Agilent Technologies Reports Second-Quarter Fiscal Year 2017 Financial Results


Financial Statements Financial Tables (161kb)		Printer Friendly Version

Highlights:

GAAP net income of $164 million, or $0.50 per share
Non-GAAP net income of $187 million, or $0.58 per share⁽¹⁾, $0.10 above midpoint guidance of $0.48 per share
Revenue of $1.10 billion, representing growth of 8 percent (core revenue growth of 9 percent⁽²⁾ versus midpoint guidance of 3.5 percent)
Third-quarter fiscal year revenue guidance of $1.06 billion to $1.08 billion, and non-GAAP earnings guidance of $0.49 to $0.51 per share⁽³⁾.
Increasing fiscal year 2017 core revenue growth guidance from a midpoint of 4.5 percent to 5.0 percent⁽²⁾. Increasing non-GAAP earnings guidance from a midpoint of $2.13 to $2.18
per share⁽³⁾.

Agilent Technologies, Inc. (NYSE: A) today reported revenue of $1.10 billion, up 8 percent year over year (up 9 percent on a core basis⁽²⁾) for the second fiscal quarter ended April 30, 2017.

Second-quarter GAAP net income was $164 million, or $0.50 per share. Last year's second-quarter GAAP net income was $91 million, or $0.28 per share.

During the second quarter, Agilent had intangible amortization of $31 million, acquisition and integration costs of
$7 million, and $2 million in other costs. Excluding these items and a tax benefit of $17 million, Agilent reported second-quarter non-GAAP net income of $187 million, or $0.58 per share⁽¹⁾.

"The Agilent team delivered another excellent quarter," said Mike McMullen, Agilent President and CEO. "Both revenue and earnings per share exceeded the high range of guidance. We saw a strong pick up in the Chemical and Energy business after modest gains last quarter, and strong growth in Pharma and Europe also contributed to the upside."

"We continue to deliver on our long-term focus of driving above-market growth, expanding operating margins, and deploying capital in a balanced manner," he added. "Looking ahead, we are confident in our company's prospects, and we are raising our full-year core revenue growth and earnings expectations."

Second-quarter revenue of $523 million from Agilent's Life Sciences and Applied Markets Group (LSAG) grew 6 percent year over year (up 6 percent on a core basis⁽²⁾), with double-digit growth in chemical and energy, pharma and environmental markets. LSAG's operating margin for the quarter was 21.1 percent.

Second-quarter revenue of $378 million from Agilent CrossLab Group (ACG) grew 9 percent year over year (up
10 percent on a core basis⁽²⁾). Both services and consumables continued to see solid growth across all geographies.
ACG's operating margin for the quarter was 21.6 percent.

Second-quarter revenue of $201 million from Agilent's Diagnostics and Genomics Group (DGG) grew 13 percent year over year (up 13 percent on a core basis⁽²⁾) led by pharma and diagnostic and clinical end-markets. DGG's operating margin for the quarter was 24.2 percent.

Agilent expects third-quarter 2017 revenue in the range of $1.06 billion to $1.08 billion. Third-quarter non-GAAP earnings are expected to be in the range of $0.49 to $0.51 per share⁽³⁾.

For fiscal year 2017, Agilent expects revenue of $4.36 billion to $4.38 billion and non-GAAP earnings of $2.15 to $2.21 per share⁽³⁾. The guidance is based on April 28, 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
	April 30,						Percent
	2017			2016			Inc/(Dec)

Net revenue	$	1,102		$	1,019		8	%

Costs and expenses:
Cost of products and services		510			489		4	%
Research and development		84			81		4	%
Selling, general and administrative		307			318		(3	%)
Total costs and expenses		901			888		1	%

Income from operations		201			131		53	%

Interest income		5			3		67	%
Interest expense		(20	)		(18	)	11	%
Other income (expense), net		5			1		—

Income before taxes		191			117		63	%

Provision for income taxes		27			26		4	%

Net income	$	164		$	91		80	%


Net income per share:
Basic	$	0.51		$	0.28
Diluted	$	0.50		$	0.28

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

	Six Months Ended
	April 30,						Percent
	2017			2016			Inc/(Dec)

