Agilent Technologies, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended January 31, 2021; unaudited. Agilent provides instruments, software, services and consumables for life sciences, diagnostics and applied chemical markets. Unless noted, amounts are in millions of U.S. dollars.
Financial performance and position
- Revenue: $1,548, up 14% year over year. Products revenue was $1,172, up 15%; services and other was $376, up 13%. Foreign exchange added approximately 3 percentage points to revenue growth.
- Profitability: Gross margin was 54.2%, versus 53.3%; operating income was $328, up 53%, and operating margin was 21.2%, versus 15.9%. Net income was $288, versus $197; diluted EPS was $0.93, versus $0.63.
- Segments: Life Sciences and Applied Markets revenue was $722, up 13%, with operating income of $199. Diagnostics and Genomics revenue was $294, up 18%, with operating income of $55. Agilent CrossLab revenue was $532, up 13%, with operating income of $142.
- Cash flow: Operating cash flow was $238, compared with cash used of $59 in the prior-year quarter. Investing activities used $42, including $41 of capital expenditures; financing activities used $316. Cash, cash equivalents and restricted cash ended at $1,336.
- Liquidity and debt: Cash and cash equivalents were $1,329, down from $1,441 at October 31, 2020. Current assets were $3,483 and current liabilities $1,687. Short-term debt was $314 and long-term debt $2,185. The company had no borrowings under its $1 billion revolving credit facility and reported compliance with its covenants.
- Capital returns: Agilent repurchased 2.9 million shares for $344 and paid $59 in dividends. The quarterly dividend was $0.194 per share.
Changes versus the prior-year quarter
- Revenue grew across all three segments, regions and most key end markets. Pharmaceutical and food markets were particularly strong; academia and government remained subdued as research facilities operated below capacity.
- Higher sales volume lifted gross margin by 0.9 percentage point. Operating margin expanded 5.3 percentage points, reflecting higher volume and margin, partly offset by modestly higher operating expenses.
- Operating cash flow improved from an outflow of $59 to an inflow of $238. The comparison was affected by a $226 one-time income-tax payment in the prior-year period related to a transfer of intangibles.
- Net income benefited from a 7.7% effective tax rate, including $16 of previously unrecognized tax benefits recognized after foreign statute expirations and $20 of excess stock-compensation tax benefits. The prior-year rate was 10.0% and included a $13 stock-compensation tax benefit.
- Financing outflows included $344 of share repurchases and repayment of $105 of senior notes; commercial paper borrowings and repayments were $785 and $546, respectively.
Outlook, risks and unusual items
- Management said near-term results remain volatile and unpredictable because of COVID-19. It was optimistic that results could continue to improve, but cautioned that Q1’s strong revenue growth may not continue at the same level through the fiscal year. No quantified full-year revenue or earnings guidance is provided in the filing text.
- COVID-19 continues to affect customer-site access, installations and service, supply chains, and demand. Routine and cancer testing had not returned to pre-pandemic levels; academic and government research recovery was slower. Demand for products supporting COVID-19 testing, research, therapeutics and vaccine production provided a benefit.
- Management expected approximately $200 of capital expenditures for FY2021 and approximately $17 of defined-benefit plan contributions for the remainder of the year. It said available cash, operating cash generation, capital markets and credit lines should meet liquidity needs for at least 12 months.
- On March 1, 2021, after quarter-end, Agilent agreed to acquire Resolution Bioscience for $550 cash plus up to $145 of contingent milestone payments, subject to regulatory approval and customary closing conditions.
- Agilent redeemed $100 principal of its 2022 notes for approximately $105 plus $1 accrued interest, recording a $5 debt-extinguishment loss. It also authorized a new $2 billion repurchase program effective February 18, 2021.
- The filing identifies risks including pandemic-related disruption, uncertain customer demand, supply constraints and logistics costs, foreign exchange and trade exposure, competition and product innovation, acquisitions and integration, regulatory and tax matters, and debt and market access. Management reported no pending legal matters it believed reasonably possible of having a material impact and no goodwill or other stated asset impairment triggers during the quarter.
Important facts for investors to verify
- Whether revenue growth and margin expansion persist after the quarter, particularly as COVID-related demand and foreign-exchange benefits change.
- Recovery in routine and cancer testing and academic and government research, and ongoing supply-chain, freight and customer-site access conditions.
- Cash generation and working-capital needs, including the effects of incentive-pay timing, inventory and receivables.
- Debt and capital allocation following the senior-note redemption, substantial Q1 repurchases, new repurchase authorization and proposed Resolution Bioscience acquisition.
- Tax-rate sustainability: the quarter’s low effective rate reflected discrete tax benefits; management said future tax outcomes may change and could not estimate the range of possible changes in unrecognized tax benefits.