Agilent Technologies, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Three and nine months ended July 31, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. Agilent supplies instruments, software, services and consumables for life sciences, diagnostics and applied chemical markets.
Financial performance and position
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $1,586 | $1,261 | $4,659 | $3,856 |
| Income from operations | $336 | $230 | $952 | $547 |
| Net income | $264 | $199 | $768 | $497 |
| Diluted EPS | $0.86 | $0.64 | $2.50 | $1.59 |
| Operating margin | 21.2% | 18.2% | 20.4% | 14.2% |
| Gross margin | 53.7% | 53.1% | 53.8% | 53.1% |
- Q3 revenue grew 26% year over year; nine-month revenue grew 21%. Management said growth was primarily non-COVID-related, across all segments, key end markets and regions. Foreign exchange added 5 percentage points to Q3 growth and 4 points to nine-month growth.
- Q3 segment revenue: Life Sciences and Applied Markets $680 million (+22%); Diagnostics and Genomics $346 million (+44%); Agilent CrossLab $560 million (+21%).
- Nine-month operating cash flow was $1,044 million, versus $544 million. Capital expenditures were $126 million; operating cash flow less capital expenditures was $918 million. The prior-year cash flow included a $226 million one-time tax payment related to an intellectual property transfer.
- At July 31, cash and cash equivalents were $1,428 million, current assets $3,632 million and current liabilities $1,724 million. Short- and long-term debt totaled $2,858 million; cash exceeded debt by approximately $1,430 million. The company reported $130 million of commercial paper outstanding and no borrowings under its $1.35 billion revolving credit facility.
- Total assets were $10,491 million and total liabilities $5,545 million. Nine-month dividends were $177 million and treasury stock repurchases were $652 million.
Changes, transactions and unusual items
- Q3 operating income increased 46%; nine-month operating income increased 74%. Margin improvement reflected higher sales volume and improved gross margin, partly offset by higher compensation, commissions, share-based compensation, amortization and logistics costs.
- The effective tax rate was 19.3% for Q3 and 15.8% for the nine-month period, compared with 9.1% and 11.1%, respectively, in 2020. FY2021 rates benefited from recognition of previously unrecognized tax benefits; the nine-month rate also benefited from stock-compensation tax benefits.
- Agilent acquired Resolution Bioscience on April 15, 2021, for $550 million cash, with potential milestone payments of up to $145 million. The preliminary fair value of contingent consideration was $110 million. Acquisition-related accounting remains preliminary.
- Agilent issued $850 million of 2.30% senior notes due 2031 and redeemed its remaining 2022 notes for approximately $417 million, recording a $17 million debt-extinguishment loss.
- The prior-year nine-month comparison included $99 million of asset impairment charges, primarily from ending a sequencer development program, and $22 million of income from settling a legal claim. These items affect year-over-year comparability.
Outlook, commentary and risks
- Management expressed optimism about long-term growth across end markets but provided no specific company-wide revenue or earnings guidance in the supplied filing text. It estimated FY2021 capital expenditures of approximately $200 million.
- Management expects near-term supply-chain pressures and said it is using sourcing strategies to mitigate them. It also noted ongoing COVID-19 uncertainty, including the Delta variant, and uneven recovery across markets and geographies.
- Key disclosed risks include supply shortages or delays, demand volatility and customer budget changes, foreign exchange and trade risks, product-development and acquisition-integration execution, and regulatory, tax and intellectual-property exposures.
- Management stated that available cash, operating cash generation and access to capital markets and credit lines should meet liquidity requirements for at least the next 12 months. It reported no pending legal matter it believed reasonably likely to have a material impact.
- Resolution Bioscience earn-out payments depend on revenue and technical milestones. The company’s estimate is subject to significant unobservable assumptions; acquisition valuation was not final as of quarter-end.
Important facts for investors to verify
- How much reported growth reflects underlying demand versus favorable currency, prior-year pandemic comparisons and the acquired Resolution Bioscience business.
- Whether supply-chain constraints, logistics costs and higher compensation affect future revenue conversion and margins.
- Progress integrating Resolution Bioscience, the final purchase-price allocation, and whether milestone payments are earned.
- Cash generation and capital allocation alongside $2.858 billion of reported debt, repurchases and dividends.
- Changes in tax exposures and unrecognized tax benefits; management said it could not estimate the range of possible changes over the next 12 months.