Agilent Technologies, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended April 30, 2021. Figures are unaudited; dollar amounts are in millions unless otherwise stated. Agilent provides instruments, software, services and consumables for life sciences, diagnostics and applied chemical markets.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Revenue | $1,525 | $1,238 | $3,073 | $2,595 |
| Income from operations | $288 | $102 | $616 | $317 |
| Net income | $216 | $101 | $504 | $298 |
| Diluted EPS | $0.70 | $0.32 | $1.64 | $0.95 |
| Gross margin | 53.6% | 53.0% | 53.9% | 53.2% |
| Operating margin | 18.9% | 8.2% | 20.0% | 12.2% |
Q2 revenue grew 23% year over year and six-month revenue grew 18%. Foreign exchange contributed 4 and 3 percentage points to growth, respectively. Management said COVID-related revenue was not material; growth was primarily non-COVID-related and broad-based across segments, geographies and key markets. Q2 product revenue increased 25% and services and other revenue increased 19%.
Q2 segment revenue and year-over-year growth were: Life Sciences and Applied Markets, $674 (28%); Diagnostics and Genomics, $315 (20%); and Agilent CrossLab, $536 (19%).
Cash flow: Six-month operating cash flow was $710, versus $254 in the prior year. Investing cash outflow was $629, including $547 for acquisitions; capital expenditures were $72. Financing cash outflow was $150, including $539 of share repurchases and $118 of dividends. Cash, cash equivalents and restricted cash declined $60 to $1,387.
Balance sheet and liquidity: At April 30, cash and cash equivalents were $1,380; current assets were $3,514 and current liabilities $1,758. Short-term debt was $205 and long-term debt $2,727, for total reported debt of $2,932. The company said cash, operating cash generation and access to capital markets and credit lines should meet liquidity needs for at least 12 months. It had no borrowings under its $1.35 billion revolving credit facility and was in compliance with its covenants.
Material changes and notable items
- Revenue and earnings rose substantially year over year. Higher sales volume supported a one-percentage-point increase in gross margin for both the quarter and six-month period. Operating margin also expanded; the prior-year comparison included a $97 impairment charge related to the shutdown of a sequencer development program.
- Q2 operating expenses reflected higher wages, variable compensation, commissions and share-based compensation. Management also cited higher inventory charges and logistics costs, partly offset by cost savings and increased sales.
- Agilent acquired Resolution Bioscience on April 15 for $550 cash, with potential milestone payments of up to $145. The acquisition added $435 of goodwill and $263 of intangible assets; the estimated fair value of contingent consideration was $96. Purchase accounting remained preliminary.
- The company issued $850 principal amount of 2.30% senior notes due 2031 and redeemed its remaining 2022 notes for approximately $417, recording a $17 six-month loss on extinguishment of debt.
- The effective tax rate was 20.9% for Q2 and 13.8% for the six-month period. The six-month rate included $16 of tax benefits from expired foreign statutes of limitations and $22 of excess stock-compensation tax benefits.
Outlook, risks and contingencies
Management expressed optimism about long-term growth across end markets, citing strong first-half results and recovery in customer markets. It did not provide specific consolidated revenue or earnings guidance in the supplied filing text. Management expected near-term supply-chain pressures and said it would use sourcing strategies to mitigate them. It also noted continued uncertainty from COVID-19, including the course of the pandemic and possible demand, service and supply-chain effects.
Other risks highlighted include demand and order timing, customer spending and funding, competition and product development, foreign exchange and international operations, supplier and manufacturing constraints, acquisition integration, regulation, taxes, cybersecurity, and debt obligations. Commitments to contract manufacturers and suppliers increased by $93 from the prior fiscal year-end to approximately $650. The company reported no pending legal matters it believed were probable or reasonably possible of having a material impact. Bank guarantees were approximately $47.
Important facts for investors to verify
- How much of reported growth reflects underlying demand versus favorable currency movements and comparison with pandemic-affected prior-year periods.
- Whether margins can be sustained as variable compensation, commissions, logistics costs and service delivery costs rise.
- Resolution Bioscience integration, preliminary purchase accounting, and achievement of the milestones underlying up to $145 of contingent payments.
- Cash generation and capital allocation, including the $2.0 billion repurchase authorization, remaining authorization of approximately $1.826 billion, dividends and debt levels.
- Supply-chain capacity and the potential effects of COVID-19, customer-site access and market recovery on orders, delivery and service activity.