Agilent Technologies, Inc. — Q1 FY2022 10-Q
Reporting period: Three months ended January 31, 2022; comparative period ended January 31, 2021. Amounts are in U.S. dollars unless stated otherwise.
Business context and results
Agilent supplies instruments, software, services and consumables for life sciences, diagnostics and applied chemical markets. In Q1, it reorganized its segments; prior-period segment results were recast for comparison. The company reported growth across all three segments, geographic regions and its three largest end markets.
Key financial metrics
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $1,674 million | $1,548 million | +8% |
| Gross margin | 54.3% | 54.2% | +0.1 percentage point |
| Operating income | $376 million | $328 million | +15% |
| Operating margin | 22.5% | 21.2% | +1.3 percentage points |
| Income before taxes | $319 million | $312 million | +2% |
| Net income | $283 million | $288 million | -2% |
| Diluted EPS | $0.93 | $0.93 | Unchanged |
| Operating cash flow | $255 million | $238 million | +$17 million |
Revenue from products increased 8% to $1,263 million; services and other revenue increased 9% to $411 million. Reported revenue growth included an approximately 1 percentage-point unfavorable foreign-exchange impact. The $47 million net loss on equity securities contributed to other expense, net of $37 million, versus $3 million of other income in the prior-year quarter; this helped offset operating-income growth in net income.
Segments and material changes
| Segment | Revenue | Year-over-year growth | Segment operating income |
|---|---|---|---|
| Life sciences and applied markets | $976 million | 6% | $282 million |
| Diagnostics and genomics | $339 million | 15% | $68 million |
| Agilent CrossLab | $359 million | 8% | $91 million |
Diagnostics and genomics growth was led by nucleic acid solutions and pathology. Life sciences and applied markets grew in pharmaceutical, chemical and energy, and diagnostics and clinical markets, while food, academia and government, and environmental and forensics were weaker. CrossLab growth reflected contract repair and consultative services. Segment operating income is a management measure and excludes certain corporate and acquisition-related items.
The reorganization moved chemistries, supplies and remarketed instruments into life sciences and applied markets, and BioTek-related service revenue and costs into CrossLab. Diagnostics and genomics was unchanged.
Cash, debt and liquidity
- Cash and cash equivalents were $1,113 million at January 31, 2022, down from $1,484 million at October 31, 2021. Cash, cash equivalents and restricted cash totaled $1,116 million.
- Long-term debt was $2,730 million. No borrowings were outstanding under the $1.35 billion revolving credit facility or commercial-paper program at quarter-end; the company reported compliance with credit-facility covenants.
- Operating cash flow was $255 million; investing activities used $79 million, including $75 million of capital expenditures. Financing activities used $546 million, including $447 million for repurchases and $63 million for dividends.
- Management estimated full-year FY2022 capital expenditures of approximately $300 million and said available cash, operating cash generation and access to capital markets and credit lines should meet liquidity needs for at least 12 months.
Outlook, risks and unusual items
- Management expressed optimism about long-term growth opportunities but did not provide specific forward revenue or earnings guidance in the supplied filing text.
- Management expected continued near-term logistical pressure, longer lead times and limited supply sources, and cited customer-site access and delivery or installation delays associated with COVID-19. Inventory increased to $879 million from $830 million at October 31; inventory days on hand rose to 103 from 96 a year earlier.
- Gross margin was broadly flat: higher volume and price increases were offset by wages, logistics, materials and intangible-amortization costs. Operating-margin improvement reflected higher sales volume, partly offset by increased operating expenses.
- Resolution Bioscience contingent consideration was valued at $92 million, including $65 million current and $27 million long-term; possible future payments were capped at $145 million. The valuation depends on significant unobservable assumptions.
- Management reported no pending legal matters it believed reasonably possible of having a material impact. It noted possible significant changes in unrecognized tax benefits over the next 12 months but could not estimate a range.
- Principal disclosed risks include COVID-19 and supply-chain disruption, inflation and economic uncertainty, customer spending variability, foreign-exchange exposure, competition and product development, regulation, cybersecurity, acquisition integration and access to suppliers and capital markets. Management stated disclosure controls were effective and there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue momentum and segment growth persist, particularly in nucleic acid solutions, and how much growth is offset by currency movements.
- Whether supply constraints, elevated inventory and higher logistics and labor costs affect deliveries, margins or cash conversion.
- The drivers and volatility of equity-investment gains and losses, including the $47 million loss recorded this quarter.
- Cash use from repurchases and dividends relative to operating cash flow, planned capital expenditures and debt obligations.
- Progress and potential milestone payments for Resolution Bioscience, and any material developments in tax examinations or other contingencies.