Business context and reporting period
Agilent Technologies, Inc. is a global provider of instruments, software, services and consumables for life sciences, diagnostics and applied chemical markets. This unaudited Form 10-Q covers the fiscal third quarter and nine months ended July 31, 2020; comparisons are with the corresponding 2019 periods unless noted.
Financial performance and position
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1,261 | $1,274 | $3,856 | $3,796 |
| Gross margin | 53.1% | 54.3% | 53.1% | 54.5% |
| Income from operations | $230 | $225 | $547 | $691 |
| Operating margin | 18.2% | 17.6% | 14.2% | 18.2% |
| Net income | $199 | $191 | $497 | $877 |
| Diluted EPS | $0.64 | $0.60 | $1.59 | $2.74 |
- Q3 product revenue was $932 million, down 2%; services and other revenue was $329 million, up 1%. Nine-month product revenue rose 1% and services and other rose 3%.
- Segment revenue in Q3: Life Sciences and Applied Markets $557 million, up 2%; Diagnostics and Genomics $241 million, down 8%; Agilent CrossLab $463 million, down 1%. Nine-month segment revenue was $1,721 million, $753 million and $1,382 million, respectively.
- Nine-month cash from operations was $544 million versus $707 million; investing cash outflow was $120 million and financing cash outflow was $448 million. Capital expenditures were $92 million. Operating cash flow less capital expenditures was $452 million, calculated from reported figures.
- At July 31, cash and cash equivalents were $1,358 million, current assets $3,245 million and current liabilities $1,314 million. Debt comprised $40 million short-term and $2,283 million long-term, or $2,323 million total. The company had no revolver borrowings and reported covenant compliance.
- Stockholders’ equity was $4,981 million, compared with $4,748 million at October 31, 2019. Cash dividends paid over nine months were $167 million; share repurchases were $219 million.
Material changes versus prior periods
- Q3 revenue declined 1%, while nine-month revenue grew 2%; foreign exchange reduced revenue growth by 1 percentage point in both periods. Acquisitions contributed approximately 3 percentage points to revenue growth in each period.
- Q3 operating income rose 2% and operating margin expanded 1 percentage point, despite a 1-point decline in gross margin; lower discretionary spending, including travel, helped. For nine months, operating income fell 21% and operating margin declined 4 points.
- Nine-month net income was down substantially, in part because 2019 included a $299 million discrete Singapore tax benefit. 2020 included a $99 million impairment related to shutdown of the sequencer development program, a $26 million unrealized gain on equity investments and $22 million income from settlement of a legal claim against Twist Bioscience.
- Nine-month operating cash flow was lower and included a $226 million one-time tax payment related to a transfer of intellectual property. Inventory increased to $746 million from $679 million at October 31, 2019.
- Agilent issued $500 million of 2.10% senior notes due 2030. The company resumed share repurchases during Q3 after suspending them on March 23, 2020.
Outlook, commentary and risks
- Management expected gradual improvement in business results to continue across regions in Q4, while emphasizing that recovery timing and extent were uncertain. No numeric Q4 or full-year financial guidance is provided in the filing text.
- COVID-19 continued to affect customer access, installations and service, with disruption to academic and research labs, routine and cancer testing, and chemical and energy demand. China showed a Q3 rebound; COVID-19-related revenue contributed approximately 2 percentage points to Q3 results, according to management.
- Management reported no material liquidity concerns to date and believed cash, operating cash generation and access to capital markets and credit lines would meet liquidity needs for at least 12 months. It also cited supply delays for some materials and components and ongoing pandemic-related uncertainty.
- Other significant risks include economic and customer-spending volatility, foreign-exchange and trade risks, supply-chain constraints, product-development and acquisition execution, regulatory compliance, tax exposures, debt obligations and potential disruption to operations or IT systems.
- Ordinary-course litigation and claims were disclosed; management did not believe any pending matter was probable or reasonably possible of having a material impact. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the anticipated Q4 recovery materialized, particularly for diagnostics and clinical testing, laboratory installations and chemical and energy customers.
- The sustainability of margins and earnings after the sequencer-program impairment and the lower discretionary spending that supported Q3 operating margin.
- The effect of the $226 million tax payment, tax examinations and possible changes in unrecognized tax benefits on future cash flow and effective tax rates.
- Debt maturities, interest costs, use of commercial paper and continued covenant compliance; reported July 31 debt was $2,323 million against $1,358 million cash.
- Inventory levels, supply availability and customer demand, as well as progress and costs associated with the sequencer-program shutdown and the Frederick, Colorado facility.