Agilent Technologies Reports Fourth-Quarter Fiscal Year 2018 Financial Results

Financial Statements

Financial Tables (154kb)

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Highlights:

Fourth Quarter

Q4 revenue of $1.29 billion, representing growth of 9 percent with core revenue growth of 9 percent⁽¹⁾
Q4 GAAP net income of $195 million, or $0.61 per share
Q4 non-GAAP net income of $262 million, or $0.81 per
share⁽²⁾, an increase of 21 percent from 2017
Board authorizes new $1.75 billion share repurchase program

Full Year

Full year revenue of $4.91 billion, representing 10 percent growth and core growth of 7 percent⁽¹⁾
Full year GAAP net income of $316 million, or $0.97 per share
Full year non-GAAP net income of $907 million, or $2.79 per share⁽²⁾, an increase of 18 percent from 2017

Outlook

Fiscal year 2019 revenue guidance of $5.13 billion to $5.17 billion, representing growth of 4.4 to 5.2 percent and core growth of 5.0 to 5.5 percent⁽¹⁾. Non-GAAP earnings guidance of $3.00 to $3.05 per share⁽³⁾
First-quarter fiscal year 2019 revenue guidance of $1.265 billion to $1.280 billion, representing growth of 4.4 to 5.7 percent and core revenue growth of 4.5 to 5.5 percent⁽¹⁾. Non-GAAP earnings guidance of $0.71 to $0.73 per share⁽³⁾

Agilent Technologies, Inc. (NYSE: A) today reported revenue of $1.29 billion for the fourth-quarter ended October 31, 2018, up 9 percent year over year (up 9 percent on a core basis⁽¹⁾).

Fourth-quarter GAAP net income was $195 million, or $0.61 per share. Last year's fourth-quarter GAAP net income was $177 million, or $0.54 per share.

"The Agilent team delivered an outstanding quarter to wrap up the fiscal year with revenues and earnings per share ahead of expectations," said Mike McMullen, Agilent CEO and President. "Our performance this quarter caps off an excellent 2018 as we achieved our highest annual core growth rate and profitability since becoming a stand-alone life sciences company in 2014."

"During the quarter we continued our investment in growth introducing new and differentiated products and services," continued McMullen. "We leveraged our strong balance sheet completing several acquisitions to further strengthen our portfolio. We also returned over $600 million to shareholders through stock buybacks and dividends this year.

"We enter fiscal 2019 with momentum. Our focus remains on executing our shareholder value creation model to deliver superior earnings growth."

Financial Highlights

Life Sciences and Applied Markets Group

Fourth-quarter revenue of $597 million from Agilent's Life Sciences and Applied Markets Group (LSAG) grew 8 percent year over year (up 9 percent on a core basis⁽¹⁾), with broad-based strength across major end markets, platforms and regions. LSAG's operating margin for the quarter was 25.9 percent. Full-year revenue of $2.3 billion grew 9 percent year over year (up 7 percent on a core basis⁽¹⁾). LSAG's operating margin for the year was 24.1 percent.

Agilent CrossLab Group

Fourth-quarter revenue of $441 million from Agilent CrossLab Group (ACG) grew 9 percent year over year (up 9 percent on a core basis⁽¹⁾). Demand was excellent across both services and consumables. ACG's operating margin for the quarter was 24.7 percent. Full-year revenue of $1.7 billion grew 11 percent year over year (up 8 percent on a core basis⁽¹⁾). ACG's operating margin for the year was 23.3 percent.

Diagnostics and Genomics Group

Fourth-quarter revenue of $256 million from Agilent's Diagnostics and Genomics Group (DGG) grew 9 percent year over year (up 5 percent on a core basis⁽¹⁾) led by pharma growth and strong demand for genomics and NASD products. DGG's operating margin for the quarter was 23.3 percent. Full-year revenue of $943 million grew 10 percent year over year (up 5 percent on a core basis⁽¹⁾). DGG's operating margin for the year was 18.9 percent.

2019 First Quarter and Full Year Outlook

For fiscal year 2019, Agilent expects revenue of $5.13 billion to $5.17 billion, representing growth of 4.4 to 5.2 percent and core growth of 5.0 to 5.5 percent⁽¹⁾. Full-year 2019 non-GAAP earnings of $3.00 to $3.05 per share⁽³⁾. The guidance is based on October 31, 2018 currency exchange rates.

Agilent expects first-quarter 2019 revenue in the range of $1.265 billion to $1.280 billion, representing growth of 4.4 to 5.7 percent and core revenue growth of 4.5 to 5.5 percent⁽¹⁾. First-quarter 2019 non-GAAP earnings are expected to be in the range of $0.71 to $0.73 per share⁽³⁾.

New Share Repurchase Program

Agilent's Board of Directors approved a new share repurchase program authorizing the purchase of up to $1.75 billion of common stock. The 2018 share repurchase program commences on November 21, 2018, replacing the previous program.

The number of shares to be repurchased and the timing of any repurchases will depend on factors such as the share price, economic and market conditions, and corporate and regulatory requirements. The share repurchase program may be suspended, amended or discontinued at any time.