Net revenue	$	2,169		$	2,047		6	%

Costs and expenses:
Cost of products and services		1,003			980		2	%
Research and development		163			159		3	%
Selling, general and administrative		596			622		(4	%)
Total costs and expenses		1,762			1,761		—

Income from operations		407			286		42	%

Interest income		9			5		80	%
Interest expense		(40	)		(36	)	11	%
Other income (expense), net		8			4		100	%

Income before taxes		384			259		48	%

Provision for income taxes		52			47		11	%

Net income	$	332		$	212		57	%


Net income per share:
Basic	$	1.03		$	0.65
Diluted	$	1.02		$	0.64

Weighted average shares used in computing net income per share:
Basic		322			327
Diluted		325			330

Cash dividends declared per common share	$	0.264		$	0.230

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						Six Months Ended
	April 30,						April 30,
	2017			2016			2017			2016

Net income	$	164		$	91		$	332		$	212

Other comprehensive income (loss), net of tax:

Unrealized loss on derivative instruments		(1	)		(9	)		—			(6	)
Amounts reclassified into earnings related to derivative instruments		(1	)		—			(1	)		(1	)
Foreign currency translation		7			145			4			89
Net defined benefit pension cost and post retirement plan costs:
Change in actuarial net loss		9			6			26			21
Change in net prior service benefit		(2	)		(3	)		(3	)		(11	)
Other comprehensive income		12			139			26			92

Total comprehensive income	$	176		$	230		$	358		$	304

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

	April 30,			October 31,
	2017			2016^(a)
ASSETS

Current assets:
Cash and cash equivalents	$	2,389		$	2,289
Accounts receivable, net		677			631
Inventory		548			533
Other current assets		186			182
Total current assets		3,800			3,635

Property, plant and equipment, net		675			639
Goodwill		2,568			2,517
Other intangible assets, net		373			408
Long-term investments		134			135
Other assets		466			460
Total assets	$	8,016		$	7,794

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	265		$	257
Employee compensation and benefits		241			235
Deferred revenue		301			269
Short-term debt		241			—
Other accrued liabilities		139			184
Total current liabilities		1,187			945

Long-term debt		1,802			1,904
Retirement and post-retirement benefits		317			360
Other long-term liabilities		335			339
Total liabilities		3,641			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; 321 million shares at April 30, 2017 and 614 million shares at October 31, 2016, issued		3			6
Treasury stock at cost; zero shares at April 30, 2017 and 290 million shares at October 31, 2016		—			(10,508	)
Additional paid-in-capital		5,239			9,159
Retained earnings (accumulated deficit)		(393	)		6,089
Accumulated other comprehensive loss		(477	)		(503	)
Total stockholders' equity		4,372			4,243
Non-controlling interest		3			3
Total equity		4,375			4,246
Total liabilities and equity	$	8,016		$	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			Six Months			Six Months
	Ended			Ended			Ended			Ended
	April 30,			April 30,			April 30,			April 30,
	2017			2016			2017			2016
Cash flows from operating activities:
Net income	$	164		$	91		$	332		$	212

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		54			64			109			130
Share-based compensation		15			13			35			36
Excess and obsolete inventory related charges		8			8			15			12
Other non-cash expenses, net		—			6			2			8
Changes in assets and liabilities:
Accounts receivable		(17	)		34			(48	)		19
Inventory		(3	)		—			(29	)		(13	)
Accounts payable		(3	)		(35	)		6			(53	)
Employee compensation and benefits		50			34			7			(13	)
Other assets and liabilities		(11	)		39			(56	)		27
Net cash provided by operating activities ^(a)		257			254			373			365

Cash flows from investing activities:
Investments in property, plant and equipment		(43	)		(25	)		(75	)		(63	)
Proceeds from divestitures		—			—			1			—
Proceeds from sale of investment securities		—			—			—			1
Payment to acquire cost method investment		—			(80	)		—			(80	)
Loan to equity method investment		—			(3	)		—			(3	)
Change in restricted cash and cash equivalents, net		—			—			—			245
Payment in exchange for convertible note		—			—			—			(1	)
Acquisition of businesses and intangible assets, net of cash acquired		—			—			(70	)		(235	)
Net cash used in investing activities		(43	)		(108	)		(144	)		(136	)

