Agilent Technologies Reports First-Quarter 2017 Results


Financial Statements		Printer Friendly Version

Highlights:

GAAP net income of $168 million, or $0.52 per share
Non-GAAP net income of $172 million, or $0.53 per share⁽¹⁾ versus midpoint guidance of $0.49 per share
Revenue of $1.07 billion, representing growth of 3.8 percent (core revenue growth of 4.8 percent⁽²⁾ versus midpoint guidance of 2.2 percent)
Second-quarter fiscal year 2017 revenue guidance of $1.04 billion to $1.06 billion, and non-GAAP earnings guidance of $0.47 to $0.49 per share⁽³⁾
Increasing fiscal year 2017 core revenue growth guidance to 4.5%⁽²⁾. Revenue guidance of $4.33 billion to $4.35 billion. Reaffirming non-GAAP earnings guidance of $2.10 to $2.16 per share⁽³⁾, despite negative 3 cent impact from currency and acquisition.

Agilent Technologies, Inc. (NYSE: A) today reported revenue of $1.07 billion, up 3.8 percent year over year (up 4.8 percent on a core basis⁽²⁾) for the first fiscal quarter ended Jan. 31, 2017.

First-quarter GAAP net income was $168 million, or $0.52 per share. Last year's first-quarter GAAP net income was $121 million, or $0.36 per share.

During the first quarter, Agilent had intangible amortization of $31 million, acquisition and integration costs of $16 million, transformation costs of $2 million and $2 million of other costs. Excluding these items, a pension settlement gain of $32 million and a tax benefit of $15 million, Agilent reported first-quarter non-GAAP net income of $172 million, or $0.53 per share⁽¹⁾.

"The Agilent team started 2017 with another strong quarter, despite currency headwinds," said Mike McMullen, Agilent president and CEO. "Our first-quarter revenue and non-GAAP earnings per share⁽¹⁾ exceeded the high end of November's guidance.

"Our strong revenue results were driven by a return to growth in our Chemical & Energy business and higher-than-expected China growth. Overall, we are confident in the company's prospects, and we are raising our full-year core revenue growth expectations," McMullen added.

First-quarter revenue of $540 million from Agilent's Life Sciences and Applied Markets Group (LSAG) grew 3 percent year over year (up 4 percent on a core basis⁽²⁾), with strength in pharma, food, chemical and energy. LSAG's Q1 operating margin for the quarter was 23.4 percent.

First-quarter revenue of $363 million from the Agilent CrossLab Group (ACG) grew 6 percent year over year (up 7 percent on a core basis⁽²⁾). Both services and consumables experienced healthy growth across all geographies. ACG's operating margin for the quarter was 20.3 percent.

First-quarter revenue of $164 million from Agilent's Diagnostics and Genomics Group (DGG) grew 4 percent year over year (also up 4 percent on a core basis⁽²⁾), led by strength in Dako-branded products and nucleic acid solutions. DGG's operating margin for the quarter was 14.3 percent.

Agilent expects second-quarter 2017 revenue in the range of $1.04 billion to $1.06 billion. Second-quarter non-GAAP earnings are expected to be in the range of $0.47 to $0.49 per share⁽³⁾.

For fiscal year 2017, Agilent expects revenue of $4.33 billion to $4.35 billion and non-GAAP earnings of $2.10 to $2.16 per share⁽³⁾. The guidance is based on Jan. 31, 2017 currency exchange rates.

Financial Statements for First-Quarter Fiscal 2017


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

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

Net revenue	$	1,067		$	1,028		4	%

Costs and expenses:
Cost of products and services		493			491		—
Research and development		79			78		1	%
Selling, general and administrative		289			304		(5	%)
Total costs and expenses		861			873		(1	%)

Income from operations		206			155		33	%

Interest income		4			2		100	%
Interest expense		(20	)		(18	)	11	%
Other income (expense), net		3			3		—

Income before taxes		193			142		36	%

Provision for income taxes		25			21		19	%

Net income	$	168		$	121		39	%



Net income per share:
Basic	$	0.52		$	0.37
Diluted	$	0.52		$	0.36

Weighted average shares used in computing net income per share:
Basic		322			329
Diluted		326			332

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 COMPREHENSIVE INCOME (In millions) (Unaudited) PRELIMINARY

	Three Months Ended January 31,
	2017			2016

Net income	$	168		$	121

Other comprehensive income (loss), net of tax:

Unrealized gain on derivative instruments		1			3
Amounts reclassified into earnings related to derivative instruments		—			(1	)
Foreign currency translation		(3	)		(56	)
Net defined benefit pension cost and post retirement plan costs:
Change in actuarial net loss		17			15
Change in net prior service benefit		(1	)		(8	)
Other comprehensive income (loss)		14			(47	)

Total comprehensive income	$	182		$	74

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

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

Current assets:
Cash and cash equivalents	$	2,241		$	2,289
Accounts receivable, net		653			631
Inventory		551			533
Other current assets		190			182
Total current assets		3,635			3,635

Property, plant and equipment, net		653			639
Goodwill		2,563			2,517
Other intangible assets, net		411			408
Long-term investments		133			135
Other assets		477			460
Total assets	$	7,872		$	7,794

