Gross Margin, %

52.2%

51.8%

Income from Operations

$

516

$

475

Operating margin, %

27.2%

25.8%

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, transformational initiatives, acquisition and integration costs, business exit and divestiture costs, NASD site costs, special compliance costs and acceleration of share-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 SegmentQ4'20Q4'19

% Change

Life Sciences and Applied Markets Group

$

671

$

622

8%

Diagnostics and Genomics Group

294

269

9%

Agilent CrossLab Group

518

476

9%

Agilent

$

1,483

$

1,367

8%

 
 
 
 
Non-GAAP
(excluding Acquisitions & Divestitures)
Year-over-Year
at Constant Currency (a)

Year-over-Year

Year-over-Year

Percentage Point
Impact from
Currency

Current Quarter
Currency Impact (b)
Non GAAP Revenue by SegmentQ4'20Q4'19

% Change

% Change

Life Sciences and Applied Markets Group

$

655

$

622

5%

4%

1 ppt

$

9

Diagnostics and Genomics Group

294

269

9%

7%

2 ppts

5

Agilent CrossLab Group

518

476

9%

7%

2 ppts

9

Agilent (Core)

$

1,467

$

1,367

7%

6%

1 ppt

$

23

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

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 SegmentFY20FY19

% Change

Life Sciences and Applied Markets Group

$

2,392

$

2,302

4%

Diagnostics and Genomics Group

1,047

1,021

2%

Agilent CrossLab Group

1,900

1,840

3%

Agilent

$

5,339

$

5,163

3%

 
Non-GAAP
(excluding Acquisitions & Divestitures)
Year-over-Year
at Constant Currency (a)

Year-over-Year

Year-over-Year

Percentage Point
Impact from
Currency
Current Year
Currency Impact (b)
Non GAAP Revenue by SegmentFY20FY19

% Change

% Change

Life Sciences and Applied Markets Group

$

2,243

$

2,302

(3%)

(2%)

-1 ppt

$

(6)

Diagnostics and Genomics Group

1,047

1,021

2%

3%

-1 ppt

(2)

Agilent CrossLab Group

1,900

1,840

3%

4%

-1 ppt

(10)

Agilent (Core)

$

5,190

$

5,163

1%

1%

$

(18)

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 year 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 7

Contacts:

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

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