Cash flows from financing activities:
Issuance of common stock under employee stock plans		8			8			26			32
Payment of taxes related to net share settlement of equity awards		(1	)		—			(13	)		(5	)
Payment of dividends		(43	)		(37	)		(85	)		(75	)
Proceeds from revolving credit facility		97			155			228			255
Repayment of revolving credit facility		(45	)		—			(87	)		(20	)
Treasury stock repurchases		(83	)		(94	)		(194	)		(294	)
Net cash provided by (used in) financing activities		(67	)		32			(125	)		(107	)

Effect of exchange rate movements		1			30			(4	)		14

Net increase in cash and cash equivalents		148			208			100			136

Cash and cash equivalents at beginning of period		2,241			1,931			2,289			2,003

Cash and cash equivalents at end of period	$	2,389		$	2,139		$	2,389		$	2,139

^(a) Cash payments included in operating activities:
Severance payments	$	2		$	1		$	3		$	3
Income tax payments (refunds), net	$	14		$	(16	)	$	41		$	21
Interest payments	$	11		$	8		$	40		$	37

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												Six Months Ended
	April 30,												April 30,
	2017			Diluted EPS			2016			Diluted EPS			2017			Diluted EPS			2016			Diluted EPS

GAAP Net income	$	164		$	0.50		$	91		$	0.28		$	332		$	1.02		$	212		$	0.64
Non-GAAP adjustments:
Intangible amortization		31			0.10			40			0.12			62			0.19			83			0.25
Business exit and divestiture costs		—			—			1			—			—			—			5			0.02
Transformational initiatives		—			—			10			0.03			2			0.01			21			0.06
Acquisition and integration costs		7			0.02			12			0.04			23			0.07			17			0.05
Pension curtailment gain		—			—			—			—			—			—			(15	)		(0.05	)
Pension settlement gain		—			—			—			—			(32	)		(0.10	)		(1	)		—
Other		2			0.01			1			—			4			0.01			3			0.01
Adjustment for taxes ^(a)		(17	)		(0.05	)		(10	)		(0.03	)		(32	)		(0.10	)		(27	)		(0.08	)
Non-GAAP Net income	$	187		$	0.58		$	145		$	0.44		$	359		$	1.10		$	298		$	0.90

^(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 six months ended April 30, 2017, management uses a non-GAAP effective tax rate of 19.0%. 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 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.

Page 6

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

Life Sciences and Applied Markets Group
	Q2'17			Q2'16
Revenue	$	523		$	495
Gross Margin, %		59.9	%		58.5	%
Income from Operations	$	110		$	94
Operating margin, %		21.1	%		19.0	%


Diagnostics and Genomics Group
	Q2'17			Q2'16
Revenue	$	201		$	178
Gross Margin, %		57.6	%		54.1	%
Income from Operations	$	49		$	27
Operating margin, %		24.2	%		15.0	%


Agilent CrossLab Group
	Q2'17			Q2'16
Revenue	$	378		$	346
Gross Margin, %		49.7	%		49.3	%
Income from Operations	$	82		$	74
Operating margin, %		21.6	%		21.5	%

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.

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
GAAP Revenue by Segment	Q2'17		Q2'16		Year-over-Year % Change

Life Sciences and Applied Markets Group	$	523	$	495	6	%

Diagnostics and Genomics Group		201		178	13	%

Agilent CrossLab Group		378		346	9	%

Agilent	$	1,102	$	1,019


	Non-GAAP						Currency Adjustments			Currency-Adjusted ^(a)
Non GAAP Revenue by Segment	Q2'17		Q2'16		Year-over-Year % Change		Q2'17			Q2'17		Q2'16		Year-over-Year Change

Life Sciences and Applied Markets Group excluding NMR	$	523	$	494	6	%	$	(3	)	$	526	$	494	6	%

Diagnostics and Genomics Group excluding acquisition		198		178	12	%		(2	)		200		178	13	%

Agilent CrossLab Group excluding acquisition		376		346	9	%		(4	)		380		346	10	%

Agilent Revenue (Core)	$	1,097	$	1,018			$	(9	)	$	1,106	$	1,018	9	%

^(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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