AGILENT TECHNOLOGIES, INC. quarterly report, Q3 FY2023

Agilent Technologies, Inc. — Q3 FY2023 Form 10-Q

Reporting period: Three and nine months ended July 31, 2023. Amounts are in U.S. dollars; financial statements are unaudited. Agilent provides instruments, software, services and consumables for life sciences, diagnostics and applied chemical markets.

Key financial results

Metric	Q3 FY2023	Q3 FY2022	Nine months FY2023	Nine months FY2022
Revenue	$1.672 billion	$1.718 billion	$5.145 billion	$4.999 billion
Operating income	$133 million	$411 million	$942 million	$1.147 billion
Net income	$111 million	$329 million	$765 million	$886 million
Diluted EPS	$0.38	$1.10	$2.58	$2.94
Gross margin	39.3%	54.7%	49.6%	54.2%
Operating margin	7.9%	23.9%	18.3%	22.9%
Operating cash flow	Not separately reported for the quarter	$1.256 billion	$864 million

Q3 revenue decreased 3% year over year; nine-month revenue increased 3%. Foreign exchange reduced reported revenue growth by 1 percentage point in Q3 and 3 percentage points over nine months. Q3 product revenue fell 6%, while services and other revenue rose 9%. For nine months, products rose 1% and services and other rose 8%.

Business performance and material changes

• Life Sciences and Applied Markets: Q3 revenue decreased 9% to $927 million, chiefly reflecting weaker demand in China and cautious pharmaceutical customers’ capital spending. Nine-month revenue increased 1% to $2.928 billion.
• Diagnostics and Genomics: Q3 revenue increased 3% to $349 million; nine-month revenue increased 2% to $1.053 billion. Nucleic acid solutions and pathology contributed growth, while genomics and biomolecular analysis faced softer demand and delayed customer purchases.
• Agilent CrossLab: Q3 revenue increased 10% to $396 million; nine-month revenue increased 9% to $1.164 billion, supported by demand across service offerings and regions.
• Q3 and nine-month operating income and net income were materially reduced by impairment charges associated primarily with the decision to shut down Resolution Bioscience. The filing reports a $277 million asset impairment in its segment reconciliation; it also describes $258 million of finite-lived intangible impairment and additional long-lived asset write-downs. Management said gross margin excluding the impairment charges was relatively flat year over year in both periods.

Cash, debt and liquidity

• At July 31, 2023, cash and cash equivalents were $1.329 billion, compared with $1.053 billion at October 31, 2022.
• Total debt was approximately $2.789 billion: $55 million of commercial paper and $2.734 billion of long-term debt. Long-term debt included a $600 million term loan due April 2025 and approximately $2.134 billion of senior notes. The term loan’s weighted average interest rate was 6.13%; commercial paper’s was 5.4%.
• Agilent had no borrowings outstanding under its $1.5 billion revolving credit facility or its separate uncommitted money-market line at quarter-end. The revolving facility expires in June 2028 and permits up to $750 million of incremental term loans; the company reported covenant compliance.
• Nine-month operating cash flow increased to $1.256 billion from $864 million. Management attributed part of the increase to deferred U.S. tax payments and lower cash taxes paid ($143 million versus $217 million), as well as changes in working capital. Capital expenditures were $214 million.
• Nine-month investing cash outflow was $270 million, including $51 million for two acquisitions. Financing cash outflow was $729 million, including $495 million of share repurchases and $199 million of dividends.

Outlook, risks and other notable items

• Management expects a challenging near-term macroeconomic environment, particularly in China, and pressure on customer capital expenditures. It remains optimistic about long-term growth across key markets and expects to address inflation through pricing and cost-saving actions. The filing does not provide a clear numerical revenue or earnings forecast.
• Agilent expected fiscal 2023 capital expenditures of approximately $300 million. It also announced a planned $725 million expansion of nucleic acid therapeutics manufacturing capacity in Frederick, Colorado; some investment may qualify for reimbursement incentives, but eligibility was not yet known.
• The new $2.0 billion share repurchase authorization had approximately $1.604 billion remaining at July 31, 2023. The company paid $199 million in dividends during the first nine months; future dividends remain subject to board approval.
• Key risks include weaker global demand and customer capital spending, China and geopolitical uncertainty, foreign-exchange movements, inflation and interest rates, inventory and supply-chain risks, competition and product development, regulatory and data-privacy compliance, and execution of acquisitions or business exits. The company also identifies debt, tax examinations and environmental matters as risks.
• Management reported no pending legal matters it currently believes are reasonably possible of having a material impact. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

1. Reconcile the reported $277 million impairment with the filing’s separate descriptions of Resolution Bioscience asset impairments and confirm its continuing effects on margins and future results.
2. Assess whether China weakness, cautious pharmaceutical capital spending and softness in genomics persist, and whether CrossLab growth can offset pressure elsewhere.
3. Evaluate the quality and sustainability of operating cash flow, including the effect of deferred tax payments, working-capital movements and inventory levels.
4. Review debt maturities, interest costs, credit-facility covenants and the company’s planned capital expenditures and $725 million manufacturing expansion.
5. Monitor remaining repurchase authorization, dividend decisions, tax uncertainties and the risks identified in the filing’s risk-factor disclosures.