Conference Call

Agilent's management will present more details about its fourth-quarter FY2018 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 "Q4 2018 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.

In addition, a telephone replay of the conference call will be available at approximately November 19, 2018 at 4:30 p.m. (Pacific Time) after the call and through November 26 by dialing +1 855-859-2056 (or +1 404-537-3406 from outside the United States) and entering pass code 6519506.

# # #

Financial Statements for Fourth-Quarter Fiscal 2018


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,
		2018			2017			2018			2017

Net revenue	$	1,294		$	1,189		$	4,914		$	4,472

Costs and expenses:
Cost of products and services		585			542			2,227			2,063
Research and development		104			89			385			339
Selling, general and administrative		356			325			1,374			1,229
Total costs and expenses		1,045			956			3,986			3,631

Income from operations		249			233			928			841

Interest income		10			7			38			22
Interest expense		(18	)		(20	)		(75	)		(79	)
Other income (expense), net		3			6			55			19

Income before taxes		244			226			946			803

Provision for income taxes		49			49			630			119

Net income	$	195		$	177		$	316		$	684



Net income per share:
Basic	$	0.61		$	0.55		$	0.98		$	2.12
Diluted	$	0.61		$	0.54		$	0.97		$	2.10

Weighted average shares used in computing net income per share:
Basic		319			322			321			322
Diluted		322			326			325			326

Cash dividends declared per common share	$	0.149		$	0.132		$	0.596		$	0.528



The preliminary income statement 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


				October 31,			October 31,
				2018			2017
ASSETS

Current assets:
	Cash and cash equivalents			$	2,247		$	2,678
	Accounts receivable, net				776			724
	Inventory				638			575
	Other current assets				187			192
		Total current assets			3,848			4,169

Property, plant and equipment, net					822			757
Goodwill and other intangible assets, net					3,464			2,968
Long-term investments					68			138
Other assets					339			394
		Total assets		$	8,541		$	8,426

LIABILITIES AND EQUITY

Current liabilities:
	Accounts payable			$	340		$	305
	Employee compensation and benefits				304			276
	Deferred revenue				324			291
	Short-term debt				—			210
	Other accrued liabilities				203			181
		Total current liabilities			1,171			1,263

Long-term debt					1,799			1,801
Retirement and post-retirement benefits					239			234
Other long-term liabilities					761			293
		Total liabilities			3,970			3,591

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 October 31, 2018
		and 322 million shares at October 31, 2017, issued			3			3
	Additional paid-in-capital				5,308			5,300
	Accumulated deficit				(336	)		(126	)
	Accumulated other comprehensive loss				(408	)		(346	)
		Total stockholders' equity			4,567			4,831
	Non-controlling interest				4			4
		Total equity			4,571			4,835
			Total liabilities and equity	$	8,541		$	8,426



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


			Years Ended
			October 31,			October 31,
			2018			2017
Cash flows from operating activities:
	Net income		$	316		$	684

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation and amortization			210			212
	Share-based compensation			70			60
	Excess and obsolete inventory related charges			26			24
	Gain on step acquisition of Lasergen			(20	)		—
	Asset impairment charges			21			—
	Other non-cash expenses, net			9			7
	Changes in assets and liabilities:
		Accounts receivable, net		(65	)		(81	)
		Inventory		(83	)		(61	)
		Accounts payable		40			2
		Employee compensation and benefits		31			38
		Change in assets and liabilities due to Tax Act		552			—
		Other assets and liabilities		(20	)		4
Net cash provided by operating activities ^(a)				1,087			889

Cash flows from investing activities:
	Investments in property, plant and equipment			(177	)		(176	)
	Proceeds from sale of property, plant and equipment			1			—
	Payment to acquire cost method investments			(11	)		(1	)
	Proceeds from divestitures			—			2
	Change in restricted cash and cash equivalents, net			1			(1	)
	Payment in exchange for convertible note			(2	)		(1	)
	Acquisition of businesses and intangible assets, net of cash acquired			(516	)		(128	)
Net cash used in investing activities				(704	)		(305	)

Cash flows from financing activities:
	Issuance of common stock under employee stock plans			56			66
	Payment of taxes related to net share settlement of equity awards			(30	)		(14	)
	Payment of dividends			(191	)		(170	)
	Proceeds from revolving credit facility			483			400
	Repayment of debt and revolving credit facility			(693	)		(290	)
	Treasury stock repurchases			(422	)		(194	)
Net cash used in financing activities				(797	)		(202	)

Effect of exchange rate movements				(17	)		7

Net increase (decrease) in cash and cash equivalents				(431	)		389

Cash and cash equivalents at beginning of period				2,678			2,289

Cash and cash equivalents at end of period			$	2,247		$	2,678

	^(a) Cash payments included in operating activities:
		Income tax payments (refunds), net	$	102		$	63
		Interest payments	$	80		$	82



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										Years Ended
			October 31,										October 31,
				2018		Diluted EPS				2017	Diluted EPS			2018		Diluted EPS				2017		Diluted EPS