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	268		$	257
Employee compensation and benefits		189			235
Deferred revenue		299			269
Short-term debt		189			—
Other accrued liabilities		143			184
Total current liabilities		1,088			945

Long-term debt		1,803			1,904
Retirement and post-retirement benefits		350			360
Other long-term liabilities		331			339
Total liabilities		3,572			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 January 31, 2017 and 614 million shares at October 31, 2016, issued		3			6
Treasury stock at cost; zero shares at January 31, 2017 and 290 million shares at October 31, 2016		—			(10,508	)
Additional paid-in-capital		5,236			9,159
Retained earnings (accumulated deficit)		(453	)		6,089
Accumulated other comprehensive loss		(489	)		(503	)
Total stockholders' equity		4,297			4,243
Non-controlling interest		3			3
Total equity		4,300			4,246
Total liabilities and equity	$	7,872		$	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 Ended January 31, 2017
Cash flows from operating activities:
Net income	$	168

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		55
Share-based compensation		20
Excess and obsolete inventory related charges		7
Other non-cash expenses, net		2
Changes in assets and liabilities:
Accounts receivable		(31	)
Inventory		(26	)
Accounts payable		9
Employee compensation and benefits		(43	)
Other assets and liabilities		(45	)
Net cash provided by operating activities ^(a)		116

Cash flows from investing activities:
Investments in property, plant and equipment		(32	)
Proceeds from divestitures		1
Acquisition of businesses and intangible assets, net of cash acquired		(70	)
Net cash used in investing activities		(101	)

Cash flows from financing activities:
Issuance of common stock under employee stock plans		18
Payment of taxes related to net share settlement of equity awards		(12	)
Payment of dividends		(42	)
Proceeds from revolving credit facility		131
Repayment of revolving credit facility		(42	)
Treasury stock repurchases		(111	)
Net cash used in financing activities		(58	)

Effect of exchange rate movements		(5	)

Net decrease in cash and cash equivalents		(48	)

Cash and cash equivalents at beginning of period		2,289

Cash and cash equivalents at end of period	$	2,241

^(a) Cash payments included in operating activities:
Severance payments		1
Income tax payments, net		27
Interest payments		29

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 January 31,
	2017			Diluted EPS			2016			Diluted EPS

GAAP Net income	$	168		$	0.52		$	121			0.36
Non-GAAP adjustments:
Intangible amortization		31			0.10			43			0.13
Business exit and divestiture costs		—			—			4			0.01
Transformational initiatives		2			0.01			11			0.03
Acquisition and integration costs		16			0.05			5			0.02
Pension curtailment gain		—			—			(16	)		(0.05	)
Pension settlement gain		(32	)		(0.11	)		—			—
Other		2			0.01			2			0.01
Adjustment for taxes ^(a)		(15	)		(0.05	)		(17	)		(0.05	)
Non-GAAP Net income	$	172		$	0.53		$	153		$	0.46

^(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, 2017 and 2016, management uses a non-GAAP effective tax rate of 19.0% and 20.0%, 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 amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, pension curtailment gain and pension settlement gain.
Business exit and divestiture costs include costs associated with the exit of the NMR business and the divestiture of the XRD business.
Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers, small site consolidations, reorganizations, insourcing or outsourcing of activities. Such costs may include move and relocation costs, one-time termination benefits and other one-time reorganization costs.
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
	Q1'17			Q1'16
Revenue	$	540		$	526
Gross Margin, %		59.6	%		58.7	%
Income from Operations	$	126		$	114
Operating margin, %		23.4	%		21.7	%


Diagnostics and Genomics Group
	Q1'17			Q1'16
Revenue	$	164		$	158
Gross Margin, %		54.8	%		52.7	%
Income from Operations	$	23		$	15
Operating margin, %		14.3	%		9.6	%


Agilent CrossLab Group
	Q1'17			Q1'16
Revenue	$	363		$	344
Gross Margin, %		48.5	%		50.1	%
Income from Operations	$	74		$	76
Operating margin, %		20.3	%		22.1	%

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, 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.

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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
GAAP Revenue by Segment	Q1'17		Q1'16		Year-over-Year % Change

Life Sciences and Applied Markets Group	$	540	$	526	3	%

Diagnostics and Genomics Group		164		158	4	%

Agilent CrossLab Group		363		344	6	%

Agilent	$	1,067	$	1,028


	Non-GAAP						Currency Adjustments			Currency-Adjusted ^(a)
Non GAAP Revenue by Segment	Q1'17		Q1'16		Year-over-Year % Change		Q1'17			Q1'17		Q1'16		Year-over-Year % Change

Life Sciences and Applied Markets Group excluding NMR	$	540	$	524	3	%	$	(5	)	$	545	$	524	4	%

Diagnostics and Genomics Group excluding acquisition		163		158	3	%		(1	)		164		158	4	%

Agilent CrossLab Group excluding acquisition		361		344	5	%		(5	)		366		344	7	%

Agilent Revenue (Core)	$	1,064	$	1,026			$	(11	)	$	1,075	$	1,026	5	%

^(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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