Agilent Technologies, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended October 31, 2020; the filing also reports the fourth quarter ended that date. Unless otherwise noted, financial amounts are in U.S. dollars.
Business context
Agilent supplies instruments, software, services and consumables for life sciences, diagnostics and applied chemical markets. Its three reportable segments are Life Sciences and Applied Markets, Diagnostics and Genomics, and Agilent CrossLab. The company reported approximately 16,400 employees worldwide.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $5.339 billion | $5.163 billion |
| Income from operations | $846 million | $941 million |
| Operating margin | 15.8% | 18.2% |
| Net income | $719 million | $1.071 billion |
| Diluted EPS | $2.30 | $3.37 |
| Operating cash flow | $921 million | $1.021 billion |
| Cash and cash equivalents at year-end | $1.441 billion | $1.382 billion |
| Working capital at year-end | $1.948 billion | $1.109 billion |
| Total gross margin | 53.1% | 54.3% |
Revenue grew 3%; foreign currency reduced reported growth by approximately 1 percentage point, while 2019 acquisitions contributed approximately 3 percentage points. Product revenue rose 3% to $3.993 billion and services and other revenue rose 5% to $1.346 billion.
Segment revenue and year-over-year growth were: Life Sciences and Applied Markets, $2.392 billion (+4%); Diagnostics and Genomics, $1.047 billion (+2%); and Agilent CrossLab, $1.900 billion (+3%). Segment operating income was $548 million, $192 million and $516 million, respectively; these segment measures exclude certain corporate and acquisition-related items.
For Q4 FY2020, revenue was $1.483 billion, operating income $299 million, net income $222 million and diluted EPS $0.71. Q4 FY2019 figures were $1.367 billion, $250 million, $194 million and $0.62, respectively.
Material changes and capital position
- Net income declined 33% and operating margin fell 2.4 percentage points. FY2019 benefited from a one-time $299 million Singapore tax-incentive extension benefit; FY2020 also included a $98 million impairment charge related to ending the sequencer development program.
- Operating cash flow decreased about 10%. FY2020 included $361 million of net income-tax payments, including a one-time $231 million payment related to an intellectual-property transfer, as well as cash uses from receivables and inventory.
- Year-end debt included $2.284 billion of long-term debt and $75 million of commercial paper. The company also had a $1 billion revolving credit facility with no borrowings outstanding at year-end. Cash exceeded reported debt by approximately $918 million.
- Cash dividends paid were $222 million, or $0.72 per share; the company repurchased approximately 5.2 million shares for $469 million. A $0.194-per-share quarterly dividend was declared after year-end.
- Capital expenditures were $119 million. Investing cash outflow was $147 million, compared with $1.590 billion in FY2019, which included substantial acquisition spending.
Outlook, commentary and risks
Management said it was cautiously optimistic about near-term improvement as the global economy recovered, while expecting continued volatility and unpredictability from COVID-19. It did not provide specific numerical FY2021 guidance in the supplied filing text. Management highlighted longer-term growth opportunities across its end markets and continued investment in products, applications and solutions.
COVID-19 caused uneven demand, reduced routine and cancer testing and research activity, delayed on-site installations and services, and disrupted some supply shipments. Agilent reported growth in FY2020 despite these effects; CrossLab on-demand and installation services began recovering as laboratories reopened. The company also saw demand related to COVID-19 testing, vaccine research and therapeutics.
Other material risks include exposure to customer budgets and economic cycles, intense competition and product-development execution, foreign exchange and tariffs, supply-chain constraints, regulatory and data-privacy compliance, and pension and tax uncertainties. The company reported no pending legal matters it believed were reasonably possible of having a material effect. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective.
Important facts for investors to verify
- How much of FY2020’s reported revenue growth reflects underlying demand versus acquired businesses, and whether COVID-related end-market weakness persists.
- Whether margins recover from FY2020 levels, considering the impairment, higher amortization and wages, pricing pressure, and new manufacturing-facility costs.
- The sustainability and comparability of earnings, particularly the FY2019 Singapore tax benefit, FY2020 tax rate, and future tax-audit outcomes.
- Cash conversion and working-capital trends, including receivables, inventory and elevated tax payments.
- Debt maturities, liquidity availability, and the company’s capital-allocation decisions on dividends and share repurchases.
- Progress in meeting the EU In Vitro Diagnostic Regulation requirements by May 2022 and any renewed COVID-related operating or supply-chain disruption.