GAAP net income			$	195		$	0.61		$	177	$	0.54	$	316		$	0.97		$	684		$	2.10
	Non-GAAP adjustments:
		Asset impairments		21			0.06			—		—		21			0.06			—			—
		Intangible amortization		29			0.09			28		0.09		105			0.32			117			0.36
		Business exit and divestiture costs		—			—			—		—		9			0.03			—			—
		Transformational initiatives		11			0.03			7		0.02		25			0.08			12			0.04
		Acquisition and integration costs		9			0.03			5		0.02		23			0.07			32			0.10
		Pension settlement gain		—			—			—		—		(5	)		(0.02	)		(32	)		(0.10	)
		Gain on step acquisition of Lasergen		—			—			—		—		(20	)		(0.06	)		—			—
		NASD site costs		2			0.01			—		—		8			0.02			—			—
		Special compliance costs		1			—			—		—		4			0.01			—			—
		Other		2			0.01			—		—		(10	)		(0.03	)		5			0.02
		Adjustment for Tax Reform		19			0.06			—		—		552			1.70			—			—
		Adjustment for taxes ^(a)		(27	)		(0.09	)		1		—		(121	)		(0.36	)		(50	)		(0.16	)
Non-GAAP net income			$	262		$	0.81		$	218	$	0.67	$	907		$	2.79		$	768		$	2.36


^(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, 2018 and 2017, management uses a non-GAAP effective tax rate of 18.0%.

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 settlement gain, gain on step acquisition of Lasergen, NASD site costs, special compliance costs, and adjustment for Tax Reform.

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

	Business exit and divestiture costs include costs associated with business divestitures.

	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.

	Gain on step acquisition of Lasergen resulted from the measurement at fair value of our equity interest held at the date of business combination.

	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 $499 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 $426 million, payable over 8 years.

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
	Q4'18			Q4'17
Revenue	$	597		$	550
Gross Margin, %		62.0	%		61.1	%
Income from Operations	$	155		$	131
Operating margin, %		25.9	%		23.8	%


Diagnostics and Genomics Group
	Q4'18			Q4'17
Revenue	$	256		$	235
Gross Margin, %		59.1	%		55.6	%
Income from Operations	$	59		$	51
Operating margin, %		23.3	%		21.5	%


Agilent CrossLab Group
	Q4'18			Q4'17
Revenue	$	441		$	404
Gross Margin, %		51.3	%		49.6	%
Income from Operations	$	109		$	92
Operating margin, %		24.7	%		22.9	%




Life Sciences and Applied Markets Group
	FY18			FY17
Revenue	$	2,270		$	2,081
Gross Margin, %		61.3	%		60.2	%
Income from Operations	$	547		$	468
Operating margin, %		24.1	%		22.5	%


Diagnostics and Genomics Group
	FY18			FY17
Revenue	$	943		$	860
Gross Margin, %		56.5	%		55.2	%
Income from Operations	$	178		$	168
Operating margin, %		18.9	%		19.5	%


Agilent CrossLab Group
	FY18			FY17
Revenue	$	1,701		$	1,531
Gross Margin, %		50.7	%		49.5	%
Income from Operations	$	397		$	338
Operating margin, %		23.3	%		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 asset impairments, amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, pension settlement gain, gain on step acquisition of Lasergen, 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.


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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	Q4'18		Q4'17		% Change

Life Sciences and Applied Markets Group	$	597	$	550	8	%

Diagnostics and Genomics Group		256		235	9	%

Agilent CrossLab Group		441		404	9	%

Agilent	$	1,294	$	1,189	9	%




	Non-GAAP (excluding Acquisitions & Divestitures)						Year-over-Year at Constant Currency ^(a)
					Year-over-Year		Year-over-Year
Non GAAP Revenue by Segment	Q4'18		Q4'17		% Change		% Change		Percentage Point Impact from Currency	Current Quarter Currency Impact^(b)

Life Sciences and Applied Markets Group	$	596	$	550	8	%	9	%	-1 ppt	$	(6	)

Diagnostics and Genomics Group		245		235	4	%	5	%	-1 ppt		(2	)

Agilent CrossLab Group		435		404	8	%	9	%	-1 ppt		(7	)

Agilent (Core)	$	1,276	$	1,189	7	%	9	%	-1 ppt	$	(15	)



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.



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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	FY18		FY17		% Change

Life Sciences and Applied Markets Group	$	2,270	$	2,081	9	%

Diagnostics and Genomics Group		943		860	10	%

Agilent CrossLab Group		1,701		1,531	11	%

Agilent	$	4,914	$	4,472	10	%




	Non-GAAP (excluding Acquisitions & Divestitures)						Year-over-Year at Constant Currency ^(a)
					Year-over-Year		Year-over-Year
Non GAAP Revenue by Segment	FY18		FY17		% Change		% Change		Percentage Point Impact from Currency	Current Year Currency Impact^(b)

Life Sciences and Applied Markets Group	$	2,261	$	2,081	9	%	7	%	2 ppts	$	39

Diagnostics and Genomics Group		924		860	7	%	5	%	2 ppts		20

Agilent CrossLab Group		1,696		1,531	11	%	8	%	3 ppts		36

Agilent (Core)	$	4,881	$	4,472	9	%	7	%	2 ppts	$	95



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.


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